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 be achieved only when there is a commitment on the part of all key stakeholders to take responsibility for cost management. Some organizations seem able to achieve this and remain competitive while others struggle.

    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 as well as provision for and understanding of the necessary cost information. This SMA presents a cost aspects framework (the 5C’s framework) that demonstrates the five core approaches of culture, care, communication, collaboration, and continuation that are required to support effective cost reduction.

    Effective cost control is not achieved by short-term program approaches but by making frugality and cost containment a value that is integrated into the culture of the organization. This must start at the top and be reinforced by the behavior of every manager who demonstrates and encourages cost containment. Accounting plays a key role in providing cost information and aligning it to decision making. If the communication of this link is not effective, then understanding and cost control will fail. Many costs are process driven and expand beyond organizational silos, thus requiring collaboration between people internally and externally. Finally, the focus on cost containment and minimization must be constant and not become an imperative only when margins are tight. There is emerging behavioral research that indicates that the context within which a decision is made, such as those relative to cost, impacts the results; thus creating the right culture for management of cost is important.

    While new systems, such as activity-based costing (ABC) and analytics, are required to collect and present information, a supporting culture is required to convert this type of cost data from insights into actions that improve cost performance. This SMA complements discussions on designing cost systems, cost maturity models, and approaches to costing such as ABC and target costing.1 It describes the critical approaches to organizational behavior that make these systems deliver real benefits and, in particular, complements the SMA, Values and Ethics: From Inception to Practices, on integrating values and ethics into organizational culture.