Another operating environment consideration in the design of a cost management system is the need to integrate the organization’s current information systems. The “feeder” systems (such as payroll, inventory valuation, budgeting, and costing) that are in place should be evaluated to answer the following questions:
- What data are being gathered and in what form?
- What outputs are being generated and in what form?
- How do the current systems interact with one another and how effective are those interactions?
- Is the current chart of accounts appropriate for the cost management information desired?
- What significant information issues (such as yield, spoilage, and cycle time) are not currently being addressed by the information system, and could those issues be integrated into the current feeder systems?
With knowledge of the preceding information, management must analyze the cost-benefit trade-offs that relate to the design of the cost management system. As the costs of gathering, processing, and communicating information decrease, or as the quantity and intensity of competition increase, more sophisticated cost management systems are required. Additionally, as companies focus on customer satisfaction and expand their product or service offerings, more sophisticated cost management systems are needed. In these conditions, the generation of “better” cost information is essential to long-run organizational survival and short-run profitability. Even with appropriate information systems in place, there is no guarantee that managers will make decisions consistent with organizational strategies. Proper incentives and reporting systems must be incorporated into the Cost Management System (CMS) for managers to make appropriate decisions.