Monday, February 11, 2008


Is Fear Keeping You From Knowing the True Cost of Your Machinery?


Mark Twain the great American author once said; "I am an old man and have known a great many troubles, but most of them never happened."

In the thousands of people I have worked with in over 81 different countries, the one thing I often hear and see in many people is fear. Fear of the unknown. Fear of losing the business and success they have enjoyed. Fear of old age. Fear of poverty. Fear of sickness or loss of health. Fear of a recession. Fear of strangers (or slick sales reps) taking advantage of them. Fear of not being good enough. Fear of change. Fear of the loss of respect. Fear of the loss of social position. Fear of not knowing or being smart enough. This list goes on and on.


The one that gets me is the large number of employees and even owners of businesses who are actually afraid of knowing their true costs. If you look, you can see fear expressed in their language. People use many excuses for not costing their machinery. Sometimes fear is hidden. Sometimes fear is directly expressed. Here are but a few:

  • "If I included ALL my costs, I would never get a job." (Fear of loss)
  • "Cost doesn’t matter, only getting work does." (Fear of loss)
  • "These other large contractors and equipment dealers certainly know what their cost is. If they can do it for that price, I can." (insecurity in your ability to calculate cost)
  • "My accountant tells me what our machinery cost is." (see my last blog at http://decisivecost.blogspot.com/2008/01/why-your-accountant-may-be-putting-you.html )
  • "I make my money out in the field, not in the office." (insecurity)
  • "I am too busy to cost." (if you are too busy to know cost, you are too busy to be in business. (Often fear keeps us too busy)
  • "I am not good with computers." (Fear of the unknown)
  • "If I raised my price, I would not get any business." (Fear of loss)


So permit me to ask the impertinent question. What fears and insecurities are keeping you from knowing your cost?


Steven Bechtel the founder of Bechtel, the worldwide construction and engineering powerhouse once wrote that knowing cost was critical to his success. They considered their cost records to be so important that every night they locked their cost books up in the safe. Do you take knowing your real cost this important?


Running your business based on fears, insecurities and excuses for not knowing true cost are common. This major factor causes many to go out of business. You need to make up your mind that to be successful in the long term, you need to know your true cost.


We need to quit worrying about everyone else’s price. You need to know your own cost. It literally almost does not matter at what price someone else prices his or her services. The FIRST question you must answer is what is your cost? You must know exactly what is the least price for which you can put your equipment to work. Somebody will ALWAYS be willing to take a job for less than your cost! Quit worrying about it and do something that makes your services worth more.


One of the biggest mistakes many people make is assuming that your competitor knows his cost. I can guarantee you that there is only a one in a thousand chance that your competitor knows his machinery cost. I have worked with some of the biggest companies in the world. The big guys can be and often are, as much in the dark as to their true machine cost, as anyone. This happens for two reasons, first because the owners of the company are further away from points of cost, than in smaller companies. The second reason is that larger companies often are highly influenced by accounting practices that do not properly deal with machine cost. (See my last blog at http://decisivecost.blogspot.com/2008/01/why-your-accountant-may-be-putting-you.html

Many businesses are still struggling to know their cost for machinery. For example, can you tell me in 20 seconds or less the following questions?

  • "How many hours each of your machines ran last week?
  • "How many gallons of fuel did each of your machines consume over the last thee weeks?
  • "What are the highest and lowest gallons (or liters) per hour consumed by each machine? What’s the average
  • "How many dollars of wear and tear did last week work put on the undercarriage of your tracked equipment?
  • "For the project that you are bidding or tendering today, how many dollars in machinery wear and tear, will it cost you, if you win the project? Exactly how was this calculated?
  • "If fuel goes up or down seven cents, how did that change affect the cost of each of your machines and the cost of the project you are bidding or tendering today?
  • "How much is the cost per hour of the tires on that wheel loader?
  • "How does differing conditions of use affect the tire costs? (commonly this can change from on one machine from $6.00 per hour to $89.00)
  • "If your hours of use of machine goes down by 250 hours in a year, by how much does your cost per hour change?


So permit me to ask the impertinent question again. What fears or insecurities are keeping you from knowing your cost? Why wouldn’t you want to know your exact cost? This is especially true if you could know your cost for any machine in 2 minutes or less.


Today we (the world) has software that acts as tools to extend your abilities to know things about your business that you never before knew. These software tools do not replace you, they are an extension of you. They works just as an excavator works to extend the work a man can do with a hand shovel.


Have you seen the science fiction writer’s dreams of an exoskeleton suit that a man puts on and it gives him incredible super human power and strength? It turns him in a kind of superman. Software gives you the ability to do things you could not do before, even if you could somehow extend the 24 hours in a day.


Good, well-designed software duplicates Best Practices. It brings into your company the processes that the smartest, most knowledgeable people are using today. It can leap frog your company into doing things your competitor is only dreaming about doing.


You may ask, "Isn’t software that is specially created for my industry expensive?" Well the answer is yes and no. It is more expensive than mass-market software like QuickBooks and Microsoft. These companies can divide their millions of dollars of development cost over millions and millions of businesses. You need software custom designed for your specific industry.
Every dollar you spend for software should make you ten dollars, in every year that you use and own it. If it does not, you bought the wrong software or you failed to properly implement and integrate it into your business processes. Today many companies (like my company), offer financing and lease-purchase of software. This spreads out your upfront cash cost. Do not let money hold you back.


Many of your machines will cost you over one million dollars during their lifetime for owning and operating cost. If you have 10, 25, 100 or more machines in your fleet, how much can you afford to spend to better manage, control this multi-million dollar cost? $250.?, $500.? $1,000.?


When you buy even a small machine for say $63,497, what difference does another $1,000.up or down, honestly make? If you could buy an option on a machine for $2000. that could make you $50,000., would you buy it? Think of software that helps you manage and control your investment as an option that you add after you purchase a machine for far, far less than $2,000 a machine.


Back to fear. The best way to deal with fear is to confront it in the daylight. Get it out in the open. Admit your fear and honest feelings. Ask yourself what is the worst thing that could happen. Dale Carnegie wrote a timeless and great book called How to Stop Worrying and Start Living (You can review it by clicking here: http://books.google.com/books#id=yCKmKv99NoIC&dq=Dale+Carnegie&hl=en&prev=http://www.google.com/search?hl=en&rls=GGLG,GGLG:2005-31,GGLG:en&q=Dale+carnegie&btnG=Search&sa=X&oi=print&ct=result&cd=1&cad=author-navigational )


Do not allow fear to control your life. Power through. There is wisdom in a multitude of counselors. Bring in an expert who knows your type of business and machinery to help you make more money.


I do not care how much you made or lost in the past, you can do better. It does not matter how you always have done it in the past. It makes no difference how your dad or grandfather did it before you. That was then and this is now. To survive you are going to have to change and your people, policies and processes have to change. Knowing your true cost is part of this change. Move forward knowing the best is yet to come.


Call me. I can help you to know your machine cost.


Dedicated to your success,

Dan Rooks

President

Decisive Systems, Inc.

"The Owning and Operating Cost People"

Phone 941-926-9260

drooks@decisivecost.comhttp://www.decisivecost.com/

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