What is Cost Centre?

Cost Centre Definition:

A cost centre is a department or function within an organization that does not directly generate revenue but incurs costs for the company. The primary purpose of a cost centre is to track and manage expenses, helping organizations control costs and improve financial efficiency.

Best Practices for Managing Cost Centres

  • Budgeting: Develop and adhere to strict budgets for cost centres.
  • Expense Monitoring: Regularly monitor and review expenses to identify areas for cost savings.
  • Performance Metrics: Establish performance metrics to evaluate the efficiency of cost centres.

How Cost Centres Work

  1. Identification: Identify departments or functions to be classified as cost centres.
  2. Budgeting: Allocate budgets and track expenses for each cost centre.
  3. Analysis: Analyze cost centre performance to identify cost-saving opportunities.

Key Features of Cost Centres

  • Expense Tracking: Focuses on tracking and managing expenses.
  • Non-Revenue Generating: Does not directly contribute to revenue generation.
  • Budget Management: Helps in budgeting and financial planning.


Examples include HR departments, IT departments, and administrative functions.

Organizations can improve efficiency by implementing cost control measures, optimizing processes, and using performance metrics to track effectiveness.

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