Don’t Go Cheap

Everyone likes to save money.  Getting something for less is a good idea.  Except!!

The thing you purchased might not meet all your requirements.  There is a fair price for everything.  If you buy something cheaper, there may be missing values.  Durability, reliability, fashion, ease of use, safety, customer support, or cutting edge options.  If you know what has been omitted to make the price lower then you can decide if the omission matters.   You can acquire a solution to your particular problem without incurring the cost for things you don’t need or use.

Price alone is a poor indicator.  A low price may in fact not be cheaper.  “I cannot afford anything that cheap.”  Without more detail, what is the highest price that you would pay for a factory second parachute?

Doing nothing looks cheap too, but often is not.

Suppose you are coaching business managers and in a meeting one says, “Let’s not go there it will just create a lot of conflict.”  Doing nothing will prevent the discussion of the conflict, but does that eliminate it?  Of course not.  The conflict is there regardless.  Doing nothing means the conflict gets to stay and debilitate the organization in unpredictable ways.  Doing nothing costs.

There is cost to do something and there is a cost to do nothing.  Sometimes doing nothing works, but not often.  Doing nothing is a decision as surely as doing something is.  You can analyze the cost of each and make your determination from there.

Doing nothing looks good yet fails because people relate to the wrong baseline.  The price.  If the price to do nothing is $0 and the price to do something is $10,000, it may feel right to do nothing.  If the cost to do nothing is $50,000 the choice is different.  Notice that assessing cost and price are not the same thing.

Price is an element of cost but cannot be the entire cost package.  Reconsider the factory second parachute.  In that case the analysis is fundamentally, “How much money must you save to risk your life?  Is the offered discount more than that?”

Proper problem solving and opportunity pursuit considers all the aspects.  Selectively choosing some factors seldom reaches the proper method.

The technique applies to more than conflict.  Loss prevention and risk analysis draw their methods from the same source.  You can avoid neither risk nor loss by ignoring it.  Insurance is one way to go and it is merely a way to finance those potential losses.

Cheap often does not work and that has been know for a very long time.  Consider John Ruskin on cheap.

Its unwise to pay too much, but its also unwise to pay too little.  When you pay too much, you lose a little money ….. that is all.  When you pay too little, you sometimes lose everything because the thing you bought was incapable of doing the thing it was bought to do.   The Common Law of business balance prohibits paying a little and getting a lot … it can’t be done. If you deal with the lowest bidder, it is well to add something for the risk you run, and if you do that, you will have enough to pay for something better.

Be wise. Cheap is expensive.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact: don@moneyfyi.com  

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