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Organizations in today’s business environment struggle on how to reduce operation cost in order to set prices that can be afforded by many customers while obtaining reasonable profit. In order to reduce Operational Cost, service organizations have been working hard to identify techniques that facilitate business processes improvement for reduced Operational Cost. In so doing, the global literature indicates that service organizations adopt Business Process Re-engineering technique as a panacea of reducing Operational Cost. Despite a documented potentiality of Business Process Re-engineering technique, there are mixed empirical results, findings and conclusions regarding the effect of Business Process Re-engineering on Operational Cost. Therefore, this paper aimed at assessing and explaining effects of BPR on Operational Cost. The study used cross-sectional survey design to investigate the effect of BPR on Operational Cost. Intensive literature review enabled the construction of structural measurement model, formulation of testable hypotheses and operationalization of constructs. In order to test the model and hypotheses, data were collected from ninety five (95) service organizations in Tanzania. Results of the study reveal that BPR and delivering speed have no direct effects on Operational Cost; they indirectly affect Operational Cost through the mediations of service quality. Therefore, BPR influences first both service quality and delivery speed in affecting Operational Cost of service organizations. It is now recommended that service organizations should use Business Process Re-engineering as panacea of reducing Operational Cost.
