Enterprise cost management system. Advanced cost management methods

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Stages of cost management

The entire process of cost management in a company can be divided into several stages:

Establishing a link between cost management system functions and budget management.
Long-term planning of cost reduction areas.
Development of measures aimed at reducing costs.
Implementation of developed measures to reduce cost items in the company.

The volume of costs is directly involved in determining the efficiency of the financial and economic activities of the company.

Proper cost management at each stage allows you to increase profitability and maintain competitiveness.

Cost management in construction

As an example, consider what cost management in construction involves. It is advisable to plan and account for costs in a construction company according to the composition of costs, that is, according to the elements and purpose of the expenses.

Cost accounting will include:

payroll costs;
material costs for the necessary resources;
depreciation of fixed assets;
contributions for social needs;
other costs.

All information about expenses will be grouped for each element and reflected in the corresponding accounting accounts.

So, for example, material costs that are written off to support the construction of the facility will be reflected as follows:

Dt 20 “Main production”
or D-08 “Investments in non-current assets”
- Kit 10 “Materials”.

In the future, after analyzing the costs, measures will be developed and management decisions will be made aimed at reducing costs.

The goal of creating new cost accounting systems is to obtain accurate, timely and reliable information for operational control and analysis of the profitability of certain types of products and processes. These goals are also served by a general cost management system (Total Cost Management-TCM), designed to manage all resources and types of enterprise in the process of which these resources are consumed.

In the TCM system, the main role is given to the development and implementation of a special method of cost accounting by type of activity: activity-based costing (ABC). The essence of this approach is as follows: resource saving is an effective way to reduce costs. Cost management should ensure their real reduction by reducing activities that do not create added value and improving activities that do create it, i.e. increasing the value of the product.

The ABC system methodology can be defined as follows:

Unlike traditional accounting methods, which are based on the principle that manufactured products consume resources, the ABC system is based on the principle: products consume activities, and production activities consume resources.

To determine cost, cost-forming factors are identified (the so-called cost drivers), which link specific types of activities and corresponding costs, and also act as a measure of activity, since costs change in proportion to the scale of activity.

Based on cost drivers, resources are allocated among production activity centers and then allocated to specific products.

To create an ABC system, business operations are differentiated depending on whether they are carried out at the level of a product unit (processing), or a batch of products (transportation, equipment adjustment, etc.), or a certain type of product (maintaining technical production conditions, changing design documentation etc.), or production in general (management, operation of buildings). Next, variable costs are identified (short-term and long-term) and costs that depend and do not depend on production volumes are determined.

Short-term variable costs are allocated to products in proportion to production volume (materials, wages) and equipment operating time.

Costs that are considered fixed in traditional accounting systems are considered long-term variable in the ABC system. For example, costs associated with servicing production, creating production conditions, change in proportion to the number of batches of products, the number of orders, etc.

The ABC system provides cost accounting for each type of product at each stage of the production process. It lays the foundation for cost management by production centers and the final analysis of the cost of specific products. As the experience of its implementation has shown, reliable determination of the cost of specific products significantly increases the objectivity of assessing the profitability of products. The fact is that traditional methods of allocating overhead costs can distort profitability. They do not reflect increased costs for products produced in small batches, since a smaller share of overhead costs is written off to them. Conversely, products produced in large volumes incur a greater share of overhead costs and are less profitable.

The introduction of the ABC system also leads to a reduction in the duration of the production process as a result of managing those activities that do not add value to the product (transportation, warehousing, sorting, etc.).

In modern conditions, to ensure the efficiency of a company, it is necessary to use a system-oriented approach in organizing management accounting.

The effectiveness of the company's entire management system and its competitiveness in the market depend on the effectiveness of the cost management system of a cost enterprise. Currently, the following cost management systems are widespread:

Let's take a closer look at modern enterprise cost management systems.

Standard costing

At the beginning of the 20th century, the Standard costs system appeared in the United States and then in Europe as a method of preventing unjustified costs. The name of the system broadly implies “predetermined cost.” The founders of this system are American economists G. Emerson, D.C. Garrison, T. Downey, M.H. Zhebrak et al.

The specificity of this system is that the accounting reflects not what happened, but what should happen; What is taken into account is not what is, but what should be, and any deviations that arise are reflected separately. The basic principles of this system are as follows:

all costs incurred in accounting must be correlated with standards;
deviations identified when comparing actual costs with standards should be disaggregated by reason.

The main purpose of the system is to identify losses and deviations in the company's profits.

The system is based on preliminary (before the start of the production process) cost rationing. The amount of costs in the coming period is calculated based on their achieved level and planned reduction. Detected deviations from established standard cost standards are analyzed to determine the reasons for their occurrence. This allows the administration to quickly manage production costs. Accurately identifying deviations from established cost standards helps improve the cost standards themselves.

The advantage of the Standard costs system is the prompt identification and prevention of negative trends in the process of forming the costs and profits of the organization.

A partial analogue of this cost accounting system in domestic practice is the normative cost accounting method. Its distinctive feature is that the domestic method focuses only on the process of production and is not related to its sale. This makes it difficult to determine sales prices.

In the course of further historical development of cost and profit management systems, the integration of the Standard costs system and the cost accounting model by responsibility centers took place. This is how the System in time (SIT) method (exactly in time) arose, the founders of which were R.D. McIlhattan, R.A. Howell, S.R. Sauce.

Direct costing

The intensive model of development of an economic entity required the solution of strategic management problems on the basis of a clear division of costs into direct and indirect, main and overhead, variable and fixed, production and periodic costs. As a result, in 1936 D. Garrison created the Direct Costing Sistem (direct cost accounting system).

Currently, the principles of the Direct Costing system have changed somewhat. The most important principle for grouping costs is their dependence on production (sales) volumes, i.e. dividing costs into variable and fixed. The cost of production is planned and taken into account only in terms of variable costs.

The difference between revenue from the sale of products and variable costs represents marginal income, which is the basis of the process of operational management of prices and pricing. With this method, fixed costs are not included in the calculation of product costs and are written off directly to reduce the organization’s profit.

Just-in-Time (JIT)

Today, manufacturing companies are increasingly focused on producing a high-quality and competitive product while minimizing the cost of its production. This strategy corresponds to the Japanese Just-in-Time (JIT) system.

The JIT cost management system emerged in the mid-1970s. at Toyota.

The specificity of the method lies in the fact that the presence of inventory is considered as a negative factor that affects the agility and competitiveness of the enterprise and the lack of financial resources.

The Just-in-Time method involves supplying production workshops in small batches, practically eliminating work in progress, and minimizing the volume of inventory. When applying this method, part of the enterprise’s costs goes from indirect to direct.

When using the JIT method, the reliability of order fulfillment increases significantly, since significantly less time is allocated for the purchase and storage of materials. Shorter order fulfillment cycles and increased reliability of order fulfillment also help to significantly reduce the need for safety stock and achieve greater production flexibility. At the same time, problems with product quality are easily identified and adjustments are quickly made to the production process.

The main advantages of the Just-in-Time system include:

minimizing capital investments in inventories and the costs of ensuring their safety;
shortening the production and financial cycle of the organization and, as a result, more quickly responding to changes in market conditions, increasing the turnover of economic resources;
improving the quality of production, product, labor, reducing production losses, including from defects;
the transition of part of the indirect costs to the category of direct costs increases the accuracy of cost formation;
The production cost accounting system is simplified, including the procedures for allocating indirect costs.

One disadvantage of the Just-in-Time system is its focus on small-scale (custom-made) or single-piece production. The basis for the implementation of this system is well-established partnerships with suppliers, contractors, and buyers. Disruptions in the supply chain directly impact the effectiveness and efficiency of an organization. As a result, management guidelines are more related to the supply sector.

Activity based costing (ABC)

As a result of the search for more effective cost and profit management tools, the ABC (Activity Based Costing) cost accounting method emerged. Initially, the ABC method was aimed at increasing the accuracy of calculating the cost of individual products, but then, over time, it transformed into an effective business management model.

It is specific to this method that all production is considered as a set of work operations and functions. Determining the list and sequence of work at an enterprise is carried out by decomposing complex work operations into their simplest components in parallel with calculating resource consumption.

Target costing

The birthplace of the Target costing system (translated from Japanese as improvement in small steps) is considered to be Japan, where it appeared in the 1960s. Today it is widespread throughout the world, mainly in companies operating in innovative industries (automotive, mechanical engineering, electronics, computer, digital technologies) and in the service sector.

The idea underlying the Target Costing concept is simple and revolutionary at the same time. Japanese managers simply turned the traditional pricing formula inside out: Cost + Profit = Price, which in this concept was transformed into equality: Price - Profit = Cost.

The Target costing system, unlike traditional ones, involves calculating the cost of a product based on a predetermined selling price. This price is determined using market research, i.e. is actually the expected market price of a product or service.

To determine the target cost of a product (service), the desired amount of profit for the organization is subtracted from the expected market price. Next, all participants in the production process - from the manager to the simple worker - work to design and manufacture a product that meets the target cost.

N. Smirnova argues that Target costing allows you to avoid the problems of reducing product quality and its consumer value for the buyer in the context of implementing a cost and cost reduction strategy.

Kaizen costing

A direct continuation and integral part of Target Costing is Kaizen costing - a system of continuous operational control over the level of costs, small improvements that ultimately lead to great results. Moreover, both systems have the same task: achieving the target cost.

However, this task is implemented in the first case (target costing) at the stage of designing a new product, in the second (kaizen costing) - at the production stage.

The difference between the estimated and target cost should be reduced as much as possible at the product design stage, for which an analysis of drifting costs is carried out (analysis of the impact of each cost item on the cost of the product) and a search for options for reducing them.

If at the design stage the difference between the estimated and target cost is no more than 5%, then a decision is made to begin production of such a product with the expectation that this discrepancy will be eliminated during the production process through “kaizen costing.” Reducing the difference between the estimated and target costs is called a kaizen task, which concerns all personnel of the organization: from production workers to managers. It is set both at the level of each product and at the level of the enterprise as a whole.

Benchmarking

The method of comparison with the best indicators of competitors (Benchmarking) is to identify gaps in key positions in the production of an enterprise's products in comparison with the best analogues available on the market, as well as to identify the reasons for these gaps, to find opportunities to achieve the characteristics and quality indicators of the best samples. The basis for using this methodology is the mandatory presence of a comparative base, which is associated with certain difficulties, given the realities of competition.

This method has the following varieties:

Best practice - comparison of the company’s performance with the leaders of world production in various types of economic activities to find the best operating practices;

Best in class - comparison of a company with leading competitors in a given type of economic activity;

Best of best - comparison of individual internal processes with the performance of the best companies.

The problems of applying the Benchmarking method have become especially relevant in conditions of fierce competition and the development of competitive business intelligence. The works of many foreign and domestic scientists, in particular O.V., are devoted to the study of the Benchmarking methodology and the solution of these problems. Alekseeva, I.M. Volkova, Yu.P. Voronova, D.A. Voloshina, I.N. Ivanova, O.E. Nikolaeva, T.V. Shishkova and others.

The Benchmarking method is characterized by an initial analysis of the company’s internal environment, identification of bottlenecks in management, production, and commercial processes, and then a search for best practices in solving bottlenecks from competitors and representatives of related economic activities.

The objects for analysis and comparison can be production processes, innovation activities, technical solutions, labor motivation systems, etc. The indicators characterizing the activities of the organization and its competitors include costs, cost, price, profit, profitability, etc. It is more appropriate to make comparisons based on factor indicators - objects of strategic control and management: costs, cost, price, product quality, etc.

Life cycle costing (LCC)

The concept of life cycle costing (LCC) is to determine the cost of the complete life cycle of a product: from design to decommissioning.

Life cycle is a concept according to which economic goods, representing tangible assets, have their own period of existence.

The most important principle of this method is the forecast and management of costs for the production of a product at the design stage.

The beginning of the life cycle is the moment when it becomes possible to use an economic good to satisfy a need. The end of the life cycle is the moment of exhaustion of utility, the complete consumption of an economic good. At the same time, a distinction is made between the life cycle of a product, project, and organization.

The main prerequisites for the emergence of this technique are: a reduction in the life cycle of products, an increase in the cost of pre-production and the start of production of products, an almost complete determination of financial indicators (costs and income) at the design stage.

With this method, a necessary element of cost classification is their grouping by life cycle stages:

new product development stage;
stage of bringing the product to market (implementation);
growth stage;
maturity stage;
stage of decline.

The stages of the product life cycle are specific and leave an imprint on the process of generating costs and profits. The influence of the stages of the product life cycle on the level of costs, their composition, structure, purpose, and degree of efficiency is traced.

Planning in terms of product life cycle stages allows you to more accurately predict the main work operations and their associated costs.

Functional cost analysis (FCA)

One of the common methods used in making decisions on cost management is functional cost analysis (FCA), which is aimed at minimizing costs while maintaining quality indicators and product purpose indicators.

Functional cost analysis is a method of systematic research of an object (product, process, organizational structure), aimed at increasing the efficiency of use of material and labor resources.

An element of the FSA is a cost analysis based on consumer value, the purpose of which is the economic justification of costs for the functions of the object, i.e. optimization of the relationship between the consumer properties of an object and the costs of its development.

Bibliography:

Abdukarimov I.T., Abdukarimov L.G. Assessment and analysis of production costs and their role in the effective management of business activities // Finance: planning, management, control. 2011. No. 4.
Voronov Yu.P. Benchmarking in competitive intelligence // Intelligence technologies for business.
Ivanov I.N., Fukova D.Yu. Competitive analysis. Benchmarking // Economic analysis: theory and practice, 2009. No. 22.
Lapusta M.G. Industry Competitive Analysis and Key Success Factors.
Rumyantseva E.E. New Economic Encyclopedia: 4th ed. M.: INFRA-M, 2011.
Smirnova N. Target costing allows you to manage costs // Consultant. 2006. No. 7.
Sheremet A.D. Theory of economic analysis: Textbook. M.: INFRA-M, 2008.
Usatova L.V. Organization of modern management accounting at an industrial enterprise using foreign cost accounting methods // Management Accounting. 2008. No. 7.

The goal of creating new cost accounting systems is to obtain accurate, timely and reliable information for operational control and analysis of the profitability of certain types of products and processes. These goals are served by overall cost management system (English: Total Cost Management, abbreviated as TCM), designed to manage all resources and activities of the enterprise during which these resources are consumed.

In the TCM system, the main role is given to the development and implementation of a special method of cost accounting by type of activity - activity-based costing (English: Activity-Based-Costing, abbreviated as ABC). The essence of this approach is as follows: resource saving is an effective way to reduce costs. Cost management should ensure their real reduction by reducing activities that do not create added value and improving activities that do create it, i.e. increasing the value of the product.

Briefly, the ABC system methodology can be defined as follows:

To determine the cost, cost-forming factors are identified (the so-called cost drivers), which link specific types of activities and corresponding costs, and also act as a measure of activity, since costs change in proportion to the scale of activity;

Based on cost drivers, resources are allocated between production activity centers and then allocated to specific products.

To create an ABC system, business operations are differentiated depending on whether they are carried out at the level of a product unit (processing), or a batch of products (transportation, equipment adjustment, etc.), or a certain type of product (maintaining technical production conditions, changing design documentation etc.), or production in general (management, operation of buildings, etc.). Next, variable costs are identified (short-term and long-term) and costs that depend and do not depend on production volumes are determined.

Short-term variable costs are allocated to the product in proportion to the volume of production (materials, wages) and operating time of the equipment.

The ABC system provides cost accounting for each product at each stage of the production process. It lays the foundation for cost management by production centers and the final analysis of the cost of specific products. As the experience of its implementation has shown, reliable determination of the cost of specific products significantly increases the objectivity of assessing the profitability of products. The fact is that traditional methods of allocating overhead costs can distort profitability. They do not reflect increased costs for products produced in small batches, since a smaller share of overhead costs is written off to them. Conversely, products produced in large volumes incur a greater share of overhead costs and are less profitable.