Thursday 17 September 2009

Money for nothing

One of the great myths of the modern age is that of ‘cost savings’!
Since the days of Thatcher ‘cost savings’ has been a buzz-phrase that has been bandied about by politicians and captains of industry alike. Yes you can on occasions buy the same product or service cheaper (although face value isn’t always a correct measure), and yes you can occasionally change a working method to a more efficient approach, but it is my opinion that these are the exception rather than the norm.

There are some that say never trust any politician. I’m not that cynical, I’m sure that the majority are trustworthy upright citizens. But, what I will say is, don’t believe a politician that tells you they can make cost savings in government, because they rarely can. Think about what cost or efficiency savings really mean. They mean either just not doing the job or getting someone else to do the job for less money. Don’t forget that there are associated costs in taking this type of action:

  • First there is the cost of the consultation with existing employees
  • Then there is redundancy payments
  • Then there is the cost of outsourcing the existing service, if applicable
  • Then there is the new service to pay for, if applicable
  • Plus, don’t forget that there’ll be the feasibility studies to be carried out prior to any changes and the inquiries after the changes to find out what has gone wrong. These all cost money

Another myth is that private companies can do the job better, for less money and make a profit. This is essentially cobblers, and involves the maths of cloud cuckoo land. I’ve been employed in private companies all my working life. Rarely are they efficient, nearly always they exploit. They make a profit by exploiting workers and suppliers alike. Morally it’s wrong, but putting aside the morals of worker exploitation it doesn’t make sense financially. Exploited worker pay less tax, will often need other social payments and benefits, and are less likely to take much pride in their work, especially if they have previously been employed at a higher rate or were on a more generous benefits package. You really do not get something for nothing

Cost savings = some poor sod losing their job and another poor sod being paid a pittance (that could well be the same person)

Efficiency savings = cutting corners and producing shoddy work

A similar principle applies when buying products/things.

The age old adage ‘you only get what you pay for‘ needs to be remembered more often than it is.

So let’s have a look at buying a product cheaper:
Only the idiot and the price comparison website compare price tags at face value. There is however one exception to this rule If you buy a branded product that you know how to, or can work out how to use, are not too bothered about delivery time, and you are not bothered about ‘customer service’, then buying by price alone is a good approach. That one exception out of the way, you must remember that with most items, the price tag is only part of the equation. You mustn’t forget to factor in is the time and effort it takes to find that bargain. Unless of course you are a sad git and your hobby is shopping. Then it’s okay because you will get some pleasure from it (hard to quantify financially but great for your wellbeing). But for us normal people whose time is precious spending hours to save a pound or two doesn’t make a great deal of sense.

The next trap is that of thinking that buying items of different manufacture purely on price is a good idea. The quality of the finished product, the quality of the raw materials and the quality of the labour involved will all influence what you get for your money. It would be like going out to buy your dream car and then buying a Fiat instead of a Honda. Or as an everyday example, expecting to get Tesco quality at Asda!
A lower price mostly, but not always, means a lower quality. You won’t often find that you can buy better for less

When it comes to buying for a company or organisation then the price tag most definitely is not the cost. A Company’s cost is made up of the price they pay the supplier and all the overhead costs associated with the purchase. It can actually cost a fair bit of money to raise a purchase order, estimates of around £50 - £75 are often bandied about. Prior to the purchase being made it can be costly sourcing the best price. On every transaction ‘cost to buy’ vs. ‘savings to be made’ need to be weighed up. Unless you can save several hundred pounds on one transaction, or thousands in a year, it’s probably not worth it. I realise that this is heresy in many quarters, but actually it is usually much more cost effective to do absolutely nothing.

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