Cost vs Value

How well do we manage cost vs value? Do most people even know the difference?

We always notice cost and we even have a commonly used phrase "cost conscious", but have you ever heard anybody mention "value conscious"?

Concentrating on Cost is a big mistake, whether relating to staff wages, contractor charges, the price of a car or a holiday.

Without considering both value and cost we are making judgments based on only one side of an equation. This often results in poor, but predictable, outcomes.

There is a good old saying that somebody knows the price of everything and the value of nothing.

The brain surgeon, who saves your life, would be surprised should you complain that his years of learning, his skills and abilities are only measured to a dollar value. That would ignore a fairly substantial Value, your life.

The problem is that unless we view the Value component of any transaction and clearly define what represents value or what value we are trying to extract, we have no way to judge the Cost of such a transaction.

Driving across town for 30 minutes to save $10 is just plain silly, yet all of us are guilty of having done just that, at some point. When our brain is in neutral and our wallet is in charge, we are "cost conscious" .

Then there is the "invisible" cost in transactions we hardly ever consider. The other day I had my aircon serviced at home. I know my service guy as I have used him for years and we got to having a chat about business in general including this Cost issue. He is both an electrician and an aircon specialist.

Before he gets out of bed, he has to pay two loads of insurance, requires different licenses to operate in QLD & NSW, requires different licenses for different gasses used and a great deal more. He has to spread this cost over all the work he performs and has no choice but to reclaim this from his customers.

That cafes where you stop for your morning flat white is exposed to fees, licenses and charges, even for something as ridiculous as having one or two tables outside their shops. They have to license every chair and have arbitrary limits imposed. A real example is a cafe where they can have two tables and 7 chairs, go figure.

When we employ staff it is our responsibility to ensure we extract the value their efforts are supposed to deliver. It presuppose that we understand what this is and how to measure it.

Recently I spoke to a business owner who complained that he had some useless staff and had no idea what to do about it. I happen to know both his business and staff and the real problem is that the staff lack the tools they need and the business owner is a bad manager and poor communicator.

So when next you get ready to complain about Cost, have a good think about what Value you are getting and what part of the Value equation is in your own hands.

Dont forget to consider the Value you are providing when supplying service to your clients.

However, there is a small underlying problem, we generally believe ourselves to be rational, intelligent and able to approach any matter with reason and logic.

Under this assumption it should be easy for any of us to solve this Cost / Value equation, unfortunately it turns out we don't make decisions using our intelligence, reason or logic.

But we'll get to behavioural economics another day.

For a little brain stimulation (and for your entertainment), check out this clip.