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The Need for Enhanced Defense Contractor Cost Management Systems
Author(s) -
Rezaee Zabihollah,
Elmore Robert C.
Publication year - 1993
Publication title -
public budgeting and finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.694
H-Index - 30
eISSN - 1540-5850
pISSN - 0275-1100
DOI - 10.1111/1540-5850.00990
Subject(s) - cost accounting , accounting information system , government (linguistics) , business , plan (archaeology) , risk analysis (engineering) , control (management) , relevance (law) , throughput accounting , cost control , cost estimate , management accounting , accounting , computer science , financial accounting , engineering , systems engineering , linguistics , philosophy , archaeology , artificial intelligence , political science , law , history
Technological advances, increasing government regulations, and the structural decline in the size of U.S. defense spending are placing ever‐greater requirements on the information provided by the contractor's cost accounting system. A survey of defense contractors reveals that their cost accounting systems are mainly used to provide cost estimation and, accordingly, these systems are not utilized for performance evaluation and managerial decision making. Since the traditional defense contractor's cost accounting systems do not produce the information that management requires, new cost management systems (CMS) must be designed and implemented. The CMS can assist contractors to: (1) obtain financial and operating information to evaluate and improve the performance of contracts, and (2) provide contractors with relevant information to plan, manage, control, and direct contracts. This article examines the effectiveness and efficiency of currently used cost accounting systems by government contractors, discusses the nature and characteristics of the CMS and their relevance for government contractors, and suggests step‐by‐step procedures for proper implementation of the CMS.