Cost management is an important tool in the business performance as it provides the total amount needed to carry out a given task and outlines a cost performance baseline for work. Effective cost management represents opportunities to add value and expertise to the business. Many companies employ cost management plans for specific projects within the firm or to the whole business model. It is concerned with the controlling and planning of the budget of a business and includes activities like financing, estimating, managing and controlling costs so as to operate within the approve budget (Javadi, Bohlouli & Yarahmadi 2016). Moreover, cost management allows business to predict impending expenditures to avoid going over budget. On the other hand, strategic decision making is the process of creating a business’s mission, goals, and objectives. This is an essential part of establishing and running a business; through strategic planning, the course of actions are determined that ensures the achievement of the set goals and objectives that will influence the long-term success of the business. Because of its impact, strategic decision making takes time asnd requires a structured approach.
Problem Statement
The analysis of cost management and strategic decision making tools in business is of the essence to enhance the provision of guidelines and choices that will significantly increase the performance and growth of any organization.
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Cost Management Analysis
Businesses and projects are measured through set performance criteria that indicate their success or failure; cost is one of the popular parameters mostly used to show how well a project is performing and how it would have performed. Cost management is the process of effective planning and controlling the cost involved in business activities or projects. This is achieved through evaluation, analysis and reporting cost information used for budgeting and monitoring costs in the activities of business (Bevilacqua, Ciarapica, Giacchetta & Project Management Institute 2008). It is one of the fundamental tasks in running a business which requires critical analysis as it affects the progress of business regarding the achievement of the set goals and objectives within the set budget. Projected costs for a particular project within the business are calculated during the planning phase and should be approved before the project begins. As the project continues, the expenses incurred are documented and tracked to ensure they remain within the cost management plan. After completion of the project, the actual cost vs. the predicted cost is compared to evaluate the success of cost management and to provide a guideline for the future in cost management plans.
Cost is an easily understood tool used to rationalize different decisions in the execution of a project. Cost management focuses on measuring performance, comparing against expectations and finding the reasons for any divergence to help make future projections on cost in projects. Moreover, it provides strategic recommendations in an ongoing project to minimize expenses and change the course of action to remain within the stipulated budget. For effective cost management, there are set objectives followed in the process of planning and controlling. They are: spending correctly for only the obligated expenditure and avoid unnecessary expenses: spending timely to ensure that the money allocated is utilized in accordance with the project plan and investment plan: spending wisely so that for every expenditure, there is progress in the execution of the project and finally, spending perceptively where early warnings should be made to enable timely actions for the completion of the project (Robert & Wally 2003). The characteristics of a successful cost management tool are teamwork and interaction between many individuals at different levels with specific roles and skills in the business in the processes of assessment, analysis and strategic decision making and the use of efficient methodologies and integrity in the execution of the project to ensure that the money allocated is not misused.
There are set standards and ethical principles that should be observed by cost management analysts for smooth implementation process of the set budget. This is because they have control of information that is used for critical strategic management decisions of the business. The ethical principles are fairness, responsibility, objectivity, and honesty and the standards are; competence, confidentiality, integrity, and credibility (Tekavčič & Peljhan 2002). The cost management analysts have an obligation to follow the high standards of ethics to maintain a good professional image and to ensure they run the process in an effective and efficient way. In addition, the standards and ethical principles are an internal business function responsible for the management of a company to ensure efficiency in its operations, growth and success of the firm.
Strategic Decision Making Analysis
Strategic decision making is a process that involves the development of ideas and choices and putting them into action and has a great impact on the welfare of the business. This is an ongoing process whose primary aim is the establishment of the firm’s mission and goals in addition to deciding the course of action that the company should pursue the achievement of those goals and objectives. The choices made in strategic planning may involve significant organizational changes with major resource commitment; the outcomes of some of these changes are irreversible (Elbanna 2006). Therefore, it is important to ensure that experienced decision makers are involved. Also, these strategic decisions are concerned with the whole environment in which the firm operates in and the impacts of the decision to the business as a whole. Usually, business leaders use strategic decision making when planning for the future of the company by considering its competition and the available market and align the decisions with the company’s vision.
Strategic decisions dictate that the managers must plan for risk and change that occur in the process as many factors of the future are unknown. For effective strategic decision making, the managers need to analyze the internal and external environments of the company to identify its strengths and weaknesses as well as the resources and workforce available to implement the new decision (Kandemir & Acur 2012). Also, this analysis will help in planning for appropriate responses to the outcomes of the strategy. For instance, if the company has a strong brand name, that is a strength that the manager can exploit to increase the sales of their products and if the company’s market share is declining due to increased competition, the manager should introduce a revised product in order to recapture the market share and create a competitive advantage against their competitors. The success of a strategic decision also depends on the motivation of the staff and availability of adequate resources to carry out their vision. When the project is underway, the managers can evaluate the performance and results of the new strategy and may make adjustments or come up with new strategies if needed.
Strategic decision making is the most crucial function of management because it shows the current position of the business and its future expectations. Moreover, it is an action-oriented process that involves a commitment to make the plan successful. Managers are expected to make the best choice among alternatives that fits the organization’s objectives and mission so as to make sure that all the tasks and resources needed to accomplish the new plan are available within the company (Javadi, Bohlouli & Yarahmadi 2016). Effective strategic decisions require reforms that modify both the leadership styles and the organizational structure. Therefore, knowing the key to success and using strategic planning process are critical to an efficient expansion of the business. There are three basic steps involved in effective strategic decision making which include; developing a plan and goals; creating a performance monitoring process; outlining responses to the expected changes and finally devoting time and energy to the implementation process.
Conclusion
Cost management and strategic decision making involve elements of risk and reward in the business. Therefore it is critical to ensure that proper analysis is made by cost management analysts and that quality decision making at all levels is observed to enhance the growth of the company. Since strategic decision making is a flow of shifting competitive advantage, excellent choices that shape the strategies should be incorporated into the business to ensure increased capability of the business and superior performance. While some decisions may look easy based on the short-term achievements, they promote the ability to make the long-term decisions that have massive improvements; these decisions also helps to increase the value of the company and build a strong competitive advantage in the market share. On the other hand, cost management underlying purpose is to generate positive returns from the projects of the company within an approved budget. This leads to successful expansion of the business enterprises and increased market share with a competitive advantage of the company.
Recommendations
The inclusion of quality workforce in the cost management and strategic decision making processes is a fundamental requirement to ensure the success of the business. Therefore there should be strategic planning incorporated into the company’s business to attract and retain high-quality and experienced employees in the firm. In addition, involving the staff in the decision making process promotes the success of the strategy as the employees feel motivated and part of the decision making instead of only receiving directions on already set strategies by the top management. For cost management, businesses should consider the introduction of the cost management software to increase the efficiency of the process. The software will help the company monitor costs and improve profitability which will enhance the growth of the business. Furthermore, there should be increased flexibility to enable accommodate changes that occur during project implementation. For instance, if the cost of the project is too far out of line with the estimated cost, the company should change the plan to avoid more spending on the same outcome. Although this is not easy with limited resources and pressure on the company to keep relevance in a competing market; the business should be prepared for such risks with new projects
Suggestion for Future Study
Due to the unpredictable nature of the market, it’s hard for companies to turn the information into proper projections that link strategy, planning, and execution of the plan. Therefore, there is the need for further studies to provide a structured approach that will improve decision making. More investigations should be conducted to enable managers to make faster and more informed decisions in the effort to adapt to the shifting consumer demands. For cost management, there is the need to provide tools for all businesses and ensure that there is cost management information freely available. Also, the need to equip the cost management analysts with skills for the current operations and prepare them for the future, more studies should be conducted to understand the dynamics in costs and projects in the future. These studies will help increase the success rate of business regardless of the continually changing market environment.
References
Bevilacqua, M., Ciarapica, F. E., Giacchetta, G., & Project Management Institute. (2008). Value stream mapping in project management: A case study. Project Management Journal, 39, (3)
Elbanna, S. (2006). Strategic decision-making: Process perspectives. International Journal of Management Reviews, 8, (1), 1-20.
Javadi, R., Bohlouli, A., & Yarahmadi, H. (2016). Corporate social and environmental accounting and reporting practices. Asian Journal of Research in Banking and Finance, 6 , (8), 22.
Kandemir, D., & Acur, N. (2012). Examining Proactive Strategic Decision-Making Flexibility in New Product Development. Journal of Product Innovation Management, 29, (4), 608-622.
Robert, B. J., & Wally, S. (2003). Strategic decision speed and firm performance. Strategic Management Journal, 24, (11), 1107-1129.
Tekavčič, M., & Peljhan, D. (2002). The importance of cost management tools and their use in companies operating in transition economies: The case of large Slovenian companies. International Business & Economics Research Journal, 1, (10), 105-117.
