IMA’s recently released Statement on Management Accounting (SMA), "Developing an Effective Managerial Costing Model,” provides a useful resource to help practitioners improve their managerial costing models and facilitate better decision making. It was written by IMA’s Managerial Costing Task Force and builds on IMA’s Conceptual Framework for Managerial Costing.

The new SMA discusses how despite vast changes in business and technology over the past 50 years, the managerial costing practices used by most companies today have failed to evolve. For many organizations, cost information used to support critical management decisions is still based on minimalist cost models deemed acceptable for financial accounting but that fail to consider the complexities of operating in today’s environment.

To address this reality, the SMA describes a six-step methodology that organizations can use to develop an appropriate costing model for economic decision making by managers and employees. These steps are:
  1. Assess the current costing system’s effectiveness
  2. Analyze the organization’s strategy and business environment
  3. Consider managerial cost modeling concepts 
  4. Evaluate current managerial costing practices in the organization
  5. Design the appropriate level of costing model sophistication for the organization
  6. Implement the new cost model across the organization
“The managerial costing done by companies is often not sufficient to support their internal decision making,” said co-author Raef Lawson, Ph.D., CMA, CSCA, CPA, CFA, CAE, IMA professor-in-residence and vice president of research and policy. “Having an effective managerial costing system that meets organizational needs such as operational cost control, financial planning and analysis (FP&A), pricing decisions, and capacity management is critical for organizations to effectively compete in today’s business environment.”

The IMA Managerial Costing Task Force includes Lawson, who serves as chair, as well as Kip Krumwiede, IMA director of research; and volunteer leaders Gary Cokins, Doug Hicks, Monte Swain, and Larry White.

Visit the IMA website to see a full listing of IMA’s Statements on Management Accounting.