CONTROLLABLE COST

Controllable costs are those costs that can be altered in the short term. More specifically, a cost
is considered to be controllable if the decision to incur it resides with one person. If the decision
instead involves a number of individuals, then a cost is not controllable from the perspective of
any one person. Also, if a cost is imposed on an organization by a third party (such as taxes),
this cost is not considered to be controllable. Examples of controllable costs are:

 Advertising
 Bonuses
 Direct materials
 Donations
 Dues and subscriptions
 Employee compensation
 Office supplies
 Training

The reverse of a controllable cost is a fixed cost, which can only be altered over a long period of
time. Examples of fixed costs are rent and insurance.

A cost could be uncontrollable at a low level of an organization, because a front -line manager is
not authorized to incur or stop the cost. However, a more senior manager might be given this
authority. Thus, it is possible for cost to be controllable at the higher levels of an organization
and uncontrollable lower down. For example, the decision to pay for employee training may
reside with a vice president and not with a local department manager, so the cost is controllable
for the vice president, but not for the department manager.

Definition: A controllable cost is an expense that a manager has the power to

influence. In other words, it’s a cost that management can increase or
decrease based on their business decisions. Keep in mind that this doesn’t
mean that the cost can be eliminated or controlled at will. A controllable cost is
just an expense that a manager has influence over.
What Does Controllable Cost Mean?
Control over costs is a relative term in the context of a business’ hierarchy.
Management at different levels of the organization have different levels of
 influence and different amounts of power over spending and allocation of
resources.

Example
For example, a factory floor worker probably doesn’t have control over any
company expenditures. His supervisors might have control over when
supplies are ordered, when maintenance is done on equipment, and how
much overtime the floor workers are allowed. To the supervisors, these costs
are controllable because he has the power and authority to influence them.

The supervisor doesn’t typically have the power to influence equipment

purchases, building acquisitions, or business mergers. Senior management
controls these costs because they make the business decisions at this level of
the organization.
Also, the definition of controllable costs can depend on timing. For example, a
newly hired executive in charge of insurance policies might not have control
over a policy that was put in place before his or her hire date. Once the policy
renews and the executive has the power and authority to influence the policy
along with its benefits, the costs are deemed to be controllable to that
executive.

The classification of controllable and non-controllable costs is especially

important when evaluating management responsibility, performance, and
compensation. Management responsible for more costs should be set to
higher standards than management with fewer responsibilities. Also,
management shouldn’t be blamed for cost problems when the manager has
no influencing power of the cost.
Think about the insurance policy example for instance.

Late fees, tickets, and fines

Fees are a classic example of drops in a bucket – one might not seem like a lot,
but fees can add up and deplete the budget for other areas of the business quickly.
Some examples of fees you may encounter as a restaurant owner or operator are:

 License and permit related late fees

 Parking tickets for a restaurant van or delivery vehicle
 Loan payments
 Late fees stemming from a water, gas, or internet bill
 Noise complaints
 Fines for over-serving patrons
 Fines related to health code violations
You can tackle and potentially do away with fees altogether with a little organization,
judicious planning, and staff training. Payments that result from poor business practices
– like overserving patrons or noise violations – can be avoided by staying compliant with
local law, you just need to make sure everyone on staff knows, and follows, all the
rules.

Based on your list of potential or recurring restaurant fees and tickets, enter any
recurring fee due dates in your calendar and schedule reminders that let you know
when bills are due, to stay ahead of them. A few minutes of planning can save you
hundreds of dollars.

Shop around to lower your electricity costs.

Electricity is a major hidden restaurant expense. While you might be able to limit some
wasteful habits and appliances, switching to a cheaper supplier is the easiest way to
save. Many states allow you to shop around.
Making this change will require that you make a hefty one-time time investment to
research and do your homework, but it could save you as much as 10% of your energy
costs. Say, for example, your monthly restaurant electricity bill is $1,000; you could be
saving $1,200 annually by reevaluating your electricity provider.

If electricity is a big cost for your restaurant, it’s also worth considering ways to
manipulate the light in your space through conscious restaurant design. The right wall
colors, counter surface materials, windows, and positioning of lamps and overhead
lights throughout your space can maximize the amount of light without increasing
costs. Check out our post about restaurant lighting to learn more.
Invest in smart restaurant technology.

High-tech solutions to old-fashioned problems – like theft and heating and cooling – are
getting ever-cheaper and easier to deal with

While limiting electricity usage can be hard, one exception is installing a smart
thermostat like such as Ecobee or Nest that allows you to track temperatures, schedule
heating and cooling times, and make necessary adjustments from your phone or
computer. Electric thermostats help you spend way less on electricity while maintaining
staff and customer happiness.
Similarly, now may be a great time to invest in a smart video camera. Be upfront with
your employees about where the cameras are — you don’t want them to feel that you’re
spying on them. You do, though, want them to feel that you’re keeping a careful watch
on what’s going on in your restaurant. And that’s going to be easy to do when you can
peek at the footage at any time or place from your phone.
On top of preventing theft, the cameras also help with disputes between customers and
staff, or between employees. A quick look at the footage can remove the confusion from
potentially costly disputes and legal action.
 Related Resource: How to Increase Restaurant Sales
Eliminate early clock-ins.

Making sure you monitor employee hours with the aim to eliminate early clock-ins is not
about nickel-and-diming anyone: It’s about making sure you treat all your employees
fairly — without allowing anyone to indulge in a loophole that can breed resentment and
take money out of another employee’s paycheck.

It will also help you predict and plan for your labor costs; proactive action could mean
big savings. The “early clock-in” loophole can easily cost a restaurant over $500 per
employee in a year. Say, for example, an employee regularly clocks in 12 minutes
before their shift begins: If you pay $15/hour, that’s $3 a day — or $15 per week —
$780 per year.

So how do you eliminate early clock-ins in your restaurant? Invest in a labor scheduling
and employee management tool – like 7Shifts or Homebase, both of which have free
options, depending on the size of your restaurant(s) – that integrates with your
restaurant point of sale. The best point of sale solutions, like the one available from
Toast, will have a clock-in enforcement feature that prevents staff from clocking in
before their shift starts. Often times, you can configure this setting to prevent clock-ins
20, 15, 10, or even 5 minutes before a shift starts.
Restaurant scheduling tools have many benefits: They save your data so you can learn
which shift models work best, they allow you to input individual employee preferences
(second jobs, requested time off) so that shifts are easier to schedule and more likely to
work out, and, if they’re cloud-based, employees can view their schedules from home
and pick up and drop shifts at their leisure.

Reduce Food Waste with Proper Back of House Management

Food costs are one of the top controllable costs in your restaurant. You should be
consistently analyzing and negotiating with vendors to ensure you’re getting the best
price possible. Did you know some vendors price differently per location? You could be
spending big bucks on an inventory item at location A, but have it under control at
location B.

Along with vendor relationship management, teach the back of house – specifically your
prep cooks – cutting and prepping techniques that keep food items fresher for longer,
and maximize the amount of product that is going onto plates rather than into a compost
bin or landfill.
To learn more effective ways to reduce food waste in your restaurant, check out these
posts from Toast:

 How to Reduce Food Waste in Your Restaurant

 New Study Finds Restaurant Food Waste Amounts to $2 Billion in Lost Profits
Conduct maintenance regularly
Unsubscribe from the "If it ain't broke, don't fix it" mentality.

What could be worse than an unexpected issue that takes down your fridge on a Friday
at 3:27pm?

You can reduce the risk of unexpected restaurant equipment failure by conducting
maintenance regularly, which will help you catch problems before they become big,
expensive, and date-night-destroying. Some equipment providers offer yearly
maintenance packages. Yearly maintenance plans tend to operate at the local level, so
you’ll have to do a little research to see what’s available in your area.
As a bonus, in the event that something does go wrong, you’ll know exactly who to call
and know that a person who already knows your equipment should be able to solve the
problem quickly. Plus, the plan will likely cover much of the cost. Think of yearly
maintenance as insurance on your restaurant equipment: one-time investment that
you’ll be thankful you paid that one time things go awry.

Save on printing, paper, and headaches with kitchen display screens.

You can reduce – or eliminate outright – a need for kitchen printer paper by investing
in investing in kitchen display screens. Restaurants that have a point of sale system
with integrated kitchen display screen (KDS) technology reduce ticket time, human
error, and the need for paper tickets. As soon as your guest orders, their ticket is sent
directly to the KDS, allowing the line to start preparing items seconds later.
Not only will this upgrade make for smoother front and back of house communication
and faster ticket and table turn times, but it will save you on printing and paper costs. In
2017, the Toast community saved 2,500 trees by adopting KDS into their back of house
operations.