The official business definition of cost savings versus cost avoidance is an important distinction to understand. Cost savings is the reduction in cost achieved through a reduction in spending, such as by reducing the number of employees or switching to a more cost-effective supplier. Cost avoidance, on the other hand, is the reduction in cost achieved by not incurring costs in the first place. For example, by avoiding a project that would have been costly or by implementing a process that eliminates the need for a certain type of expenditure. Cost savings and cost avoidance are both important strategies for businesses to reduce costs and improve their bottom line. However, it is important to understand the differences between the two in order to make the most of their potential.