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Why You Need to Know the Difference Between “Value” and “Cost”

Why You Need to Know the Difference Between “Value” and “Cost”

There’s no denying that the numbers on an IT invoice can be intimidating, to say the least. However, when making important decisions about your IT, you need to also look deeper than the numbers, to what you are actually going to gain by making one investment over another. This is the difference between comparing cost and comparing value.

Analyzing Cost

The word ‘cost’ is one that is familiar to most. In essence, it is what you have to give up in order to receive something else. While it is perhaps most familiar in the financial sense, cost can also refer to time, effort, or any other finite resource. By analyzing cost, you are directly focusing on how much less of one of these resources you will have, in the exchange for more of another.

Don’t get us wrong, it is important to factor in your costs as you evaluate your business’ plans. The problem comes into play when cost is the only factor that is considered, as cost only tells half of the story.

By its nature, analyzing cost strictly focuses on what you lose. What resources will you be sacrificing to do this? How much money will doing that put you back? What will you be unable to do if you take this course of action?

In order to properly make a fully informed business decision (or any decision, for that matter), you have to also consider the other half of the story as well: that decision’s inherent value.

Analyzing Value
Counter to the analysis of costs, analyzing the value that a decision will bring you can help you determine what you gain. While again, it is perhaps most often seen in the financial sense (“Is this purchase worth it?”), value can take many different forms. Sometimes, making a particular decision will boost your standing with a prospective client, or will open you up to more opportunities down the line.

So, rather than focusing on what a new workstation will cost you financially, compare that cost to the potential benefits that the new and improved workstation will be able to bring to your business. Will it increase your productivity? Will you have access to improved solutions that ultimately translate into improved employee satisfaction, and therefore, greater talent retention? Will you be able to better serve your market, fostering loyalty in new and existing clients?

Calculating Your IT’s Value
In order to establish how much value a certain endeavor or initiative has brought your company, it helps to compare it mathematically. Not only will this help you to track what you have invested into a given initiative, it will also help you to calculate the optimal outlay for maximum value.

To calculate this, it may take a little trial-and-error, with some simple tracking of the results. Using a simple “x=y” equation, insert your invested cost for “x” and the result for “y.”

Let’s assume you’re determining how much time to spend on a particular initiative. If, for example, you figure out that your investment into your technology increases productivity, you can track the ratio of productivity-to-investment until the benefit tops out and starts to fall again. Let’s further assume that you observe that investing $25 extra into a workstation increases productivity by 10% and investing $30 extra will increase it by 17%. If investing $31 only increases productivity by 16%, you’ll be able to narrow down your optimal spend to between $25 and $30, maximizing your value.

Strata Information Technology can offer you the solutions that can provide you with maximum value. Reach out to us at 888.678.7282 for more information.

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