Committed and Managed Costs

A third way to categorise expenditure is based on the relative ease or difficulty of doing without the materials, labour or equipment that incurs a cost.

Where expenditure CANNOT be eliminated or cut back without a major negative impact on the institution’s objectives or profits (in the case of a commercial operation), this is referred to as a committed cost. For example, if an ODL institution entered into a long-term lease for additional office space to accommodate a planned expansion of its courses, it may be difficult to break the lease without a significant financial penalty. Likewise, once a staff member is confirmed as a permanent employee, it may be necessary to incur substantial expenditure in redundancy payments if the position is no longer necessary. In most cases, such expenditure should be categorised as a committed cost.

However, where expenditure can be delayed, reduced or eliminated without an immediate major disruption in the institution’s programme, then it should be categorised as a managed cost. For example, if resources are limited, it may be possible to postpone the revision of a particular course for one or more years. Staff training, foreign travel and entertainment expenses are often treated as managed costs.



Sample Answer: Refer to the following file to see some examples of how different costs can be categorised as either committed or managed:[[File:Exercise_1[1}3_Sample Answers|Frame|Exercise_1[1]4_Sample_Answers]] Please retain your work for future use. Make sure to hold on to your work for use in Unit 3.