Cost Centres:

Cost centres are used to group associated costs together. Each organisation will use cost centres differently. For example, a large organisation may use costs centres for each department whereas a smaller organisation may choose to have cost centres at a team level.

Example:

B&B online™ applies cost centres to each of their departments. This means that B&B for Busy Bodies™ will be a separate cost centre.

Budgets:

A budget is an estimated financial plan. Budgets indicate the costs that will be incurred and the income that will be generated. Budgets are usually set annually and are split by month. Each cost centre will have its own budget. These budgeted costs are then monitored during the year to ensure the appropriate action is taken to keep costs on or below budget.

Allocating Costs:

Organisations choose different methods of applying costs to cost centres. Some organisations choose only to apply the costs that the Team Leader or Manager can actually influence and control. For example, costs that can be controlled may include overtime payments and stationery costs. Other organisations may choose to apportion all costs that the organisation incurs between all the cost centres. For example, some organisations split the cost of rent and electricity between all the cost centres. In most cases these types of costs are beyond the control of the person responsible for the cost centre.

Whichever method your organisation uses to apply costs to cost centres it is important to identify the costs that can be influenced. Once these costs have been identified they can then be monitored and controlled.

Controlling Costs:

Costs can be controlled by monitoring the ongoing costs against the budgeted costs.

Example:

It is budgeted that B&B for Busy Bodies™ will spend $2,000 on outbound telephone calls in March. This budgeted figure can then be used to monitor and control costs.

Standards

One method which helps monitor costs on an ongoing basis is to develop standards. Standards have two components:

1. Cost component

2. Performance component

Example:

B&B for Busy Bodies™ have set a standard for the cost of each outbound telephone sales call at $1.20.

This standard is created from:

• $0.30 per minute (cost component)

• 4 minutes per call (performance component)

The actual costs of outbound sales calls for B&B Busy Bodies™ are $1.25. This means that it is costing 5c more for each outbound call.

We can use standards to help identify the source of the problem.

Continuing our example we can identify the source of the problem by looking at both components of the standard.

Example:

Cost Component

If we identify that the cost component of each outbound sales call is 5c greater than the standard then we can identify what has caused the cost to increase. One answer may be that many of the calls were made when Call Operators were working overtime hours which are paid at a higher rate. The solution may be to ensure that outbound sales calls are made during normal working hours.

Performance Component

We may discover that the problem occurs in the length of time each call has taken. The standard expects calls to take 4 minutes each, but the actual calls are taking 4 minutes and 20 seconds each. The solution may be to train Contact Centre Operators in sales techniques that can be applied more efficiently..