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Frugal or Cheap?

Are you one or the other?

Frugality is the practice of (from Wikipedia)

  1. acquiring goods and services in a restrained manner, and
  2. resourcefully using already owned economic goods and services, to
  3. achieve a longer term goal.

Cheap is..

The Cambridge dictionary includes the definition as “someone who is unwilling to spend money”

So which one are you?  Do you acquire software weighing price against benefit?  Or do you just look at the price?

When figuring out when to purchase software or hardware, you need to take into account many things.  CAD Managers have to balance many differing inputs before determining when and what to buy.

Here are a few of them…

Cost – how much money?

Value – What does it produce, fix, speed up, stop, or expand

Business Need – What project needs it?

Length of service – how long will the tool be used?

Breadth of Need – how many people need it?

Training – how much training will be needed?

Time to deploy and support

My list is not exhaustive.  I am sure that more comes into play.

Can you think of any other things that you have to think through before making a purchase?

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1 Comment (Open | Close)

1 Comment To "Frugal or Cheap?"

#1 Comment By JM On August 13, 2008 @ 3:52 AM

These initial questions do well to define cost/benefit factors for any given solution. Take an additional step by comparing different solutions using the same cost/benefit criteria. This is the basis of forming budget projections and should include these additional questions:

What is the cost/benefit of the most nearly comparable alternative product/solution?

What is the cost/benefit of using existing alternative methods to address the initial issue or problem but changing other factors (i.e.: production timelines, resources and/or staff applied to tasks, etc.)?

What is the cost/benefit of the loss of a solution to the next problem you would have addressed with the same money?

It is also critical to consider the amount of money spent on any purchase by considering the diminishing marginal returns on that expenditure. Example: spending $5,000 on computer memory may save $50,000 a year in recouped productivity, however, the recouped savings on productivity may be $48,000 a year if only $3,000 is spent. The difference in expenditure ($5,000 – $3,000 = $2,000) equals the difference in increased productivity ($50,000 – $48,000 = $2,000). Consequently, there was no marginal return on spending the last $2,000 dollars (spending more doesn’t always return more). More importantly, that $2,000 could have been spent on other matters which would provided additional production increases.

Perhaps the most important thing to consider is that value of any purchase must be compared to the value of the purchase not made. In economic terms this is called “opportunity cost”: literally, the cost of the opportunity you passed up.