CIMA Cost Transformation Model

Question 1

What are the 6 elements of CIMS’s cost transformation model

Answer 1

1. Engendering a cost-conscious culture - Everyone in the business should be involved in improving cost competitiveness

This action focusses on integrating a culture of continual improvement in cost competitiveness while still maintaining or enhancing the value of the product to the customer. All employees should be made aware of the objective of cost transformation and be motivated to achieving continuous improvement in cost competitiveness in the long term.

2. Managing the risks inherent in driving cost competitiveness - Having a risk management process in place to manage risks that arise due to cost management

Organisations should actively seek to identify factors that might limit its ability to achieve cost transformation (for example, outsourcing the customer service department to another part of the world where labour costs are lower can reduce costs). However, that type of change may not be well received by the organisation’s customers.

3. Connecting products with profitability – Ensuring that products or services offered are contributing to profitability

All products and services must contribute to the profits of the business. It is important to ensure that shared costs are accurately allocated to each department and product.

4. Generating maximum value through new products – Managing value for new products (by considering margin and price before production and ensuring designs are flexible)

New products and services should be designed and developed to be as flexible as possible to potential changes in customer needs while maintaining an acceptable profit margin.

5. Incorporating sustainability to optimise profits – Adopting sustainable approaches and building sustainability initiatives into product costs

Businesses should focus on minimising the impact of its products and services on natural capital (that is, the world’s stock of renewable and non-renewable natural resources). This can have both the impact of reducing costs in the long term and enhancing the value of the brand and its’ products to environmentally-conscious consumers.

6. Understanding cost drivers: Cost accounting systems and processes – Ensuring that the right systems and process are in place to support effective decision making

Cost accounting systems and processes. It is vital that a business understands how costs are driven to ensure that costs can be minimised and eliminated completely when they don’t add value to the customer. The accounting records maintained are an important tool that should be evaluated to ensure that they provide the information needed to support the objective of cost transformation and enable management to make appropriate decisions.