Cost and Financing in Open Schooling/Some basic Concepts of Cost Analysis/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.

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.

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.