Cost centre


Cost centre

Cost centres are divisions that add to the cost of the organization, but only indirectly add to the profit of the company. Typical examples include Research and Development, Marketing and Customer service.

Companies may choose to classify business units as cost centres, profit centres, or investment centres. There are some significant advantages to classifying simple, straightforward divisions as cost centres, since cost is easy to measure. However, cost centres create incentives for managers to underfund their units in order to benefit themselves, and this underfunding may result in adverse consequences for the company as a whole (reduced sales because of bad customer service experiences, for example).

Because the cost centre has a negative impact on profit (at least on the surface) it is a likely target for rollbacks and layoffs when budgets are cut. Operational decisions in a contact centre, for example, are typically driven by cost considerations. Financialinvestments in new equipment, technology and staff are often difficult to justify to management because indirect profitability ishard to translate to bottom-line figures.

Business metrics are sometimes employed to quantify the benefits of a cost centre and relate costs and benefits to those of the organization as a whole. In a contact centre, for example, metrics such as average handle time, service level and cost per call are used in conjunction with other calculations to justify current or improved funding.

See also: Profit centre, Investment center


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  • cost centre — ➔ centre * * * cost centre UK US noun [C] UK (US cost center) ► ACCOUNTING a part of a company or organization considered as unit so that the costs relating to it can be calculated for the company s accounts: allocate/charge sth to a cost centre… …   Financial and business terms

  • cost centre — noun A department, process or piece of equipment for which costs can be worked out as part of the costing process in business • • • Main Entry: ↑cost …   Useful english dictionary

  • cost centre — sąnaudų centras statusas T sritis Gynyba apibrėžtis Organizacijos dalis, kurios sąnaudos gali būti nustatomos ir registruojamos atskirai. atitikmenys: angl. cost centre šaltinis NATO mokymų ir pratybų finansavimo terminų žodynas AAP 43(1), 2009 …   Lithuanian dictionary (lietuvių žodynas)

  • cost centre — The area of an organization for which costs are collected for the purposes of cost ascertainment, planning, decision making, and control. Cost centres are determined by individual organizations; they may be based on a function, department,… …   Accounting dictionary

  • cost centre — The area of an organization for which costs are collected for the purposes of cost ascertainment, planning, decision making, and control. Cost centres are determined by individual organizations; they may be based on a function, department,… …   Big dictionary of business and management

  • cost centre — / kɒst ˌsentə/ noun 1. a person or group whose costs can be itemised and to which costs can be allocated in accounts 2. a unit, a process, or an individual that provides a service needed by another part of an organisation and whose cost is… …   Marketing dictionary in english

  • cost centre — / kɒst ˌsentə/ noun 1. a person or group whose costs can be itemised and to which costs can be allocated in accounts 2. a unit, a process, or an individual that provides a service needed by another part of an organisation and whose cost is… …   Dictionary of banking and finance

  • cost centre — noun A division or project of an organisation to which costs can be specifically allocated …   Wiktionary

  • cost centre — noun a department or other unit within an organization to which costs may be charged for accounting purposes …   English new terms dictionary

  • cost centre — /ˈkɒst sɛntə/ (say kost sentuh) noun Finance a unit within a business with the responsibility of managing costs in its area of operation …   Australian English dictionary