Most people are really bad at comparing cost and benefits. Hybrid cars are a good example of this. For example, the cost of the cheapest (that I could find) new gasoline Honda Civic is around $14,800. The cost of the cheapest hybrid Civic is $22,000. Assuming that you drive 13,000 miles per year, the hybrid will save you $369 per year in gas–assuming gasoline costs an average of $2.80 per gallon.
So you are paying an extra $7200 to save $369 per year. It will take nearly 20 years before you end up saving money with the car. Even if you consider that the government will give you something like an extra $2,100 off your taxes for buying the hybrid, it will still take nearly 14 years before you break even. Also consider that if you do manage to drive the car for a very long time, in 10 years it is probably going to need its batteries replaced making it even less valuable than the gasoline model.
But take some time to talk to anyone who purchased a hybrid and almost every one of them will tell you that they are saving money. Why? Because people are not good at actually evaluating cost vs. benefit.
The same thing happens with the way people manage their time. Pretty much anything you do to be more organized has a cost and a benefit. You have the up front cost of creating an organizational system, the cost of maintaining it, and the benefits in terms of productivity.
This past week I was working with some clients who had decided to reshuffle their laptops in order to be more efficient. However, the amount of time they lost in the transition negated any productivity gains they are likely to see for at least the next 36 months.
If a new tool will save you 5 minutes per day that is a gain of 30 hours per year. However, if it takes a total of 16 hours to learn, 8 hours to set up and 4 minutes each day to maintain, it is unlikely that it will ever really save you time in the long run.
Wireless email devices are a good example of this. Blackberrys and the like are incredibly powerful tools. But often they get used in ways that eliminate any benefit in productivity. For example, I can type 50 to 70 words per minute on my laptop. On my Blackberry, I’m lucky to do 15 to 20 wpm. So if I have to write 10 emails of 250 words each, the best I can hope for on my Blackberry is 125 minutes. The worst I can hope for on my laptop is 50 minutes. That means that even under the best conditions, using the Blackberry for answering a small number of normal emails costs me an extra 1.25 hours. Don’t get me wrong. A Blackberry is very useful–especially for reading email and sending short replies, but I see far too many people trying to use it for emails that should be done on a computer, not a thumb keyboard.
The point is, make sure you really understand when you are really being productive. Don’t let marketing spin make you feel like you are operating efficiently when you really aren’t. Don’t assume that a particular tool or process is a time saver just because other people are using it.
Back to the car example, it doesn’t matter if you feel like you are saving money. Feelings is what marketing is about. What really matters is if you are saving money. The same is true of your organizational and productivity methods and tools. Recognize that how you feel about something is probably a poor indication of its actual benefit.
(By the way, I hope there are some people who are saving money with hybrid vehicles. I have yet to meet anyone who is saving money, but there may be some specific situations where hybrids make sense. I haven’t done the math for someone who goes drives 30,000 per year, so perhaps it makes sense in that mileage range. Also, I am sure there are some people who buy hybrids from an environmental standpoint, so the cost vs. benefit isn’t their primary motivation.)
Originally published April 23, 2007.
I think (hope) that many people buy hybrid cars to save the environment a little by paying a bit more, since obviously at current taxation (at least in the United States) you won’t save money in a realistic timeframe.
Then again, there are things that save both the environment and money (after a few years, of course). For example heat pumps (don’t know if they’re called that in english), which are basically “refrigerators” that take energy from the ground or air, and heat the home with it become profitable in about 10 years, which isn’t that long for a house. With some carrots from the governments this’ll probably change in the near future, too.
While the gas savings is certainly the sexiest of reasons that people buy hybrids, I think it’s kind of unfair to blithely dismiss the environmental impact of purchasing a hybrid as a reason that is important only to “some people.” As a hybrid owner myself, I read a lot of the message boards and websites run by and for fellow hybrid owners, and I can tell you that very, very few of us purchase a hybrid to save money on gas, because (as you’ve pointed out) the money saved with the lower gas consumption rarely outweighs the additional cost in the long run.
But the key phrase there is “lower gas consumption.” At my current usage of ~45 mpg, I’m using a lot less gas than your average sedan owner, and a fraction of what’s guzzled by an SUV. The emissions on my car are lower than 99% of the vehicles in the Unites States today. This country is finally starting to wake up to the dramatic changes that must come about in our overall consumption of, well, everything if we’re going to have any hope of slowing the damage we’re doing to our environment, and hybrids are only the first step. Look, in an ideal world hybrid technology (or hell, zero-emissions transportation of all kinds) would be inexpensive and accessible to every citizen, but it’s not. Until it is, we need a paradigm shift of what is considered “valuable” in our society, and in this particular case paying more for technology that reduces my (buzzword alert!) carbon footprint on this planet is definitely worth the extra $5K I forked over when I signed those papers.
Please know that I say all that not in some smug, finger-wagging way, but rather to illustrate that the cost vs. benefit of driving a hybrid goes way beyond the simple black-and-white terms you’ve used in this post.
@Niklas – The nice thing about heat pumps is that they have a much longer useful life. I haven’t sat down and done a cost analysis on them, but something with a 20 year plus useful life seems a lot more likely to save money than a vehicle that someone will only use for 5 to 10 years.
@Jennifer – I completely understand the other benefits of lowering gasoline consumption. It sounds like there are a lot of people out there buying hybrids for environmental impact. I have not done any type of analysis on the environmental impact of purchasing a hybrid, but of the people I have talked to in person about their decision to buy a hybrid, cost savings was always mentioned. They really believed they were going to save money.
My point was to illustrate that everyone I have met who drives a hybrid hadn’t really done a ROI analysis. They thought they were saving money based on an emotional decision not a factual one. This is how most people analyze their productivity tools and often they end up sticking with things that waste time because of an emotional attachment.
Great post! Don’t forget though that sometimes when we don’t have access to an laptop a blackberry will still make us more productive. But just like you pointed out in your post a blackberry can’t compete with a laptop when it comes to speed.
I’d love it if you had more posts on ROI/cost and benefit analysis (by the way, is it the same thing?)
If possible, think of more examples of products and activities, and build a more extense, structured approach to the subject.
Also, you might want to mention that there are other types of decision making tools/methods other than cost/benefit, and you could establish a paired comparison or should I say, a paralleled analysis.
Love your blog.
“So you are paying an extra $7200 to save $369 per year. It will take nearly 20 years before you end up saving money with the car.”
It may actually be longer than this because you have ignored the time value of money. Remember if you save $7200 at the beginning you can invest it and get more out at the end.
“By the way, I hope there are some people who are saving money with hybrid vehicles. I have yet to meet anyone who is saving money, but there may be some specific situations where hybrids make sense. I haven’t done the math for someone who goes drives 30,000 per year, so perhaps it makes sense in that mileage range.”
I know a fleet manager who runs a medical courier business. Hybrids work best in stop-start traffic in city environments. A Prius taxi in Canada has clocked up 410,000km without a battery change. If this Prius is given to an average person who drives 15,000km per year instead of the huge amount of driving taxis do then that Prius’s batteries would last for more than 27 years. For taxis and medical couriers, stopping at the gas station every few days can waste time and money. This is where fuel-efficiency counts.
Interesting that in a post with such careful mathematical reasoning you would throw in such a non-fact like “But take some time to talk to anyone who purchased a hybrid and almost every one of them will tell you that they are saving money.”
I think you need to meet a better class of hybrid owners!
I don’t know *anyone* who buys a hybrid thinking it is going to cost them less in the long run. Rather, they see the lower operating cost as the proverbial spoonful of sugar that helps the bitter medicine of the higher pricetag go down. But they’re not taking the medicine just so they can get that spoonful of sugar! They’re taking it so they can help cure the “disease” of carbon-based fuel consumption.
That said, your overall point has a lot of merit. But I’ll use Jennifer’s excellent observations as a stepping stone to note that one of the problems with cost/benefit analysis is that it *can* get exceedingly complicated (I should know–I’m an obsessive analyzer!) to try to account for all the relevant variables. So much so, that their comes a point of diminishing returns on the very analysis itself: if you’re spending an hour trying to save $10 on a purchase, or you’re spending 8 hours on figuring out whether it even makes sense to implement that 5-minute time-tweak, then you’ve gotten to the Yoda point: do, or do not.
The benefits are more than easily measured and comparable. I drove a hybrid for some years and my benefits were (in any order) money, features for money (a Toyota Prius comes with navigation, and for an automatic gearbox you pay a lot extra in Europe/Netherlands). Next to these values I believe it is very important to invest into cleaner ways of transportation. We can just wait until it gets there, and only then be satisfied to use it. We can also invest into it already. Yes it is not perfect, but if nobody buys the stuff, it will never be developed.
How do you include this into the equation?
For productivity tools the same… What if it is a cool tool that makes whatever work more attractive, more joy to complete?That does add value to my day, no cash. It is not just money that makes me happy…
@Kathryn – That has been my experience with almost everyone I’ve talked to. Obviously this is influenced by the part of the country I live in.
However, if I was buying a car based on the “greenest” option, I’d get a used Geo Metro (or other efficient car) and spend some money fixing anything that needed fixed to go another 100,000 miles. In the end I’d have a car that is a lower cost to me and less environmental impact than a new hybrid.
I think sometimes the benefit is not something that is tangible, either.
Like sometimes I wonder about whether all the hassles of a paperless office are really worth the time I spend… and then I look around and see that I don’t have a lot of paper cluttering up my life everywhere, and it’s great… could I file everything and take less time… maybe. But the intangible feeling of calmness of not having a cluttered house and office makes it worth it.
Such and American blog.
Blackberries are essential for working in someone elses office, on trains, planes, underground,etc etc.
The comment about the productivity said if an app that saves 5 mins but costs 4 mins + blah blah is unlikely to be worth it. Note how the author had to say saves 5 costs 4. in other words was basically doomed from the start.
No one buys a hybird to save money. they buy it for status or for belief. They would actually have been much better off buying an Audi A4 which was much better mpg, used a conventional engine and was a fraction of the cost, although actually “costed” Audi a significant amount to sell each car, before they canceled manufacturing due to low takeup.