Cost Drivers

Knowledge Center

   

Description of Cost Drivers. Explanation.

Contents

  1. Summary
  2. Forum
  3. Best Practices
  4. Expert Tips
  5. Resources
  6. Print
 

Definition Cost Drivers. Description.


Cost Drivers are the structural causes of the cost of an activity performed in the Value Chain. They determine the behavior of costs within an activity.

A cost driver can be completely or partly or not at all under the control of a firm.

A firm's cost performance in all of its major discrete activities adds up to establish its relative cost position.

 

According to Michael Porter, there are 10 major cost drivers:

  1. Economies or Diseconomies of Scale.

  2. Learning and Spillovers. The cost of a value activity often declines over time due to learning or improvements that increase its efficiency. Or due to knowledge acquired from suppliers, consultants, former employees or reverse engineering.

  3. Pattern of Capacity Utilization. Different ways of configuring a value activity will effect its sensitivity for capacity (under)utlization.

  4. Linkages. The cost of many value activities is affected by how other activities are performed within the firm's own value chain or with the value chain of a supplier or a channel ("Vertical Linkages"). Through combining these activities and their linkages, their total cost can be reduced.

  5. Interrelationships between business units within a firm in the form of shared activities.

  6. Vertical Integration. Doing more activities within the firm.

  7. Timing, such as First Mover Advantage or Second Mover Advantage.

  8. Discretionary Policies. The strategic choices a firm make, for example being a self-service internet bank or being the fastest courier company.

  9. Location. Geographic location where an activity is conducted and the prevailing costs of personnel, materials, energy, etc.

  10. Institutional Factors. Government regulation, tax regimes, financial incentives, unionization, tariffs and levies, local content rules also affect the costs of a value activity.

Investigating the cost drivers of each value activity through Cost Analysis allows a firm to gain a deep understanding of the sources of its own cost position as well as relative to its competitors and how these costs may change or be changed by Cost Dynamics. A Competitive Cost Advantage grows when a firm is controlling its drivers better than competitors.


Cost Drivers Forum
  Quotes on Cost Drivers. Quotations
Hi, do you know of a remarkable, humorous quote by a famous person or a proverb related to cost drivers?
Please enter a reaction to share it for other people to enjoy! Please use this template:
Author Name Year of Birth - Year of Death, short c...
     
 

Cost Drivers Special Interest Group


Special Interest Group

 

Best Practices - Cost Drivers Premium

Expert Tips - Cost Drivers Premium

Resources - Cost Drivers Premium

Understanding Costs In-depth

This presentation provides a better understanding about cost, cost types, costs drivers and other cost dynamics, and includes the following sections:<...
Usage (application): Cost Drivers, Cost Behavior, Direct Costs, Indirect Costs, Controllable Costs, Uncontrollable Costs
 

Capacity Management: Planning Resource Capacity

This presentation provides a clear explanation of capacity planning and its related concepts, definitions and capacity strategies. The presentation in...
Usage (application): Capacity Planning, Capacity Management, Capacity Utilization
 
 

News

Cost Drivers
     
 

Videos

Cost Drivers
     
 

Presentations

Cost Drivers
     
 

More

Cost Drivers
     

Compare with: Competitive Advantage  |  Value Chain  |  Sustainable Competitive Advantage

Special Interest Group Leader

You here


 

Return to Management Hub: Finance & Investing  |  Knowledge & Intangibles  |  Strategy  |  Supply Chain & Quality


More on Management  |  Return to Management Dictionary  | 

 

This ends our Cost Drivers summary and forum.

About 12manage | Advertising | Link to us | Privacy | Terms of Service
Copyright 2016 12manage - The Executive Fast Track. V14.1 - Last updated: 10-12-2016. All names tm by their owners.