Compliance | Customer Service |
Engineering | Facilities Management |
Finance & Accounting | Help Desk |
Human Resources | Information Technology |
Legal Department | Marketing |
Procurement | Quality Assurance |
Research & Development | Risk Management |
Discussion
Strictly speaking, a team that generates revenue but isn't responsible for net profits is also a cost center. For example, a sales team that closes sales but isn't responsible for profit and loss, also known as net revenue. However, as sales teams generate revenue they are seldom described as a cost center. Likewise, there is a hesitation to describe operations teams as cost centers even where these teams may have no direct responsibility for revenue. For example, a manufacturing team may be responsible for unit volumes, unit costs and quality but often isn't directly responsible for actual revenue. As such, it is possible to define a cost center as an "organizational unit that doesn't directly contribute to revenue." This is perhaps an unfortunate definition because functions such as manufacturing are truly costs despite their direct influence on business results.It is common for the majority of teams in an organization to be cost centers whereby a large number of functional areas are not directly responsible for net revenue.Overview
A cost center is a department or team that doesn't directly contribute to revenue. These can be strategic and important functions that are nevertheless not directly responsible for revenue generation.
Summary
The following are primary examples of departments that are typically viewed as cost centers.
| Definition: Cost Centers | ||
Type | ||
Definition (1) | An organizational unit that is responsible for profit and loss. | |
Definition (2) | Departments, teams and other organizational units that are not directly responsible for revenue. | |
Definition (3) | An organizational unit that contributes to revenue. | |
Also Known As | OverheadFunctional TeamsAdministrative Departments | |
Related Concepts | ||
