The features

Minimal level: An enterprise which is at the bare minimum level of best practices of total cost management will have the following features:

The cost management centres around the information extracted from the financial reporting mechanism and at best collected at cost centre level.

Cost awareness as an ingredient of the competitive strategy is only at the top management level and has not percolated downwards.

The cost information is incapable of addressing strategic business issues and chronic operational problems.

Cost allocation as a part of cost accounting procedures if any focuses only on manufacturing or direct business processes in respect of the service sectors.

Functional level: The maturity of an enterprise on cost management practices would be at functional level if it exhibits the following features:

A good interfacing of information technology and the information needs as a result of which the needs of a cost management process are flown from the systems.

The enterprise has a very good system for reckoning with the material cost structure for the products or any other direct costs if it is a service sector which also reveals the wastage taking place as potential area for cost control.

The cost management would be defocused on costs other than raw material or direct costs such as human resources in the case of the IT sector.

The continuous improvement processes of the enterprise are disconnected from the cost management and because of that cost management would not be driving operational improvements at a detail level.

Though there could be some support for operational improvement at aggregated level, the cost management is absolutely in disconnect with the strategic decision making of the enterprise.

Operational level: The cost management practices of an enterprise are supposed to be at an operational level if they demonstrate the following features:

Both the financial accounting and the cost accounting mechanism would be well articulated and structured in the finance manuals of the enterprise with a great deal of synchronisation between the two.

The cost accounting plan for raw materials and all other costs would be adopting the generally accepted cost accounting principles and, if applicable, well laid out cost accounting standards of a professional body.

The operational improvement process of the enterprise is well integrated with the costing data base and the cost information is also seen driving improvement initiatives.

The budgeting efforts of the enterprise as a part of sound financial management are well integrated with the cost management process.

However, the business strategy issues analysis and decision making do not get a high quality support and enablement from the cost management system in use.

TCM-enabled level

The cost management practices of a TCM-enabled enterprise are at quite an advanced level as they have overcome all the negative hallmarks of the levels before. The cost management process features of a TCM-enabled enterprise are:

All the good features of an operational level enterprise cost management system set out below exist in a TCM-enabled enterprise.

All the data flows in a cost management structure are well integrated and are driven by an Enterprise Resource Planning software which makes full use of the cost management functionality available within or connected separately through a standalone module.

Customer focus is brought in a very structured way and it forms a part of the cost management process by focusing on cost of serving the customer, customer groups or market segments.

The operational improvement and the cost management reinforce each other in such a way that the results of the improvement process through a feedback loop updates the cost management system.

A very good linkage is established between the strategic issues, decision-making process on them and the cost management system. The cost management system, as a matter of routine, enables a high quality analysis of the strategic issues of the enterprise.

Exemplary

The TCM-enabled enterprises eventually become Exemplary and would demonstrate the following features:

Such enterprises would certainly exhibit all the features of a TCM-enabled enterprise first.

By successful deployment of cost management, such companies would be the benchmark of the ideal cost structure of the sector they are operating and would become iconic in stature.

There would be high level of integration between the enterprise risk management and cost management and as a result of that the competency to manage future cost structure is very high.

These enterprises would be also having initiatives to extend the cost management practices into their inbound and outbound supply chain players.

These enterprises also have integrated the environment management concerns with the cost management, and thus the management decision-making would also take into account the environment costs. Any best practice on environment management accounting would be fully adhered to.

Assessment for level rating and benefits

The CII has also set in motion a roadmap of assessing the levels of the enterprises on a voluntary basis and several of them have already been rated. The methodology consists of questionnaire to be filled to be followed by visits of well trained teams to perform the assessment.

Several benefits are expected to accrue from the rating of the cost management process from the basic principle that this will act as a mechanism for assuring the presence of a performance management process as a part of the enterprise governance framework.

In particular, the credit rating agencies and the investment funds can put a premium or higher marking for enterprises which are rated at a higher level of maturity as there is a lesser risk on performance management. It is expected that this maturity level model assumes a very high level of importance in the evolving days of cost competitive pressures.