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Wednesday, July 11, 2012

When Efficiency Is NOT the Chosen Path

The mixed messages commenting on the state of the economy are confusing at best, and offer little of use for planning and forecasting in the business or government sectors. Conflicting variables affecting budget, scope, and demand add to the complexity. The uncertainty and inertia leads to delays in new initiatives by the decision-makers in organizations.

I find that an individual example on a small scale gives clear focus on the larger situation that decision-makers face in their organizations.

A service tech told my friend that his A/C was working below standard levels and some components could fail without warning (meanwhile it was keeping the house temperature cool). A new heat-A/C system costing $6,000 would eliminate the risk and save about $1800/yr on heating oil and $500 on summer electricity. Back-of-the-envelope savings would pay for the new system in under 3 years, whereas repair costs for the existing system would be about $2,000 when it broke down.

The friend said he decided to keep the old system and reserve the cost of repair instead of buying the new system. His reasoning – cost of operating the existing system is a known and the repair does not diminish resources as greatly in the short-term – during this period of uncertainty – even though investing in the new system offers greater savings for the long-term. The decision came down to the comfort of having the $4,000 cost difference in hand versus reducing operating expense over future years.

On a much greater scale, the decisions for organizations are a choice, in the face of uncertainty, between resources at hand now versus investment in improvements benefiting future years. Deja vu of the business temperament following the Great Depression of the 1930's.

And yet, it adds to the uncertainty that some organizations and segments of the economy that are in growth mode. Why the disparity. One explanation - William Gibson says “The future is already here — it's just not very evenly distributed.”

Is this a glimpse of coming change or just isolated system anomalies? 

1 comment:

Thoughthebrowser said...

I was talking to a CEO who I think is doing a damn good job. He said, "I don't have a 90 day horizon. My Board is unhappy with our results and would let me go in a minute if they thought they could find someone else to take the job."

His people have to know that. How can they plan for beyond next week?