What is a False Economy?

September 7, 2019 Joseph Hernandez 0Comment

Whether a Fortune 500 behemoth or a small, mom-and-pop shop, all companies want to sustain economy. They want to ensure that their policies, products and procedures (regarding the staff they employ, the people they serve and the services they offer) maintain their value when compared against their expense (of time, money, effort and resources). To do this, businesses have to make good decisions. They have to choose actions that benefit not only their bottom lines, but their missions, as well. It’s not always as easy as it sounds. In the rush to make good decisions, many lose sight of extraneous details that could affect profitable outcomes. Read on to learn about false economies:


A Definition

According to the Oxford English Dictionary, the word economy refers to “the careful management of available resources.” It can alternately be used to signify “good value for money,” “careful use of something” or the financial “state” of a country or region. In it’s broadest sense, economy means “financial saving.” A false economy, therefore, is a system that appears to offer a fiscal benefit but, in actuality, doesn’t. For example, many people review DACA history (legislation that permits Delayed Action on Childhood Arrivals) and conclude that rescinding the program would benefit the American economy by allowing U.S. citizens to take back the jobs that DACA recipients currently hold. In reality, however, many studies show that, not only would the termination of DACA benefits not financially benefit the US, it would, indeed, severely harm it (to the tune of almost $450 billion in combined income and tax revenue). On a smaller scale, a false economy might exist if you choose a less expensive couch and then have to replace it in three years because it wasn’t built with quality materials. You think you are making a good decision and saving money, but in the end you actually spend (and waste) more!


A Solution

Of course, it’s a lot easier to identify a false economy in hindsight. For businesses, who have to strategically contemplate every action they take, whether it’s buying 32 lb bond paper or 65 lb cover stock or whether it’s choosing (or not) to spend $100,000 on market research, it can be difficult to weigh all the implications of a decision upfront. Will the weight of marketing materials turn people off? Will research really reveal any unknowns? To combat the effects of poor decisions and false economies, then, you must ask questions and lots of them. Assessing all the risks associated with a decision will help you determine the path you should take. But be careful that you aren’t just strictly weighing the financial consequences to your decisions in monetary terms. Some decisions would undoubtably save you dollars but could cost you priceless good morale in the workplace and/or damage your brand equity in the marketplace. Employees could lose productivity because they don’t feel valued or customers could become disillusioned with your vision and stop supporting you. Either situation could cause just as much damage to your bottomline as a poorly planned “expense.” To save your business from a false economy, make sure that you take time to thoroughly weigh the pros and cons of all your decisions, no matter how simple your choices might seem!

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