| Cost Driver | Example of Use | |-------------|----------------| | | Cloud billing (AWS, Azure) – each call triggers compute & data transfer | | GB of data stored | Database storage costs, backup tapes | | Number of active users | Per-seat licensing for Salesforce, Office 365 | | CPU hours | Running batch processing or machine learning jobs | | Number of builds/deploys | CI/CD pipeline costs (Jenkins, GitHub Actions) | | Number of security scans | Vulnerability assessment tools (each scan consumes license and compute) |
A hospital uses patient days to allocate housekeeping costs. A 5-day stay pays 5× more than a 1-day stay. example of cost driver
To identify cost drivers, businesses can follow these steps: | Cost Driver | Example of Use |
A toy factory uses machine hours to allocate electricity costs. If one toy takes 2 hours and another takes 0.5 hours, the first pays 4× more electricity overhead. If one toy takes 2 hours and another takes 0
By understanding cost drivers, businesses can:
Cost drivers are the underlying causes of costs that can be controlled or influenced by an organization. They can be broadly categorized into two types:
As the business grew, Emma and Ryan started to notice that their costs were increasing rapidly. They were spending more on fuel, equipment maintenance, and labor. They began to wonder if they were charging enough for their services and if they could find ways to reduce their costs.