November 07, 2022

Cost-Efficient Versus Cost-Effective

Whenever there is a discussion about these two terms, one question is asked near the beginning: Are they interchangeable?

Unfortunately, it's not the same as saying tomato as opposed to tom-ah-to. Yes, they are similar in that at some point money is saved and/or spent wisely. 'X' can be either efficient or effective or both. And, money isn't the only consideration.

Ironically, Dictionary.com is no help. Its definition of cost-efficient is: cost-effective. Click that link and there's a somewhat better explanation: producing optimum results for the expenditure.

Sadly, that's still a bit vague. This definition appears to show the mindset of the people who wrote the list as: this covers both efficiency and effectiveness…as if they were the same.

However, if we look at this same website's definition for efficient and effective, we gain a step. For efficiency, there's the aspect of amount. It includes time and resources. One definition also brings up the idea of cost.

Jumping to effective, only the first definition fits our purpose. It is a qualitative concept.

So, how do we get a more, uh, definitive definition of these two terms? I think one way is to show examples of real-life situations. Through these, we'll have a better understanding of what they mean and how to apply them.

Trips – Part 1

I remember the story of a man who wanted to fly from Los Angeles to El Paso. However, there were no direct flights unless he flew out of another city. The travel agent didn't give up and discovered there was a flight from Los Angeles to Atlanta with a layover in El Paso. The cost was around the same as driving to another airport. The man bought the ticket and departed the plane in El Paso.

This is an instance where the decision was both cost-efficient and effective. It accomplished the goal—getting to El Paso—and saved time.

Trips – Part 2

Back in 2006, my dad and I drove to Little Rock from southern Iowa. Circumstances dictated we go down one day and come back the next. A check of Google Maps shows two routes. The first was 488 miles, taking eight hours and forty minutes. The second route was 515 miles but took eight hours and thirty-eight minutes.

Yes, we're talking a matter of two minutes, but in another situation with a greater time differential, the decision has to be made. More miles in less time or more time but fewer miles? Both cost-efficiency and effectiveness play a role here. Gas and food costs matter. (I think we didn't worry about the two minutes and saved twenty-seven miles.)

Trips – Part 3

The problem becomes more complex when the manner of travel is discussed. Plane, train, or automobile? Several factors are involved in this decision. Cost of each, of course, which include not only tickets, but fuel, meals, and sleeping arrangements.

Length of vacation and stay in the destination city. Age and temperaments of family members. Amount of luggage. The plane may be a bit more expensive at the time, but it'll get there faster.

Writing – Part 1

In this segment and the next, I think we can see a clearer separation between efficient and effective.

Every year, this country holds a writing 'contest' in which the prize is the self-satisfaction (and perhaps a T-shirt) of reaching the goal. It's called National Novel Writing Month. (NaNoWriMo) https://nanowrimo.org/ Beginning November 1, writers accept the challenge of writing 50,00 words in thirty days. That’s approximately 1,666 words per day. Breaking that down further, each double-spaced typed page in twelve-point font is approximately 250 words. So, we are talking a little more than six and a half pages per day. Every day. For a month.

I've never accomplished the goal because I don't participate. I don't write like that. I can't. While I applaud the organization's efforts, I see one fault in the people who do take the challenge. Whether they succeed, I wonder how many follow up. If they fall short of the mark, do they finish the novel or give up? If they succeed, do they go back to edit, conduct rewrites and seek publication?

I don't want to be blunt, but most first drafts are garbage. For the most part. And cranking out 50,000 words in thirty days would tend to be seriously low-quality material.

In this instance, the time spent—and maybe some money—is efficient in that 50,000 words were written. We're talking quantity of words in a shorter time period than would be otherwise used. Cost-efficient.

Writing – Part 2

On the other side, I tend to practice time management. I schedule time to write and plan what I want to do. There is no goal of a certain number of words, pages, or chapters. Instead, I'm after quality. In that way, the time—and money—spent is cost-effective.

Jobs – Part 1

A previous employer had a mindset of quantity when I started, how many projects finished in an hour. This became a problem when rushing through them resulted in mistakes and numerous rounds of corrections. Efficiency produced more, but at the expense of effectiveness when it came to quality. Time really wasn't saved with all the corrections.

Soon the policy changed to better quality to reduce the number of mistakes. In my opinion, we operated better. Unfortunately, near the end of my time, management shifted around a lot of job parameters and returned to a quantity policy.

Jobs – Part 2

I found both cost-efficiency and cost-effectiveness worked in my favor at my first job out of college. Not long after I started, I moved to the 6 am-2:30 pm shift. I enjoyed having several hours to accomplish errands or enjoy the 'day.'

This still worked well at another place where I worked 7 am-3:30. However, I kept getting pushed back until I was on the 9 am-5:30 shift, which mean leaving at rush hour and rushing to evening activities. Fortunately, I balked at the 11 am-7:30 shift which would have effectively deprived me of any evening activities. However, we'll see in the next section this shift is beneficial for some.

Jobs – Part 3

Many companies do find it cost-effective to schedule swing shifts. 11-7, 2-10. Because of the overlap, there isn't a 'gap' in production with a large group of people winding down and another group just getting started. Police officers, for instance. Traditional eight-hour shifts leave opportunities for mischief.

Some companies also schedule breaks. I worked a warehouse job where at 10 am and 2 pm, a buzzer sounded. Time for a ten-minute break. Also, everyone took a noon lunch. In that case, the policy was efficient and effective. Staggered lunch times and 'whenever' breaks would interrupt the flow of production.

Jobs – Part 4

Let's narrow the focus to companies with a maintenance department. In this part, we'll look at preventive maintenance. Company A has worked under the mindset of reactive maintenance, not repairing or touching equipment until there are problems. Machines break down means it's time for maintenance. Is this cost-effective and/or cost-efficient? How much downtime accumulates? What production is reduced or halted? How much money is spent on parts, labor, rush purchases, or scrapping the machine and buying another?

Company B practices preventive maintenance, with scheduled cycles of inspections, lubrication, and cleaning. Assets last longer and equipment runs at peak performance. Depreciation and unplanned downtime are reduced.

This company experiences both cost-efficiency and cost-effectiveness. Because there is routine maintenance, supervisors know how long each task will take and can schedule and dispatch accordingly. It's effective, because of the benefits previously listed. Company A wants to move to a preventive policy but argues it wouldn't be cost-effective at first because of the extra expense of inventory and perhaps labor. I think a serious discussion is needed with an in-depth study of costs over multiple years. Research is needed to determine how, in time, preventive maintenance will balance out the initial expense and more than pay off.

Jobs – Part 5

This relates to the mileage versus time dilemma for trips. Depending on the job, does a supervisor dispatch one person or two or more? Will efficiency be achieved with two people even if it may increase labor? Or is it sufficient and effective to let one person finish, even if it takes longer?

Are supervisors getting both efficiency and effectiveness, which added together equal productivity?

If a worker finished all jobs sooner than expected, that's efficient. He's increased the quantity of work. However, maybe further investigation is needed to determine quality. Just like the projects at my former employer, how many corrections will there be? Maybe more time was needed to do the job correctly.

It's another way of looking at these terms. Efficient is fast. Effective is right. Yes, there are gray areas. There's nothing wrong if both occur.

Cost-efficiency and cost-effectiveness. They aren't necessarily mutually exclusive. Neither are they mutually inclusive. Whether for a trip, writing a story, or conducting maintenance, many factors exist for consideration. Time, money, labor, and even health are four examples. Many times, efficiency is reduced or sacrificed for effectiveness and vice versa.

Many companies have found the burden of the cost-efficiency/effectiveness problem eased with the computerized maintenance management system from Mapcon Technologies. Entire menus are dedicated to preventive maintenance, work orders, assets and inventory organization, and numerous cost and key performance indicator (KPI) reports.

Calling 800-922-4336 is both effective and efficient for details about a superb CMMS.