What is a Controllable Cost?

Controllable costs are those costs that can be altered in the short term. More specifically, a cost is considered to be controllable if the decision to incur it resides with one person. If the decision instead involves a number of individuals, then a cost is not controllable from the perspective of any one individual. Also, if a cost is imposed on an organization by a third party (such as taxes), this cost is not considered to be controllable.

A cost could be uncontrollable at a low level of an organization, because a front-line manager is not authorized to incur or stop the cost. However, a more senior manager might be given this authority. Thus, it is possible for cost to be controllable at the higher levels of an organization and uncontrollable lower down. For example, the decision to pay for employee training may reside with a vice president and not with a local department manager, so the cost is controllable for the vice president, but not for the department manager.

Controllable Costs vs. Fixed Costs

A controllable costs can be altered in the short term, while a fixed cost is the reverse - it can only be altered over a long period of time. Examples of fixed costs are rent and insurance, which typically involve long-term commitments to pay fixed amounts on a regular basis. The following are the key differences between controllable costs and fixed costs:

Controllability. Controllable costs can be adjusted by management over the short term, which is not the case for fixed costs.
Dependence on activity levels. Controllable costs frequently vary with activity levels, which is less likely to be the case for fixed costs.
Responsibility. Controllable costs are usually the responsibility of mid-level managers, while the responsibility for fixed costs lies higher in the organizational structure.
Flexibility. Controllable costs are highly flexible, while fixed costs are only flexible over the long term.

Examples of Controllable Costs

There are many examples of controllable costs, including the following:

Advertising. A business can generally elect to stop advertising over the short term without experiencing a massive drop in sales. However, it is usually needed over the long term in order to maintain brand awareness.
Bonuses. Bonus payments can usually be curtailed or delayed, especially when the bonuses are tied to poor performance that is causing the cash balance to decline.
Donations. One of the easiest controllable expenses to curtail is donations, since it has no demonstrable impact on the business.
Dues and subscriptions. It is generally fairly easy to cut back on dues and subscriptions without impeding company operations.
Employee compensation. Perhaps the largest controllable cost is employee compensation, especially when there are many support staff not directly involved in the generation of sales.
Office supplies. It may be possible to control office supplies to a modest degree, though it usually varies with the level of administrative staffing.
Training. Training can usually be curtailed for extended periods of time, though doing so can reduce the level of employee expertise.