Cost Avoidance YTD metric calculation

  • Release version: Zurich
  • Updated March 31, 2025
  • 3 minutes to read

    • Cost Avoidance YTD measures the costs that were prevented through pipeline projects during the current calendar year. Unlike hard savings, which reflect a direct reduction in spend, cost avoidance captures expenditures that were not incurred.

    Cost avoidance captures prevented expenditures such as avoiding a price increase, preventing an unnecessary purchase, or reducing exposure to a risk-related cost. The metric operates on the same proration engine as Hard Savings YTD but reads from a different field on the project record.

    Metric definition

    The following attributes define the Cost Avoidance YTD metric:

    Attribute Detail
    Metric name Cost Avoidance Year-to-Date
    Pipeline state Closed Complete
    Savings field Annual cost avoidance
    Date range January 1 to December 31 of the current year
    Proration Yes — based on the overlap between the project's savings period and the current year
    Year-over-year comparison Yes — the metric automatically compares the current year total against the same date range in the previous year

    Differences between cost avoidance and hard savings

    Cost avoidance and hard savings represent distinct types of financial impact:

    Aspect Hard Savings Cost Avoidance
    Nature Direct reduction in budget spend Prevention of a cost that would otherwise have been incurred
    Field on project record Annual hard savings Annual cost avoidance
    Visibility on P&L Directly reflected Counterfactual — represents what was not spent
    Calculation logic Identical — both use the same proration engine Identical — both use the same proration engine

    How Cost Avoidance YTD Is Calculated

    The calculation follows the same steps as Hard Savings YTD. The only difference is that the system reads the Annual cost avoidance field on each project record rather than the Annual hard savings field.

    • Establish the date range: The system sets the calculation range to January 1 through December 31 of the current calendar year. The same process also runs against the previous year for comparison.
    • Identify qualifying projects: The system queries the pipeline project table for all Closed Complete projects assigned to the current user where the savings period overlaps with the target year and the project has a non-zero value in the Annual cost avoidance field.
    • Calculate overlap days for each project: The system identifies how many days of the project's savings period fall within the target year.
    • Calculate the per-day savings rate: The project's total cost avoidance value is divided by its duration in days, capped at 365 days for projects that span more than one year.
    • Prorate the savings: The prorated cost avoidance for each project equals the per-day rate multiplied by the overlap days.
    • Aggregate and round: The prorated values for all qualifying projects are summed and rounded to two decimal places.
    • Compute the year-over-year comparison: The same steps run against the previous year, and the system calculates the difference and percentage change.

    Proration formula

    The proration formula calculates the portion of cost avoidance that falls within the target year:

    Prorated Cost Avoidance = (Cost Avoidance ÷ min(Project Days, 365)) × Overlap Days

    Overlap Days represents the number of days the project's savings period intersects with the target year's date range.

    Example calculation

    The following scenario demonstrates how Cost Avoidance YTD is calculated for two pipeline projects during the year-to-date range of January 1 to December 31, 2024:

    Pipeline State Cost Avoidance Savings Start Savings End Project Days
    PIPE-101 (Prevented Price Increase) Closed Complete $200,000 Apr 1, 2024 Mar 31, 2025 365
    PIPE-102 (License Optimization) Closed Complete $90,000 Jan 1, 2024 Jun 30, 2024 181
    PIPE-101 has a partial overlap with the year-to-date range:
    • Project duration = 365 days (Apr 1, 2024 – Mar 31, 2025)
    • Overlap with YTD range = 275 days (Apr 1 – Dec 31, 2024)
    • Per-day rate = $200,000 ÷ 365 = $547.95/day
    • Prorated cost avoidance = $547.95 × 275 = $150,684.93
    PIPE-102 falls entirely within the year-to-date range:
    • Project duration = 181 days
    • Overlap with YTD range = 181 days (project falls entirely within the year)
    • Per-day rate = $90,000 ÷ 181 = $497.24/day
    • Prorated cost avoidance = $497.24 × 181 = $90,000.00

    Final aggregation

    The final aggregation sums the prorated values:

    Pipeline Prorated Cost Avoidance
    PIPE-101 $150,684.93
    PIPE-102 $90,000.00
    Total Cost Avoidance YTD $240,684.93