Usually, when a business owner draws up their budget, or when they’re forecasting, they try to get all of the information necessary to make a decision. So they check as many costs as they can, see which ones they can control, see how they can turn a profit, and move in the right direction. Sadly, not all business directors (or, really, many people who try to look at their costs) can find all of the costs. At times, it could be that they can’t see how some costs affect their business. Or, they don’t see the costs at all. The reason could be that they can’t look at the costs at different levels.
Let’s take the cost of food. Many will say that the cost of food has increased. I have heard that it’s less expensive to eat out than it is to buy your own ingredients. But this is not always the case. A person can buy the ingredients and choose the size of portions which go into the meal. Unlike a restaurant, where their portion sizes tend to be fixed (or even decrease after about a year), a home cook can just throw in a few units of the ingredient, and have a meal. Heck, when I’m cooking something and using a recipe, I always slash the units that the recipe uses, and go with half the amount. I can save the ingredients for another day, or even make leftovers. But saving on the size of the ingredients and food is only a part of looking at it.
In a recent article on the BBC, it was said that an American woman in the 50s and 60s would spend hours in the kitchen preparing meals. Not all of these women were average; some were highly educated and came from well-to-do families. Food preparation in the home was the usual thing to do. But in the 60s, prepared foods, like TV dinners, came on to the scene. More and more the mother would spend less time in the kitchen. So is this a good thing? Again, it depends on your perspective.
Now that people don’t need to spend so much time in the kitchen, they are freed up to do other things. Things such as eating out, which is what many people do. The BBC article says that Americans spend more on food and drink outside of the home than inside the home. So when a family looks at their grocery bill and gasps at how high it is, they usually don’t contrast this with how expensive eating out can be. The food that the restaurant makes is usually great, but that comes at a high cost, too. The cost to acquire that food usually varies, but it may be a lower cost than the cost of buying it at grocery store (often times, it is). The restaurant, though, has to add in the cost of many other things, such as labor and rent, because they need to turn a profit.
How does this relate to other businesses? The metrics the business may use to determine how costly something is may only be one way of seeing it. For instance, a company may look at how much power their servers use, which is usually measured in watts per hour. This metric can be used to determine whether to buy servers, or to outsource it (maybe for cloud services). While this is a perfectly good metric, one other metric to consider is how many times the proposed company has had outages at their datacenter, and how they’ve handled these outages. One other metric (albeit a more involved one) is the cost of moving the company data once the contract has ended with the outsourced company. These are just some examples of how a company should look at possible costs differently.
Please note that I’m not saying that the decision-makers at companies don’t take as many costs into consideration. Ideally, they will take all of the important costs into consideration. The problem is looking at what costs really matter, and what the company can do about them.