Management may reduce discretionary costs when there are cash flow difficulties, or when it wants to present enhanced short-term earnings. However, a prolonged period of reduction in discretionary costs gradually reduces the quality of a company's product pipeline, reduces awareness by customers, increases machine downtime, and may also decrease product quality and increase employee turnover.
Examples of discretionary costs are:
- Equipment maintenance
- Research and development
A discretionary cost is also known as a managed cost or a discretionary expenditure.