Such a Bargain!

I recently read the claim that, “Each American wastes $300 worth of food every year.” That’s right, three hundred dollars of food is wasted per person per year. The piece went on to offer a variety of products designed to help people eliminate this waste from their lives. Naturally, this is something worth jumping on, right? Well, let’s take a look: $300 per year comes out to 82 cents per day, slightly less on leap years. For a family of four, we’re talking about wasting $2.50 per day. Would it be nice to eliminate that waste? Of course it would; the question is whether or not it’s worthwhile. How much effort is involved in saving $.82 of wasted food per person each day? Just how much food is that anyway? A few grapes? Half a cup of coffee? What is the cost of that effort in terms of time, money, and emotional energy against the returns obtained: $300 in a year, plus whatever sense of feeling good that may result? One fewer cup of coffee each day would save far more than $.86, but is it worth it? Intangibles, such as concentration, motivation, alertness, happiness, and so forth, are difficult to measure, but their lack definitely impacts the bottom line.

One always has to wonder if a savings or a bargain is really as good as it seems. While it’s initially very easy to find major savings in almost anything, as the system becomes steadily more efficient it becomes harder and harder to continue to find cost-effective savings. Thus, requiring employees to not fly first class is an easy way to save quite a bit of money and probably will not significantly impact business. Requiring employees to fly red-eye flights in order to gain minor savings can have a significant impact on productivity, creativity, and decision making. In this situation, only the easily measured aspect of the value gained is being examined: the cost savings on the airline ticket. Why the company is sending the person on the flight, what benefits the company hopes to gain by doing so, and whether those benefits will still be achieved if the employee is sleep-deprived or unable to concentrate during the flight are not being factored in.

Naturally, this is a mindset that manifests in a variety of ways in a business. At one company I worked with, an engineer requested a raise; this employee had a skill set that was very much in demand, and he had discovered that he was being significantly underpaid. The CEO refused on the logic that it would cost the company too much to provide the raise. The person quit, taking a job at a salary considerably higher than what he’d asked for at his original company: he wanted to stay, he just didn’t want to feel taken advantage of. The CEO discovered that it was not so easy to find someone with that skillset, especially at the salary they were willing to pay. They eventually found someone much less experienced and whom they had to pay almost as much as the person who had left. The CEO was actually happy because he hadn’t had to pay a salary for about six months, and then “got a bargain” because the new person was slightly cheaper. The engineering team was furious because they lost the expertise of the person. The cost to the company of not having available the skills and knowledge of the senior engineer is, of course, impossible to calculate. Clearly, however, this person provided some value or he would never have been hired in the first place. It’s worth noting that the company is no longer in business.

Now, the fact is, people love bargains. Most of us love a chance to save some money or make things a little more efficient. The problem is things are often worth what they cost. There’s a reason why a BMW is considerably more expensive than a Saturn or a top notch engineer demands a higher salary than someone less skilled: in the case of the engineer, you expect a far greater return on your investment. It’s not a bargain if it ends up costing you more than you gained. It’s not a savings if the effort involved in saving the money reduces the value of the result by more than the amount saved: saving $.86 on food is going to cost most people at least several dollars a day in effort or lost opportunities.

So how does a company go about figuring out whether or not something really is a bargain? It’s extremely important to ask the right questions:

  • What are we trying to accomplish? In other words, what is the actual problem we’re facing?
  • What savings are we looking for? What benefits do we think will accrue?
  • What is the cost of this solution? Are we looking only at things that are easily measured, such as an expense report or a salary? What intangible factors, such as team productivity, motivation, happiness, increased distraction, etc, might factor in?
  • What does success look like? How narrowly or broadly are we defining it?
  • What opportunities will this solution cost us? Is there another way?

It’s time to see what your bargains and your savings are costing your company.

This article originally published at Practical Performance Analyst.

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