Cost centre (business)

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A cost centre is a part of an organization that does not produce direct profit and adds to the cost of running a company. Examples include research and development, marketing, help desks, and customer service and contact centres.

Although they are not always demonstrably profitable, a cost centre adds value indirectly or fulfills some other corporate mandate. For example, research and development may yield profitable innovations, while effective public relations and customer service may lead to more customers and increased customer loyalty.

Because cost centres have a negative impact on profit (at least on the surface), they are a likely target for rollbacks and layoffs during budget cuts, and operational decisions are typically driven by cost considerations. Investments in new equipment, technology, and staff are often difficult to justify to management because indirect profitability is hard to translate into bottom-line figures.

Business metrics are sometimes employed to quantify the benefits of a cost centre and relate costs and benefits to those of the organization as a whole. In a contact centre, for example, metrics such as average handle time, service level, and cost per call are used to justify current or improved funding.[1]

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  1. ^ "BT Pipe". Retrieved 2009-04-14.