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

Activity

Exercise 1.1.4: Refer again to the list of costs that you wrote out for Exercise 1.1. Decide whether each cost should be categorised as committed or managed. In the next blank column, write either a ‘C’ (for Committed) or an ‘M’ (for Managed).

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.