CIMA P1 Syllabus A. Cost Accounting For Decision And Control - Cost Transformation And Management - Notes ^{4 / 5}

‘The CGMA Cost Transformation Model is designed to help businesses to achieve and maintain cost competitiveness.

It serves as a practical and logical planning and control framework for transforming and managing a business’ cost-competitiveness.’ (CGMA, 2016)

Framework

1. ‘Engendering A Cost-Conscious Culture’

   • Continuous process of cost consciousness

   • Employees should be motivated to consider costs in daily duties

2. ‘Managing The Risks Inherent In Driving Cost-Competitiveness’

   • Understand and manage risks that could prevent a business achieving its cost transformation and management objectives

3. ‘Connecting Products With Profitability’

   • Understand how their products and services create value for customers to avoid losing customers, or having to accept a lower price

   • Understanding product value means the product portfolio can be tailored

4. ‘Generating Maximum Value Through New Products'

   • Design products for flexibility so that features can be added or eliminated as appropriate to appeal to new markets

   • Extra value should translate to a ‘willingness to pay’

   • 80% of a product's cost is determined before production commences. Management accountants should be involved in the design process to drive down costs and drive up customer value

5. ‘Incorporating Sustainability To Optimise Profits'

   • Avoiding unnecessary costs will increase profit, for example, reducing machining steps could reduce material waste, power consumption and tool wear

   • Include the cost of sustainability initiatives in product costs

6. ‘Understanding Cost Drivers: Cost Accounting Systems And Processes’

   • Reducing costs whilst simultaneously preserving or enhancing customer value requires the right information

   • Regularly review cost systems to ensure the output supports the needs of decision makers

This model helps cost reduction exercises by providing a framework as a useful starting place

However, it may be too rigid for some organisations which means that time will be spent considering things that are not necessary.