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Behavioral Aspects of Cost Management

This SMA provides a framework for cost control and reduction centered on organizational culture and individual behavior.

Hoover Dam

This Statement on Management Accounting (SMA) focuses on the importance of organizational culture in developing a climate for effective cost management and builds on existing research on the importance of culture in effective financial control. Ultimately costs are controlled by line managers and individuals who make effective day-to-day decisions that drive cost; to deliver on effective cost reduction, there must be the behavioral commitment and both the provision of, and an understanding of the necessary cost information. This SMA presents a cost aspects framework (the 5 C’s framework) that demonstrates the five core approaches of culture, care, communication, collaboration and continuation required to support effective cost reduction.

Key Insights:

Minimizing cost is a core aspect of organizational success.

Management Accountants are expected to play a central role in ensuring that all aspects of cost are effectively planned, controlled and continually assessed for reduction.

While effective planning and control systems must be developed and implemented, positive cost reduction results will only be achieved where there is a commitment by all key stakeholders to take responsibility for cost management. Some organizations seem able to achieve this and remain competitive while others seem to struggle.

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