This chapter is an expansion of chapter 14 from the second edition, and relates contemporary cost management and time management to the generation of customer value. As in the previous edition, cost management techniques include activity-based management, business process re-engineering, and life-cycle costing. There is a more detailed coverage of target costing. The new material on time-based management includes measures of break-even time and time-to-market, and identifying and managing time drivers. | Chapter 15 Managing costs and time for customer value Cost management Improvement of an organisation’s cost effectiveness through understanding and managing the real causes of cost Main focus is on cost reduction, but also focus on improving other aspects of performance such as quality and delivery. Conventional versus contemporary approaches Drivers of cost Conventional: managers control costs by bringing them into line with some predetermined goal Contemporary: reduces costs by identifying waste and eliminating it through identifying the real cost drivers continued Conventional versus contemporary approaches Strategic perspective Conventional: control costs within the organisation Contemporary: cost management also concerned with achieving value for the customer A strategic perspective continued Conventional versus contemporary approaches Process perspective Conventional: control costs by reporting results for responsibility centres based on functional areas of the . | Chapter 15 Managing costs and time for customer value Cost management Improvement of an organisation’s cost effectiveness through understanding and managing the real causes of cost Main focus is on cost reduction, but also focus on improving other aspects of performance such as quality and delivery. Conventional versus contemporary approaches Drivers of cost Conventional: managers control costs by bringing them into line with some predetermined goal Contemporary: reduces costs by identifying waste and eliminating it through identifying the real cost drivers continued Conventional versus contemporary approaches Strategic perspective Conventional: control costs within the organisation Contemporary: cost management also concerned with achieving value for the customer A strategic perspective continued Conventional versus contemporary approaches Process perspective Conventional: control costs by reporting results for responsibility centres based on functional areas of the business Contemporary: recognises that customers’ needs are met by processes which flow across the business Activity-based management (ABM) Process of using information from activity-based costing to analyse activities, cost drivers and performance so that customer value and profitability are improved Customer value The value a customer places on particular features of a product or service Using ABM to reduce costs Identify the major opportunities for cost reduction Determine the real causes of these costs Develop a program to eliminate the causes, and, therefore, the costs Introduce performance measures to monitor the effectiveness of cost reduction efforts Identifying the major opportunities Value-added activities Provide essential value to the customer, or are essential to the functioning of the business Non-value-added activities Do not add value to a product or service from the customers’ perspective or for the business and, therefore, can be eliminated Building .
