32 terms

Chapter 1: Cost Management and Strategic Decision Making

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Terms in this set (...)

Cost Management
A philosophy, an attitude, and a set of techniques to create more value and a lower cost
Philosophy
Promotes the idea of continually finding ways to help organizations make the right decisions to create more customer value at lower cost
Attitude
All costs of products and operations result from management decisions
Techniques
Use diverse performance measures to assess the impacts of decisions
Cost-Management System
The set of cost-management techniques that function together to support the organization's goals and activities
Sarbanes-Oxley Act of 2002
Two Parts
1) The CEO and CFO are responsible for signing off on their company's financial statements and indicating that the financial statements do not omit material information
2) The CEO and CFO must indicate that they are responsible for the company's system of internal controls over financial reporting
Internal Control
A process designed to provide reasonable assurance that an organization will achieve its objectives in the following categories:
1) Effectiveness and efficiency of operations
2) Reliability of financial reporting
3) Compliance with applicable laws and regulations
Separation of Duties
No one person has control over the entire transaction
Strategy
Organization's plan or policy to achieve its goals
1) Where do we want to go?
2) How do we want to get there?
Strategic Decision Making
Determines "where" and "how" by choosing and implementing actions that will affect an organization's future abilities to achieve its goals
4 Types of Strategic Missions along the important dimensions of rewards and risk:
1) Build
2) Hold
3) Harvest
4) Divest
Rewards
Financial incentives in the form of profits, cash flow, and stock price appreciation, although many profit-seeking firms also seek nonfinancial rewards such as improved social responsibility
Risks
Possible variations in incentives, which might turn out to be very high or very low
Build Strategy
Requires the organization to achieve high rates of sales growth
Hold Strategy
Organization needs to maintain its current rate of growth, which generally reflects the overall market growth for a continuing market
Harvest Strategy
Needs to maintain its cash flow (cash cow strategy)
Divest Strategy
The organization needs to exit the business at the lowest cost
Competitive Advantage
A resource, process, or value chain that enables the organization to provide more value, perhaps at lower cost, than its competitors
Value Chain
The relation of an organization's processes that links ideas, resources, suppliers, and customers
5 Forces that Threat Competitive Advantages
1) Existing competitors
2) New competitors
3) Customers
4) Suppliers
5) Substitute or complementary
Existing Competitors
Vie for the same customers and market share
New Competitors
Attracted by success and high profits
Customers
Needs and financial stability also are affected by competitive forces and can change overnight
Suppliers
Face competitive forces and can change their focus or experience difficulties
Substitute or Complementary
Products, technologies, and services that can render current advantages obsolete
Performance Measure
An indicator that allows an organization to determine the level of performance according to a critical attribute and to compare performance to expectations
Operational Performance Analysis
Measures whether the performance of current operations is consistent with expectations
Strategic Performance Analysis
Measures whether a strategic decision has met expectations
Benefit-Cost Analysis
Measures the effects of a plan by comparing its expected benefits and costs, which can be quantitative and qualitative
Quantitative Information
Expressed in dollars or other quantities relating to size, frequency, and so on
Qualitative Information
Descriptive and based on characteristics or perceptions, such as relative desirability, rather than quantities
Variances
Differences between a plan's actual and expected quantities