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cost containment

Contributor(s): Matthew Haughn

Cost containment is a process of judiciously reducing costs in a business or limiting them to a constant level.

When performed properly, cost containment can ensure or increase profitability without undue difficulty created for those performing the job.

As a proactive approach, cost containment helps keep expenditures under control as a practice, instead of waiting for costs or profits to show as a problem. Cost containment is not simply a matter of choosing the lowest cost goods, services, materials and cutting off marketing funds. Taking such an extreme approach is liable to make workers' jobs unduly difficult, damage the company reputation for quality and negatively impact brand image and future business. When practiced poorly in the health care sector, cost containment can have real negative effects on lives.

To perform cost containment to the best effect, a company must first perform cost analysis. Rather than making cuts that affect efficacy, needless expenditures may be discovered. Reexamining and choosing from market options may reveal exceptional bargains with quality parity or even an increase. Also setting expenditures such as marketing as a percentage of incoming profits can provide a balanced approach. In short, cost containment can make a business much more cost effective without playing Scrooge, thereby negatively affecting  employee morale, the business and the lives of customers, clients and partners.

This was last updated in March 2018

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