The topic of this master's thesis is "Cost management in the public sector of the Republic of Croatia", which will closely explain the term of costs, along with its subdivisions which make it possible to supervise business activities, as well as controlling costs of a company more easily, so as to conduct business more efficiently. The next part of the thesis focuses on the process of managing costs, which is of crucial importance for increasing the profitability in all types of companies. Furthermore, the public sector of the Republic of Croatia itself, which consists of the general state and public companies, is explained. The work uses the example of Croatian Forests Ltd., which is a non-financial public company, and which is monitored when it comes to certain types of costs. As a result of careful supervision of costs of a supervised company, an analysis of the results that are obtained in the research is done, as well as the ways for managing costs more efficiently. The goal of the research mentioned above is to indicate the flaws, and to point out the advantages of using a specific method of managing costs in Croatian Forests Ltd., with the goal of achieving progress when it comes to profitability of a business. The research part of the thesis leads to cognition about profit reduction of the financial years in observed period of time (2016. – 2018.). That kind of profit reduction is a result of nonexistent or extremely slow income growth, on the other hand, costs in this time period records double the rates.