Seeing Is Believing - But Not Deciding
How have you been affected by the cloud of ash from Eyjafjallajokull? (I just had to get this name into the newsletter!) I'm not going to join in the debate about the rights and wrongs of closing UK airspace. Instead I want to use this as an example of how the way we make decisions can be affected by factors we're not aware of. And of course, this can lead us to make poor decisions.
We all like to think we make decisions rationally, based on evidence, but in fact most of us aren't like that. Many other factors influence us - and in particular, I'm quite sure that we attach more importance to things if we can see them or touch them.
I think that's one reason the authorities had difficulty deciding what to do about the volcanic ash. No-one could see it, so it was a difficult problem to grasp. It wasn't simply difficult to solve - it was difficult to agree what kind of problem it was.
Of course, the kind of decisions I get involved in aren't as dramatic as the decision about closing UK airspace! But I do come across the same effect. Let me give you an example.
When you're planning a new warehouse it's easy to concentrate on the costs of what you can see, and attach much less importance to those you can't. In other words, it's easy to make decisions that reduce the cost of the building, without taking account the cost of what will go on inside.
But in fact, although you can't see it, your labour cost is far more important in the long run. You'll be paying this year after year, for the life of the building. And that can be anything from 10 to 25 years. You'll probably find that, over the life of your warehouse, about 65% of what you pay out will go on labour. Only about 15 % will be the cost of your building itself.
So what does this example show you? Don't be over-influenced by what you can see and touch. If you want to keep your costs as low as possible you should focus on your labour, not your building. In other words, devise an efficient way of working, and then design your building around that. This is how you build in low costs right from the start. Because one thing's for sure, you can't add them on afterwards.
And this doesn't just apply to buildings. With any capital item it's easy to focus on the purchase price (because that's the cost of what you see) and ignore all the other costs that come later - but form the majority of the full-life cost.
So, in a nutshell, what's the message this month?
When you're making a decision, be aware that it's natural to attach more importance to things you can see and touch than those you can't. And in particular, don't get distracted by purchase price. Think about your whole life cost - because that's where you money really goes, year after year.
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