|
Focus on total cost, not just price
Wednesday, 20 September 2006
W Edwards Deming was an American college professor who played a big part in Japan's growth to industrial dominance after the Second World War. He boiled down much of his philosophy of business into 14 simple points, many of which are as relevant to the person in the street as to big corporations. His methods were so successful, that Japanese business ended up trouncing their American competitors for much of the 1980s.
One of his points that particularly rang true for me was to focus on the total cost of something rather than just its price. Specifically, his point was: "End the practice of awarding business on the basis of price tag alone. Instead, minimize total cost in the long run".
This is excellent advice for everybody.
Let me give you a couple of examples of the type of thing I believe Professor Deming was talking about, but translated to the average person.
I know some people who would prefer to buy a cheap second-hand car to a newer, more expensive model. They figure a car is a car and if you can save yourself $10,000 by taking something older, that's just money in your pocket.
The problem with such old cars is that they often end up costing a lot more than newer models - in mechanical problems and inconvenience. If your car fails to start in the morning and makes you late for a job interview, and you miss out on the job as a result, then it may well end up costing you more than you saved. If it needs a large number of mechanical repairs, these can quickly add up. If you spend three hours broken down on the highway every now and then, your precious time is being wasted.
Often, cheap cars aren't as cheap as they seem. Their buyers don't take the total cost into account, instead looking at the price-tag.
This can work in other more subtle ways as well. I know quite a few people who refuse to get vendor certifications in information technology because they have to pay $250 to sit the exams. In the late 1990s, I sat three vendor exams at a cost of $750. Soon afterwards, I was offered a job paying more than that a day. Of course, the certifications weren't the only reason I got the job, but they helped.
By rejecting the certifications on the basis of the price-tag of the exam, those who refused to take them weren't looking at the total cost. If the certifications got them more than just one extra day's work, they were worth the price.
In most transactions you undertake, look at the total cost rather than just the price tag. If a cheap chair gives you back-pain, then the saving isn't worth it. If a cheap worker does a bad job, the total cost can be huge. If a $5 saving costs you an hour of shopping around, then it's not worth pursuing.
In all your dealings, focus on total cost rather than the price-tag. The rewards of doing so are well worth it.
 | For proof of your own potential genius, just look around you | | What is the difference between you and a person struggling to scratch out a living from nature 50,000 years ago? Biologically, nothing. You are essentially identical. You just got lucky in the draw of history and were born into the modern world. But how this modern world was built must be the greatest story ever told. There we were a few thousand generations back, dropped naked in the dust. And he we are now, flying into space, building the internet and destroying deadly microbes. |  | Too much self-belief can be expensive | | We are often told about how important self-belief is. We're told to be optimistic, think positive and view ourselves as born special and unique. This is all well and good, but at times it can also be damaging. Too much self-belief can actually limit your potential. | | Take lots of small losses for some big wins | | Poker strategy contains many good lessons about dealing with the world. The best of all is that you have to be willing to take lots of small losses in order to hunt out a few big gains. |  | Taking charge of your eating habits | | Many people have trouble controlling their eating habits. You can see it in the rapidly expanding waistlines of the world's population. But what we decide to take into our bodies is something we can take charge of. |  | The world is an amazing place | | "Man is born free, yet everywhere he lies in chains," Voltaire said. He could just as easily have been talking about internal chains as external ones. | | Shaping the behavior of others | | We all have people in our lives who we wish would behave differently. It may be the person who cuts us off when we're driving, or the work-mate who's abusive, or the child who's too rebellious. What can we do to make these people act in the way we want them to? |  | 101 suggestions for squeezing more fun out of life | | Life can sometimes seem like a real drag. The work, worry, stress, chores and general boredom can really get you down. Going to the gym, watching TV and surfing the web are all okay, but often when it comes to having real fun they just don't cut it. | | Become expert at identifying your own weaknesses | | We live in a society that promotes the cult of self-esteem. Anything goes as long as we feel great about ourselves, or so we're led to think. Believing we may have flaws is a big no-no and certain to have a negative impact on our success. |  | The best way to influence the behavior of others | | We are all dependent on one another. We need other people and they need us in order to live the best lives we can. But other people are generally outside of our control. So one of the biggest problem anyone faces is how to get others to behave in the way we want them to. | | Is it better to read fiction or non-fiction? | | One of the most popular articles I’ve written on this site so far has been Five excellent mind habits to develop. It’s been generally well received, but I have come in for some criticism for my belief that it’s a better mind habit to read non-fiction than fiction. |
New articles are being added all the time, so make sure you bookmark Paul's Tips and come back.
|
|