Cost Avoidance Value Calculator

Work out cost avoidance value instantly with clear inputs, formula shown and shareable results.

About Cost Avoidance Value Calculator

Cost avoidance is the difference between what you would have paid and what you agreed. Measuring it against the market index is far more credible than measuring it against the supplier's opening proposal, which is an anchor rather than a baseline.

Formulas

Avoidance vs proposal

Avoided = Annual spend x (Proposed increase % - Agreed increase %)

Avoidance vs market

Avoided = Annual spend x (Market index increase % - Agreed increase %)

Worked example

With the default values below, Cost Avoidance Value Calculator returns Cost avoided against the supplier's proposal of $9,900,000.00. Change any input above and every figure here is recalculated in your browser.

Inputs used

Supplier's proposed increase: 9
Increase actually agreed: 3.5
Annual spend on the category: 180,000,000
Market index increase for the category: 6

Results

Cost avoided against the supplier's proposal: $9,900,000.00
Cost avoided against the market index: $4,500,000.00
Actual cost increase incurred: $6,300,000.00
Avoidance as % of spend: 5.500%

Step by step

1Values used
2Avoidance vs proposal
3Avoidance vs market
4Cost avoided against the supplier's proposal= 9,900,000.00
5Cost avoided against the market index= 4,500,000.00
6Actual cost increase incurred= 6,300,000.00
7Avoidance as % of spend= 5.500

Assumptions and limits

The result is derived only from the 4 inputs listed above. Anything not among them is not part of the calculation.
In particular, this calculator does not take inflation, tax or fees or charges into account.
Figures are rounded for display to 3 decimal places, so totals built from several rounded parts can differ slightly from the unrounded arithmetic.

How these calculators are built and tested is described on the Methodology page. If a figure looks wrong, please report it.

Frequently Asked Questions

Is cost avoidance a real saving?

It does not reduce the budget, so finance rarely credits it. It is genuine value, but it should be reported separately from cash savings.

Which baseline is defensible?

The market index. Claiming avoidance against an inflated supplier opening position invites justified scepticism.