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Cost Savings vs. Cost Avoidance

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fistfullofcashWe presented an informal proposal to a customer that included some cost savings estimates.  The customer asked us whether they were true cost savings, or just cost avoidance.  I had never heard the distinction before, so I did some research.  Here are the results.

Cost savings in general refers to benefits of a project that the customer can add back into his budget and spend.  These are costs that have already been planned, but are now unnecessary.

Cost avoidance refers to everything else, typically more “soft savings.”  Often cost avoidance involves slowing the rate of cost increases or obtaining “value-added” services.

The best resource I found detailing the differences between the two concepts was from the eSourcingWiki.

Comments

  • Anonymous
    May 01, 2012
    I am developing a business case that involves these two concepts. It involves automating a process therefore saving costs. I got asked the question "isn't that cost avoidance?", so this clarified things slightly.