TCO - How to think like a Capitalist

There you are standing in the computer store trying to decide between two printers, A and B. Both have the same features, same warranties, same manufacturer and can be expected to last 5 years. The difference? A costs $50 and B $100 and B costs about 1 cent per page to print while A costs 5 cents a page (special paper). Which one should you buy?

Well, you could do "eeny meeny miney moe" or you could employ a capitalist tool called "Total Cost of Ownership" or TCO. This is a good measure of true cost. For example, you print about 10 pages a week or roughly 500 pages a year. So, over the lifetime of the printers, you would be printing 2500 pages. So, A would cost you $50 + 2500 x 5 cents or $175 while B would set you back $100 + 2500 x 1 cent or $125. I guess the cheaper printer would come out more expensive! Of course, if all you do is print one page a week or roughly 250 pages over the 5 year period, the TCO would be $62.50 and $102.50 respectively.

The above example is, of course, extremely simplistic. In real life, you may be comparing completely different technologies or different services with different guarantees etc. You may not even be able to predict your own behavior! But, if you compute TCO consistently, you can get a good feel for the costs and perhaps it would force you to figure out exactly how much you are going to use your new purchase.

So, big deal! Why is it so important? Well, TCO is a tool that we should employ in our daily lives but we don't. For example, many of us do not realize how much that must-have sweater really costs when you carry a balance on your credit card. Similarly, when we buy an inexpensive jacket that lasts just a year or two, we may end up paying a lot more in the long run than buying an expensive but durable jacket.

Another time we should employ TCO is when we are buying a car. We often pay far more attention to the price than to the costs of regular maintenance, fuel, insurance and what the vehicle would fetch when we want to replace it with a newer car.  You will find that the initial cost of the car (the purchase price) gets swamped by these"extras".  Similarly, when you renting or buying a residence, try to figure the costs of heating and cooling.  You will find that a well-insulated house is worth some extra dollars.

Anyways, keep TCO in mind the next time you are shopping for anything or even deciding whether to drive your own car or a rental on a road trip.  The results just might shock you...

Cinemas in the Netflix age

I am sure everyone knows about Netflix, the company that has made a roaring business out of mailing movie DVDs on a subscription basis. For most Americans who do not have a 70,000 title movie rental store nearby (most of us), it is amazing to find just about any movie one would like to see. But getting the DVD in your hand is just the first part of the solution. The movie makers don't imagine viewers watching their movies on a 30-inch screen, with bright lights or the sun washing out some of the more subtle colors, finger ready on the Fast-Forward or Pause to accommodate the phone, the neighbors, the kids and the door-to-door solicitors.

I remember watching Dances with Wolves at a cinema. I could not only appreciate the wide expanses of the frontier lands, I could also feel the weather, the snow, the winds and the sunsets that can create new philosophers. When I saw Omar Mukhtar: Lion of the Desert at the cinema, the sand and dust choked me and the sun burnt my face. But then again, they are action movies. But what floored me was when I saw Casablanca on the big screen (at Stanford Theatre) after seeing it on the small screen. There is hardly any action, no sweeping vistas, heck there isn't any color either! But, it was amazing.

I think I know why. In a movie theater, you are immersed in the experience. You have to pay attention. No remote to replay a scene, no phones to distract you, no expectations of interruptions, just you and your fellow moviegoers. This immersion is what is missing from the home theater experience.

So, here is an idea. Any entrepreneurs out there who feel like implementing it are more than welcome to it. Heck, you don't even need to credit me for it. I give it to the public domain. Moviegoing by subscription. Just like you make a list of movies to see in the request queue at Netflix and its competing services, you make a list and when there is enough interest, the movie theater gets hold of the movie and shows it. A perfect marriage of the old world and the new. Just imagine, watching Lawrence of Arabia on the big screen. Actually, if you start such a service, my first vote would be for Lawrence. I have seen it on the small screen a few times. I just want to see it in its full splendor.

Why General Motors cannot sell me a car

Many of us have been hearing how the rising employee costs are hurting General Motors and preventing them from becoming competitive in the marketplace. Many talk about the lavish pensions and healthcare guarantees that the UAW (United Auto Workers) has managed to blackmail GM into. Every now and then, various self-appointed pundits (like myself) talk about GM ditching their pension plans.

But let us look at reality for a moment. GM has created most of its problems itself. There was the EV1 disaster when GM, despite loud protests by its own customers, refused to let people continue to drive the EV1 that they had come to love. As recently as 2005, GM pooh-poohed the utility of hybrid cars, letting Toyota become the thought leader. Then there is the whole SUV mania. Despite rising gasoline costs, GM has continued to focus on gas-guzzling behemoths.

I am a car owner and driver. From my previous post, you would come to know that I have an 18-year old Toyota MR2. I love this car. It gives good gas mileage and is a nice peppy car. But I also need to replace it as it ages and gets louder. Recently, I heard about Saturn Sky, a new 2-seater model from GM. I decided to check out its specifications and compare.

Guess what? This 2007 car cannot match my 1988 car! The fuel efficiency is worse, the turning radius is more (imagine that for a sports car) and almost everything else comes out behind the 1988 MR2. Now imagine if you were in USSR and your 1965 Lada worked better than the 1985 Lada. What would you say? I bet you would say "Well, that is the way it is." But luckily for us, we are not in USSR. We are in the very cradle of capitalism. We are in the most competitive automobile market. And if GM cannot compete with a car that came out 19 years ago, they might as well pack up their stuff and call it quits.

My prediction is that before too long the federal government would try to give GM a subsidy. When that happens, remember that this is the same company that once said "No true blue American would ever buy a Japanese car". And make sure your elected representatives don't steal your tax money to prop up a defunct car company.

Happy driving...

American Healthcare

American healthcare has lately been in the news quite often. Why? Well, for one, people are feeling the pinch of rising costs of healthcare. For those with insurance, co-pay and deductibles are going up while the insurance rates are also going up. Many employers are no longer provideing free health insurance, expecting the employees to pony up anywhere from 10% to 50% of the premium. For those without insurance, life is full of stress because of the amazingly high costs of medicines and doctor visits, not to mention surgical procedures. Employers too are feeling the heat from insurance companies as they attempt to trim costs, especially towards retiree healthcare.

Many Americans are coming up with clever methods to reduce their costs. Many in the northern states are visiting Canada for a weekend of fun and a bagful of medication for their chronic conditions, from diabetes supplies to heart pills. Many others are going on medical-tourism, getting elective and not-so-elective surgeries done in Poland, India, China, Thailand and Mexico. All these developments beg the question - Is our system broken?

Critics of the American system of healthcare often point out that Americans spend far more money than any other developed nation without the commensurate benefit in the form of higher life expectancy and better quality of health. Is it a fair statistic? As tempting as these statistics might be, I don't think that they are fair. Life expectancy is a complex measure derived from a lifetime of choices and decisions. We Americans lead, by and large, sedentary lives and are exposed to far more mental stresses than most other people. While medicine definitely has a role to play, life expectancy is more about lifestyle choices than medicine.

The supporters of our system of healthcare are quick to point out that Americans lead in innovations in medicine, surgery, therapy and if you were to be involved in a major accident, your survival is best in the US. All of this might be true but it still does not answer the fundamental question - Is our mechanism for healthcare delivery broken?

The American system has evolved over many decades, with many features and nuances that are unique to this country. The American psyche is quite allergic to government-run and government-mandated systems even though we interact with them on a daily, even hourly basis. Our electricity, gas, water, cable-TV, sewage, garbage collection and roads are all either supplied directly by the federal, state or local government or through government-sanctioned monopolies. The healthcare system also has a veneer of private enterprise even though many of the hospitals are funded by state or local governments and most hospitals are run with federal monies. In addition, many millions get health insurance from Medicare or Medicaid, both federal government programs.

My personal frustration with the healthcare system is the un-needed complexity and disincentives built into the system. For example, each health insurance company (and there are hundreds of them) has their own codes and forms for the doctor to fill out for reimbursement. Because of this lack of uniformity, errors in billing are common and require quite a bit of extra work on part of the doctors, nurses and ancillary staff. In addition, each health insurance plan has its own list of covered services which is another minefield that the medical staff, not to mention the patient, has to negotiate. The upshot is that payments take a long time, require many iterations of attention from the insurance company, the provider and the patient and in general waste a lot of productive hours, which get paid out of the higher medical costs.

The disincentives are even worse. Most insurance plans allocate a fixed amount of money for each patient to pay the providers for regular care. As the providers have an incentive to do the least amount of tests and spend the least amount of time and thus save money, the real loser is the patient and his/her health! Insurance companies pay large sums for treating diseases such as cancer but prevention takes a backseat. Many insurance plans don't even cover vaccinations!

What can we do to improve the situation?

Well, there are a lot of things that we can do. We can definitely try to compel the health insurance companies to get together and unify their codes and forms. This would reduce inadvertant billing errors which eat up a lot of time, effort, money and energy.

But, a bigger issue is, what is the society's response to the healthcare situation in the big picture? General Motors has been in the news lately for its very high healthcare costs that are helping it shrink. Toyota overtook GM as the world's largest automaker. Are the American companies and the American society going to go that way?

So, dear reader, ponder on the questions while I try to formulate how a single-payer system can be to our benefit.