Cold calculation: cost vs value

Say you’re considering a new project or improvement to your systems.

And let’s assume you also want to get a healthy return on investment so as not to waste precious resources.

So you’ll have to consider both the expected cost of this project and the expected value of completing it successfully.

Here’s a good reason to consider the value first:

As human beings, we are generally — and unfortunately — not as always honest with ourselves as we think we are.

There's quite a bit of truth behind the saying that people buy based on emotions and then justify that purchase based on logic.

It's just part of who we are as human beings.

And usually we don't even notice it.

So let's say you calculate the cost first. Now that you have some number in mind representing the cost, it's very easy to let that influence your calculation of the value.

The more excited (emotionally invested) you are about this project, the easier it will be for your brain to inflate the expected the value until it's higher than the cost, in order to justify the project.

On the other hand, if you calculate the value first, there’s no such temptation; since you haven’t spent a moment on estimating the cost, there’s just no way for that to influence your value estimation.

Here’s the thing:

Our excitement and emotions are powerful things. They can be one of the most effective motivators to carry us to completion when things get tough.

But when it’s time for cold, rational calculation, letting them sneak in is usually a mistake.

Do what you can to keep your business decisions objective and rational. Calculate the value before the cost.

All the best,
-A.