Cost Reduction is a tangible (or hard savings) benefit from a project. It reduces the cash outflow of the organization and thus gets reflected in the financial statements.
Cost Avoidance is an intangible (or soft savings) benefit from a project. It avoids incurring a potential cost in the future. Because cost avoidance does not impact the current cash flows, it never gets reflected in the financial statements.
An application-oriented question on the topic along with responses can be seen below. The best answer was provided by Glory Gerald on 13th Nov 2020.
Applause for all the respondents - Rajesh Patwardhan, Glory Gerald, Aritra Das Gupta, Ibukun Onifade.
Also review the answer provided by Mr Venugopal R, Benchmark Six Sigma's in-house expert.