Academic Rationale
The process of cost management refers to the procedure that are usually adopted by the business enterprises for the purpose of planning and controlling the budget in regards to a project or a business. The activities that have been essentially included in regards to the effective cost management can be referred to as planning, financing, managing, funding and controlling the costs. These processes facilitate the completion of the selected project within the approved budget. Therefore, it can be further observed that the particular process of cost management is an essential process that is adopted by every organization for the purpose of applying the cost reduction techniques. Moreover, a particular cost management process can be facilitated by the unison of various essential processes that have been discussed in this study (Bannuru caes et al., 2015).
This particular study aims to focus on the particular process of cost management strategies that have been adopted by the different firms. In order to get a clear idea about the concept of cost management a comparative study of the two well known corporate entities in the name of Sainsbury and Tesco have been discussed further in this study.
The academic rationale behind this particular research proposal has been that the with the corporate industry facing expansion in the recent times, there have been various projects that are being undertaken by the corporate entities. These projects require sufficient amount of cost that if not budgeted properly may add up to be of huge volumes. Therefore, a proper cost management strategy should be adopted by the corporate entities for facilitating corporate expansion. Therefore, this study aims to provide an overview into the cost management strategies that can be adopted by the business entities. Moreover, the different processes that are essentially involved in a particular cost management strategy have been discussed so that the importance of the process can be understood.
The objective of the study is to clearly understand the different stages that are involved in a cost management strategy. To be more precise, a comparative study of the corporate entities Sainsbury and Tesco has been drawn in order to understand the particulars of the chosen topic. Moreover, the objective of this particular study can be concluded as follows:
- Understanding the importance of a cost management strategy
- Understanding of the different processes that are involved in a particular cost management strategy
- Further explanation of the chosen topic with comparative study of the Sainsbury and Tesco
The particular research question that can be developed in regards to the particular study are as follows:
- What is the importance of a cost management strategy?
- What are the different processes that are followed by the corporate firms for implementing a cost management strategy?
- What are the particular cost management strategies implemented by Sainsbury and Tesco?
The importance of strategic cost management
The particular event of cost management is an imperative process in regards to a corporate entity. This means that strategic cost management has become essential due to the fact that the formulation of the crucial company strategies, the accomplishment of the objectives of the organization and the development of the potential cost drivers is facilitated by the process of a strategic cost management. The cost management accountants are of the opinion that the importance of the strategic cost management should not be underestimated. This is because a potential cost management strategy essentially facilitates the reduction in the cost of manufacturing the product that is carried out by a single corporate entity (Bannuru caes et al., 2015).
Objective of the Study
The importance of a strategic cost management process has been felt by the different corporate houses for the singular purpose of reducing the costs of the particular process of manufacture. This has resulted in the corporate firms taking initiatives like the downsizing and reengineering of the essential business structures for the purpose reducing the cost of operations that have been facilitated by the cost management strategies. These processes have been known as cost cutting techniques. Furthermore, it has been found out that the one among the five cost cutter companies have been able to regain the lost essence of profitability in the firms. It must be noted here that a corporate entity might feel the need for a strategic cost management process due to the emergence of adverse situations like the shift in the customer tastes and preferences and the emergence of the new competitors and channels (Bannuru caes et al., 2015).
The management of the corporate entities in the recent times sincerely develops a cost management strategy. This is because they are interested to reap the benefits of a reduced or an optimum cost structure (Booth 2015). Therefore, the importance of a strategic cost management process can be listed down as follows:
- A strategic cost management framework facilitates the determination of the performance objectives that are clear and consistent in nature
- A strategic cost management framework facilitates the identification of the particular costs that are taking up the majority of the resources. Therefore, the cost management strategies can be applied in this particular areas.
- A strategic cost management framework facilitates the understanding of the buildup of the standard costs
- A strategic cost management framework facilitates the determination of the relevant and valuable costs
- Moreover, a strategic cost management framework also facilitates the firm moving towards excellence. This will be essentially facilitated by the reduction in the costs which will in turn increase the profitability of the firm thus further enhancing the financial position of the firm
- A strategic cost management framework facilitates the management of the corporate entity to plan for the future by effectively looking into the financial position of the firm
The essential cost management processes
The essential cost management processes that are essentially involved in a effective cost management strategy are the process of resource planning, estimation of the costs, budgeting of the costs and cost control. The processes that have been mentioned in regards to an effective cost management strategy interact with each other and result in an effective cost reduction policy (Booth 2015).
Therefore, the initial step in a cost management process is the particular procedure of resource planning. Resource planning refers to the determination of the physical resources like the component of equipments, people and materials. Moreover, an effective cost management process also facilitates the determination of the quantities of the components that will be required (Booth 2015). The inputs to a resource planning process can be listed down as follows:
- Work breakdown structure – the work breakdown structure leads to the identification of the elements of the projects that will be needing the resources and acts as the primary input
- Historical information – the historical information refers to the information that is required in regards to the resources for the completion of the project.
- Statement of scope – the scope statement refers to the justification for carrying out the selected project and the objectives of the project
- Description of the resource pool – the knowledge of the resources that will be essentially required for the facilitation of the particular process of resource planning is carried out by the description of the resource pool. However, it should be noted here that the amount of detail and the level of specificity of the resource pool description may vary in different situations.
- Policies of the organization – the policies of the corporate entity in which the strategic cost management is taking place also affects the particular process of resource planning
The next process refers to the particular process of estimation of the costs. This process refers to the development of a particular procedure that results in the approximation of the costs for completing the project activities (Datta and Datta 2015). When a project is performed under contract, there should be a level of distinction that should be achieved between the estimation of the costs and the particular process of pricing. Moreover, the particular process in regards to thee estimation of the costs involves the identification and the consideration of a varied range of costing alternatives (Cooper 2017). The inputs to the particular process of cost estimating can be deduced as follows:
- Work breakdown structure – the work breakdown structure will be utilized for organizing the cost estimates and for ensuring the fact that the identified work has been estimated
- Requirements of the resources – the requirements of the resources also have to be determined for the purpose of estimating the costs
- Rate of resources – the knowledge of the unit rates is also essential for the process of preparing the estimates. It must be noted here that if the actual rate are not known then the rates themselves have to be estimated.
- Activity duration estimates – activity duration estimates will result in affecting the cost estimates in regards to any project where the project budget results in the inclusion of an allowance for the cost of financing.
- Historical information – the information on the different types of costs have to be primarily obtained from sources like project files, databases that enable the computation of the commercial costs and knowledge from the project team.
- Chart of accounts – the chart of accounts facilitates the development of the coding structure that is utilized by the performing organization
Research Question
The next process that is an essential step in the strategic cost management structure is cost budgeting. Cost budgeting refers to the allocation of the estimated costs to individual work (Cooper 2017). The inputs to cost budgeting can be listed down as follows:
- Estimation of the costs – the estimation of the costs in regards to cost budgeting is a crucial input. This means that in relation to the particular process of cost budgeting the estimation of the costs is an important process as this is the foundation upon which the cost budget will have to be prepared
- Work breakdown structure – the work breakdown structure leads to the identification of the elements of the project to which the costs will be allocated to
- Schedule of the project – the project schedule is a very essential input in regards to the process of cost budgeting. This means that the estimation of the date of beginning the project and the estimated dates of finishing the project help in the particular process of the allocation of the costs. It must be noted here that the information is required for the purpose of assigning the costs to the particular time period at the time when the costs will be incurred.
The last essential process in establishing a proper cost management structure refers to the particular procedure of cost control. This means that cost control is concerned with affecting the factors that result in the creation of alterations to the baseline of the cost so that the fact that changes are beneficial can be established. Moreover, the particular process of cost control also facilitates the management of the actual changes. Cost control also includes the monitoring of the necessary performance of the assigned costs. Moreover, the element of cost control also ensures the proper recording of the appropriate changes in the cost baseline. Lastly, this process also facilitates providence of the information to the stakeholders of the authorized changes (Cooper 2017).
The essential inputs to the process of cost control can be listed down as follows:
- Baseline of the costs – the cost baseline is a crucial input in regards to cost control
- Performance report – the performance report provides information on the performance of the identified costs in regards to which budgets have been met with and which have not
- Change in requests – the change in requests might occur in different forms like oral or written
- Cost management strategy or plan – the cost management strategy or plan is the final step that is successfully achieved post cost control
Therefore, these are the essential steps in regards to creating a strategic cost management structure for a corporate entity.
Comparative study of Sainsbury and Tesco
The Britain’s second largest supermarket group, Sainsbury’s had announced that it would carry out the restructuring of the stores for the purpose of carrying out the better management of its stores and further execute targeted cost savings. It must be noted here that the retail super market sector of Britain has been long threatened by new entrants. The present situation has been that the largest share of the concerned market has been captured by the corporate entities like Aldi and Lidl. This has compulsorily led to the management of Sainsbury’s to chase the required efficiency for the purpose of financing the price cuts. Moreover, for the purpose of reducing the costs have taken the decision to cut a net of 800 jobs and had announced a voluntary redundancy plan for 2400 staff. It must be noted here that the particular corporate firm of Sainsbury’s have been facing a decline in profit for a period of three years therefore, the firm is in a dire need of cost management strategy for the purpose of acquiring the desired rate of profitability (Cuthbertson, Furseth and Ezell 2015).
In case of Tesco, the case has been that the management of the firm has been trying to cut the necessary costs by following a strategy that is completely opposite to the strategic cost management process that has been adopted by the management of Sainsbury’s. This means that the particular firm of Tesco has taken back the sole ownership of 21 of its superstores that has been a part of the particular deal with British Land. This particular strategy has been undertaken by the management of the strategy for the purpose of reducing the cost of tenancy by further reducing the rent bill of the corporate entity. The financial condition of the company has not been up to the mark. This can be further evidenced by the fact that it had been a recent update that Michael Holmes, a top executive and the head of Tesco had left the company. Therefore, it can be further concluded that the corporate entity of Tesco has been in the need of a proper cost management strategy (Cuthbertson, Furseth and Ezell 2015).
Literature Review
Research methodology
A research methodology refers to the particular method that has been followed for the preparation of the research proposal. This means that there are various methods that may be adopted for the purpose of collection of information with the help of which the particular research proposal has been prepared. The particular research methodology that has been followed for the preparation of this particular study is that a number of academic journals by various authors have been selected and the required information has been obtained from these academic journals. This has been facilitated by conducting a literature review. Moreover, the data that has been collected has been secondary in nature. This means that the data or information has been obtained from a secondary source and not a primary source like the conducting of surveys and interviews.
Conclusion
The particular conclusion that can be arrived at from the preceding paragraphs is that a cost management strategy is a crucial activity that has become imperative for the corporate entities in the recent times. This can be achieved by the execution of the essential steps that have been mentioned in this particular study. Moreover, such a fact has been evidenced by the particular examples of Sainsbury’s and Tesco.
References and Bibliography
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