The Cost of Doing Nothing

Doing nothing is doing something. When faced with a hard or complicated decision, some people feel it is better not to make decision or wait until the facts become more clear. However, waiting can cost you.

In the broadest sense, we call this cost an opportunity cost. If you are putting off the decision to build a new branch, then you are forgoing any future income you could earn from the new location until you finally go through with the project. If you are waiting to move the credit union’s excess cash into investments, your opportunity cost is the interest income you could have earned on those investments in the meantime.

In a more direct sense, we call the cost of waiting a holding cost. This is the cost you incur waiting to achieve your objective. An example of this can be seen with the Deepwater Horizon drilling platform that blew up in 2010, which resulted from BP pressuring its workers to take safety short cuts. Every day the platform wasn’t producing money came at an extraordinary cost to the company, so they wanted the well drilled as fast as possible. Drilling platforms can cost over $500,000 a day to operate. That is a serious holding cost if you are not producing anything!

 For a credit union, a holding cost could be the money you are losing after you opened your new branch while waiting for it to generate enough income to break-even. If that branch will never be profitable, then you need to consider if that loss justifies furthering your mission.

There is another way doing nothing can cost you by failing to fix problems. By allowing a problem to persist, your decision to do nothing has measurable costs as well. If you have bad computer systems or slow computer systems, doing nothing about it has an increased labor cost since your employees can’t work as fast. Not having enough computerized systems is an even better example of this.

I also often see the costs of doing nothing manifested as a desire not to know. Some businesses or operations lack good reporting or proper reporting. If you are a business with poor bookkeeping, then you wouldn’t even know if you are losing money. If a company produces multiple goods or services but doesn’t track each activity individually, how would they know the profitability of one isn’t masking the poor performance of another?

If you are a credit union, and if you don’t track the profit and loss of each branch individually, how else would you know if some of your branches are unprofitable? And even if you believe your mission doesn’t mean every location must be profitable, it would still behoove you to know how much any location loses so you can properly tailor services and costs. In this sense, there is a cost to not knowing your true cost.

Doing nothing is a real business decision with costs if you are a manager or executive. Doing nothing because of ignorance is truly equivalent to burying your head in the sand. Of course, doing nothing could make sense, when you know it costs less than doing something. But, that argument only makes sense when you perfectly understand both the cost of doing something and nothing.