Cost Drivers

A final concept that is important in any analysis of expenditure is determining what 'drives' costs or causes them to arise and change.

Definition

A cost driver is anything that causes an overall increase (or decrease) in costs when it increases (or decreases).

Student numbers are the most obvious example of a cost driver. In addition, the number of tutorial groups drives the cost of tutors, since an increase in the number of groups necessitates the employment of additional tutors. Likewise, the number of study centres is a cost driver for several different items of expenditure. Decreasing the number of study centres has an impact on the amount paid for employing centre heads, leasing/renting/maintaining buildings, electricity for centres, ICT services, etc.

Activity

Exercise 1.5 Consider all the costs associated with developing and offering one or more new ODL courses in your institution. On a blank piece of paper, write down all the cost drivers for this activity. Feedback: Refer to Table 1.5 to see some examples of what drives costs.

In order to analyse and control expenses, it is essential to identify all of the factors driving costs for a particular activity. The importance of cost drivers will become clearer when we look at Activity-Based Cost analysis in the discussion of overheads in Unit 4.

Reading

If you would like to find out more about the topics in this Unit, please refer to the following resources: Rumble, G. 1997. Costs and Economics of Open and Distance Learning. Chapter 4, pages 21-31. Hülsmann, T. 2004. Costing Open and Distance Learning. Section 2.2: ‘Drawing up a Budget, a generic template for costing ODL’, pages 4-7 & Section 3.2: ‘Elements of Cost Analysis, fixed and variable costs’, pages 13-14.