Towards Optimal Operational Decision-Making in Manufacturing Operations: an Integrated Cost Management System (ICMS)’S Approach

Abstract

This study was carried out to investigate the relationship between Integrated Cost Management Systems (ICMS) and Operational Decision-Making (ODM). ICMS is a framework that emphasizes the relationship between information flows and decision-making at various levels of the organization by seeking to identify those essential data elements that must be shared between individuals, team, departments, processes and entities for effective coordinated decision-making and action to occur. The operationalized definition of the ICMS theoretical construct in this study is encapsulated in the concepts of Traditional (full) absorption costing (TAC), Throughput Accounting (TA), and Activity-Based Costing (ABC). While, Operational Decision Making (ODM) was operationalized via the factory floor measures of work –in-process inventory values, finished goods inventory values, cycle time and number of jobs in the shop. The result found that there is a positive and significant relationship between ICMS and ODM. A proper synergy of the strengths of the various cost management systems would lead to improved work in process inventory values, better finished goods inventory values, reduced cycle time and reduced number of jobs or orders in the shop, thus contributing positively to optimal system’s performance.

Key words: Integrated Cost management system, operational decision making, traditional absorption costing, throughput accounting, activity-based costing.