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Committed and Flexible Resources

By: Robert S. Kaplan
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Abstract

Stresses the difference between costs committed in advance of knowing actual demand (committed costs) and cost incurred proportional to demand. Committed costs appear fixed since their supply is independent of the amount actually used. Flexible resources are supplied as needed, so their costs appear to be variable with demand. Shows how committed costs can be reduced via a two-step procedure: 1) reduce the demand for the activities performed by these committed resources, thereby creating unused capacity; and 2) manage the excess capacity of committed resources--either by reducing their supply or by deploying these resources to alternative and more profitable uses.

Keywords

Cost

Citation

Kaplan, Robert S. "Committed and Flexible Resources." Harvard Business School Background Note 197-078, February 1997. (Revised June 1999.)

About The Author

Robert S. Kaplan

Accounting and Management
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