Putting the Customer First: Value-Based Cost Management Systems

This article is about value-based cost management systems (VCMS), which define even the notion of good and bad cost from a perspective of how each expenditure affects the final customer of the value chain. For companies that operate in the middle of value chains, it serves as a reminder that every action they take affects the final product or service offered. This article will start with a basic discussion of the VCMS model, followed by the five forms of cost that are present in almost every business activity. Emphasis will then switch to the tie between the VCMS and other modern management initiatives, focusing on how the VCMS is superior for supporting these efforts compared to a simple activity-based costing system. Once these initiative-based issues have been addressed, the steps required to implement a VCMS will be presented. The discussion concludes with a summary of points made earlier in the article.