Cost Avoidance

Example of Cost Avoidance

• Reducing the price through negotiations or finding cheaper suppliers (no PY baseline)
• Cost negotiation Improvement
• Significant renegotiation to decrease costs upon a documented push back 

*Cost Avoidance should be tracked in the Powerstering but it does not count towards AOP Targets.

Questions to consider when evaluating a project for productivity savings

• Are the savings driven by CAPEX or OPEX?
• Is there an established historical baseline rate from prior fiscal year?
• Are you calculating productivity based on prior year spend vs. current year spend?
• Are you calculating productivity based on prior year cost per unit vs. current year cost per unit?
• Is the productivity forecast reflecting a full year (12 months) of savings?
• Does the productivity include TCO (Total Cost of Ownership)?
• Are you comparing rates for same Fit, Form, Function?
• Are you comparing rates of assets & services that are Like for Like?
• Are rates/costs variable or fixed?
• Rebates & Credits:
  • Is the total rebate/credit $ received, equal to higher than last year?
  • Is the productivity calculation based on prior year rebate/credit $ received vs. current year rebate/credit $ received?
  • Is the rebate/credit a contractual agreement?
  • Is the rebate/credit a one-time occurrence?
  • Is the rebate/credit related to a refund of assets or services already paid for?