Cost management is used both by manufacturing and service sectors. Efficient cost management helps those organizations in increasing resource, productivity and margins. Cost management system supports the organization in achieving its goals and objectives. A good cost management system provides data to managers in achieving short-term profitability and maintaining a competitive position in the long-term.

Companies always think of reducing their costs and improving the quality of their product/services. To be successful in the contemporary business environment, certain new cost management techniques were used. Activity based costing focuses mainly on the activities that are performed when creating a product – The costs are first traced to activities and then to products.

Benchmarking is a tool through which the success factors of other firms are known. It is also a technique of collecting information on cost standards/performance and process structures. Theory of constraints aims at finding out the bottlenecks involved in the production process and removes them. Theory of constraints explains that the activities that are performed other than strengthening the weakest link of the organization’s value chain will be a waste of time and effort.

Back flush costing redefines the point at which accounting transactions are made to alleviate raw material and work-in-process inventories. Balanced scorecard is one of the models which emphasizes the linkage of various types of important performance measurement system into a strategic bundle. It is the first systematic performance measurement system that renders an organization’s strategy into clear goals, measures, targets, and initiatives organized by key measures.