The Procurement Glossary » Cost Avoidance

Cost Avoidance

Spend & Analytics

Definition

Value from preventing a cost increase or future expense, rather than reducing current spend.

Explanation

Cost avoidance (soft savings) is real but doesn't lower this year's budget — e.g. negotiating away a proposed price rise. It should be tracked separately from hard savings to avoid overstating budget impact.

Example

Blocking a supplier's proposed 8% increase is cost avoidance, not a cash reduction.

Related terms

• Cost Savings — A reduction in the price or cost of a purchase compared with a baseline, delivered through sourcing or negotiation.
• Hard Savings — Savings that produce a measurable reduction in actual spend, visible in the budget.
• Should-Cost Analysis — A bottom-up estimate of what a product or service ought to cost, built from its materials, labour, overhead and reasonable margin.
• Savings Baseline — The reference price or cost against which savings are measured.

Frequently Asked Questions

What is Cost Avoidance?

Value from preventing a cost increase or future expense, rather than reducing current spend. Cost avoidance (soft savings) is real but doesn't lower this year's budget — e.g. negotiating away a proposed price rise. It should be tracked separately from hard savings to avoid overstating budget impact.

Can you give an example of Cost Avoidance?

Blocking a supplier's proposed 8% increase is cost avoidance, not a cash reduction.

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