The Real Cost Of Buying

In a business class during my college days, our group was tasked to present a simple buy or lease problem. If I remember correctly, it was about electric golf carts. We were able to prove financially that one option was better than the other. We all thought that it was so simple that we had time to spruce up our presentation injecting humorous slides while the other groups had to scramble with pages upon pages of figures on plain manila paper to present their own problems. We ended up with the best presentation that semester.

Who would have thought that 20 or so years later, I would encounter this same problem over and over again. Now I know why we got the best presentation. It wasn't the content. It was the way it was presented. Given that it was a simple book problem, most of the intangible and hidden cost of buying was ignored leaving only a simple financial transaction.

In the real world, it is much the same. Decision makers trust numbers and if you can not quantify the intangibles, they do not put it in the decision process. For TVs, in particular, consider the cost of allocating resources to allow for regular wear and tear breakdowns - downtime, spare units, spare parts, storage space, additional personnel salaries and benefits, repair quotation processing, evaluating repair estimates, purchasing, inventory management, pilferage, overspending, and so on. These, in turn, creates over-inflated budgets with lots of room for manuevering.

Because reparing your own unit cost money and require time for the approval process (which in turn requires facetime with supervisors), most of the times, the people below tend to make quick and dirty solutions and would only approach management if the problem has worsen already. At this time, cost of repairs are also high already but, interestingly enough, easily justifiable to the higher up as the problem is big already. They could have avoided the major repairs had they been made aware and given much attention to the minor ones.

All these affects the most important aspect of them all. Customer satisfaction. Ever wonder why patients complain that they keep getting a hard time getting the remote control? Could it be your time consuming process of having it replaced once lost or damaged.

If I could go back in time to that college business class, I would have added most of these factors and gave a more balanced and realistic picture of a not-so-simple problem. It would have led to a more interesting discussion. We might not have ended up with the best presentation as there would have been more variables to consider and no time for a spruced up presentation. But, it would have been more satisfying.

Edgar Diaz is a graduate of B. S. Industrial Engineering from the University Of The Philippines Diliman.