An uncontrollable cost is an expense over which a person has no direct control. The concept most commonly applies to the manager of a department, whose departmental expenses include several line items which he has no ability to alter. Uncontrollable costs can be a concern when a manager is being judged based on departmental expenses. Ideally, these costs should be stripped out of an organization’s responsibility reporting, so that the recipients of these reports only see revenue and expense items over which they have direct control.

Example of Uncontrollable Costs

For example, there is a scheduled increase in the rent payment to the landlord, and a portion of this expense is allocated to a department that occupies a portion of the rented property. The manager of that department appears to be managing his expenses poorly because of the rent expense increase, even though he was not responsible for the rent agreement.

Types of Uncontrollable Costs

There are many types of uncontrollable costs, of which the following are the most common:

Rent and lease expenses. Rent and lease payments for office space, warehouses, or equipment are typically set by contractual agreements and cannot be adjusted by individual department managers. These costs remain constant over the lease term regardless of changes in departmental activity levels.
Insurance premiums. Insurance costs, such as liability, property, or health insurance premiums, are determined by external providers and corporate policies. Individual managers usually have no control over the selection or pricing of insurance coverage.
Depreciation expense. Depreciation reflects the allocation of the cost of fixed assets over their useful lives and is based on accounting policies, not managerial decisions. Managers cannot influence the depreciation method or schedule once assets are purchased.
Property taxes. Property taxes are imposed by government authorities based on property valuations and tax rates. Managers have no influence over the amount assessed or when payments are due.
Allocated corporate overhead. Shared service costs like IT support, human resources, and corporate administration are often allocated to departments based on formulas or usage estimates. Departmental managers cannot directly affect the total corporate overhead or the basis of allocation.
Regulatory compliance costs. Expenses related to complying with government regulations, such as environmental monitoring or workplace safety audits, are mandated externally. Managers must adhere to these requirements and cannot alter the cost or scope of compliance.