cost drivers

cost drivers

elements of a firm's operations which individually and collectively determines the level of the firm's (average or unit) COSTS. The ability to ‘drive’ or ‘manage’ costs down (or contain cost increases) is an important strategic consideration where cost leadership is the key basis of the firm's COMPETITIVE ADVANTAGE over rival suppliers.

There are four main categories of cost drivers

  1. those related to firm size and scope: ECONOMIES OF SCALE (the reduction in average costs as the scale of operation increases) and ECONOMIES OF SCOPE (the reduction in average costs as the firm produces a greater variety of product);
  2. those related to cumulative experience: the EXPERIENCE CURVE (cost reductions which arise over time as the firm ‘learns’ to operate technologies and processes more efficiently);
  3. cost drivers not related to the above, industry input prices (e.g. differences in hourly wage rates payable for ‘unionised’ as opposed to non-unionised workers); location (e.g. differences in transportation costs of local versus long-haul for input procurement and product distribution); process efficiencies (cost differences due to the fact that some firms are able to achieve higher levels of PRODUCTIVITY than others) etc;
  4. those related to the organization of transactions: VERTICAL INTEGRATION AND DISINTEGRATION (cost reductions which arise when buying and selling transactions are conducted within the firm rather than through the market) and the internal organization of the firm (AGENCY COSTS are higher for some firms than others). See VALUE CREATED MODEL, RESOURCE BASED THEORY OF THE FIRM; see also ACTIVITY-BASED COSTING. Compare BENEFIT DRIVERS.

cost drivers

the factors that cause COSTS to vary within an organization and between organizations. Cost drivers can be related to the various value-creating activities within an organization. The main cost drivers are: firm size or scope (ECONOMIES OF SCALE or SCOPE); cumulative experience; (LEARNING CURVE); organization of transactions (VERTICAL INTEGRATION); and other factors such as location, raw material prices and process efficiency. The ability to ‘drive’ or ‘manage’ costs down (or to contain cost increases) is an important strategic consideration where cost leadership is the key basis of the firm's COMPETITIVE ADVANTAGE over rival suppliers. See VALUE-CREATED MODEL.
References in periodicals archive ?
Each resultant penalty charge can cost drivers up to PS100.
Buffalo, NY, October 23, 2018 --(PR.com)-- Burgio Health, the Premier Health & Wellness network in Western New York, has created the newest approach to rising healthcare cost drivers. They now offer Wellness programs, designed for companies' specific healthcare cost drivers and bio-metric screening results.
This includes cybersecurity and its associated cost drivers. DoD's process to determine and allocate funding for requirements is the Planning, Programming, Budgeting and Execution (PPBE) process.
Illinois already has the most competitive marketplace for workers' compensation insurance in the nation - reversing course and putting the state in charge of setting rates for workers' compensation insurance does nothing to fix the true cost drivers of Illinois' workers' compensation system."
In the medium-term a strategic cost program will include elements such as making cost drivers more transparent as well as identifying and removing overlapping activities.
According to Sefton Council's budget plans for 2018/2019, from June 1, it could cost drivers 80p to park their car for half an hour on certain roads.
In general, what are the cost drivers Does the supplier have suggestions on ways to procure real-time data in the most cost effective way The DRD is focused on reducing the numbers of usages and costs in relation to real-time traffic data and, therefore it is important to gain understanding of which products can provide the greatest value at the lowest costs as well as other cost drivers.
Corrosion is one of the largest cost drivers for the Department of Defense systems.
The average cost of accident repairs is PS2,050, meaning all 15 and 65-plate crashes cost drivers and insurers PS402 million.
As we look at these trends, there are several important fundamental issues that insurers and policymakers can work together on to address the cost drivers impacting insurance.
AVERAGE speed motorway cameras have cost drivers PS150,000 in fines since they went live three months ago.
examining underlying cost drivers for the year-ending March 2015, we see