Cost avoidance is a documented action that reduces or avoids a potential future cost compared with a defined, credible reference case, without necessarily lowering current recorded expenditure. Examples may include resisting an increase or changing a specification. It should be reported separately from realized savings, with the baseline, method, timing, owner, and finance treatment clearly stated.
In plain English
It is a future cost that the organization credibly avoids, not cash already removed from current spend.
Illustrative example
At Northstar Industrial Systems, procurement documents a supplier’s proposed increase, the negotiated outcome, and finance’s reporting treatment rather than labeling the entire difference as realized savings.
- Related terms
- Savings; Savings tracking; Baseline; Cost reduction
- Lifecycle stages
- Strategy; Source; Optimize
- Stakeholders
- Procurement; Finance; Executive leadership