POST OF THE DAY
The BMW Method
Nothing is Very Expensive

Format for Printing

Format for printing

Request Reprints

Reuse/Reprint

By BuildMWell
March 11, 2005

Posts selected for this feature rarely stand alone. They are usually a part of an ongoing thread, and are out of context when presented here. The material should be read in that light. How are these posts selected? Click here to find out and nominate a post yourself!

It's been slow around here lately; I thought that some lively discussion might come from this topic.

The BMW Method evolved in my head through years of using Engineering Economy in my work. I learned one definite truth during those years and that truth is, "Nothing is Very Expensive." Actually, that was the title of a technical paper I wrote some 20 years ago to teach a method of thinking about things in general.

The whole idea boils down to one very basic concept..."If you do not know what it will cost you to do nothing, then you have no idea what direction to go to make things better." A person absolutely must know what it will cost him to leave everything alone and continue doing the exact same thing as in the past before trying to find a new way of doing anything. To me, that was very basic thinking but I found that very few folks ever use it.

Thus, "Doing Nothing," could be the right decision and it might actually be the most cost effective approach too. Or, it could be very expensive. But, until you know the cost of nothing, what do you have with which to compare? I have found that, in many cases, doing nothing can be very, very expensive.

Anyway, I have used this concept to advantage for many years. The old saying goes, "If it ain't broke, don't fix it." But, what does it cost you to take that attitude? Lots of things aren't completely broke, but they need fixing anyway. This, by the way, is the basic thing that makes the BMW Method work for us. Management can fix things in a corporation and make a company stock worth more money in the future because they understand Engineering Economy. They know how to spend their Capital to make the bottom line more attractive to an investor because it makes the company more profitable. Conversely, the very thing that got the business into trouble was the "If it ain't broke, don't fix it," scenario. The business rode on their past laurels too long and things changed while they did not. That is why their stock finds itself at a 30 year low CAGR with the analysts telling everyone to unload that turkey. If they fail to put their Capital to work in the proper corrections, they go belly-up. That is how it is in business.

This is an age-old problem and it is not going to get any better. People are people and they never learn to evolve slowly and systematically. It seems that there always has to be some major debacle or catastrophe to snap folks back to reality and to get them to demand change. It is sad but very true.

Let me give you just one example of this that will affect us all in the near future...Social Security. Everybody wants to take one side or the other of the argument, but no one is using the BMW Method's approach. I find that very interesting.

One side argues that Social Security is not broken and some minor tweaks will make it OK for the future. Lots of folks buy this story because they like the status quo. There is no catastrophe that they can see so, "Why fix something that ain't broke?"

The other side argues that Social Security is a Ponzi scheme and will be bankrupt in a matter of years. They say it has to be fixed and private accounts will solve the problem. Lots of folks listen to that story and think that it makes good sense. So, the politicians all have a field day hyping the opposite sides of the argument. Both sides have flunked basic BMW Method 101 and we can see it because we have already passed that course.

I say that the answer lies in my original subject..."Nothing is very expensive." What is the cost of "Doing nothing" today and letting the system continue with some minor tweaks versus the cost of "Doing anything else"? Do you see the logic? Only by evaluating the cost of doing nothing can we see the advantages of doing anything. But, where is this evaluation? What is the cost of doing nothing? I hear lots of talk about the cost of doing the private accounts being $2 Trillion. Thus, doing something is $2 Trillion...but what is the cost of doing nothing? Inquiring minds need to know.

The beauty of evaluating nothing is that we can immediately see the advantages of doing any number of other things and compare them to each other. Then, and only then, can we pick the correct solution to the problem, if there is a real problem. But, you see, that is the argument isn't it? One side defends their position because they invented the program; the other side wants to change it because they have always thought it was a Ponzi scheme. But, which side is right? I say the answer is very simple. First, check out the cost of doing nothing. Then, we can talk.

The real problem is that politicians talk all the time and refuse to look at reality. The BMW Method takes the talking out of the picture until the picture is drawn...then we can see the subject in it's glorious detail.

The present National Debt is about $8 Trillion and almost everyone agrees it is too high. But, what will it be in the future if we merely do nothing about Social Security?

Now, if I were a politician, "nothing" would be my first approach. I would get the numbers together from the CBO, the US Treasury and from private consultants. I would then do a BMW Method chart to show the future debt year by year. Then, it is a simple matter to overlay any alternative plan to see how it will affect the future debt. Once citizens see their choices, the solution is relatively simple...pick the least costly approach that provides the greatest benefit to the greatest number of individuals. In other words, solve the problem once and for all. But first, define the problem in great detail.

That is what a business has to do to stay in business. Those that fail to do this fail at business and become a historical footnote. I do not want this for my Country. Let's make sure we have good management at the wheel making the decisions for us in Washington like we do in our equities portfolio. We are paying these guys for performance and we expect full value for our hard earned dollars. At least I do.

I do not expect anything from them that I would not demand of myself. "The BuildMWell Company" is doing just fine by evaluating the cost of nothing and using that evaluation to advantage. It is what all good businessmen do. How can we accept less from our Senators and Congressmen?


Become a Complete Fool
Join the best community on the web! Becoming a full member of the Fool Community is easy, takes just a minute, and is very inexpensive.