Tuesday, January 22, 2013

What is Important, Runs Scored or Runs Conceded?

The other day, I was having an interesting discussion with my son, who is crazy about cricket. He told me that when he grows up, he would score lots of runs and win the matches.
This discussion happened just around the time when Australia and South Africa were playing test match and Australia got out for one of their lowest scores to lose the match. I remembered the record breaking ODI between these two countries few years back. Australia had piled up a massive score of 434 runs in 50 overs and one felt they would win the match with a huge margin. South Africa had different thoughts. Australia still lost the match. 434 runs in 50 overs was a world record, but it remained a record only for the next 3 hours.
And how can we forget the classic 1983 cricket world cup final that India won defending only 183 runs?
It is not about the runs scored alone, it is also about runs conceded.
As experts would remind us, cricket matches are never won by conceding lots of runs. In the end, the team wins has to score and save more runs than the other.
In business too, not just the revenue, the costs are also equally important. A business makes profits only if it is able to keep the costs lower than the revenue. As Management Guru Peter Drucker would put it; “profits are never in the management’s control, it’s only the costs.” Or as Benjamin Franklin would put it, “A small leak sinks the boat.” So often, the focus is entirely on revenue. The costs sometimes get out of hand. It is ok in good times, but costs are the business’ enemy in lean times. Many costs are not visible immediately and sometimes immeasurable, especially things like wastage of material and time.
A businessperson also must understand that some costs are inevitable to run the business, whereas some are avoidable. It is the discretion of the top management that helps a business incur the relevant costs and avoid the unnecessary ones. In good times, the costs get out of control and in lean times, one has seen the pendulum swing to the other extreme. Costs are cut without due thought. It is the number of items where costs are cut rather than the actual cost cutting – that becomes important.
There is also a difference between costs and investments. The investments would not yield immediate results, but should result in long-term benefits for the business. Very often, the management tends to cut down on the long-term investments in the name of cost cutting. This results into immediate cost saving, but over time, it hurts business growth.
Be careful. Cost cutting is essential, not as a reaction to lean times, but as a culture.
Wish you all Merry Christmas.
-        Amit Trivedi
The author runs Karmayog Knowledge Academy. The views expressed are his personal views. He can be reached at amit@karmayog-knowledge.com.

This was published on the website of FT Foundation 

Wednesday, January 2, 2013

Santa Claus Rally - Pessimists are on a vacation - article on www.moneycontrol.com

When a 'Santa Claus Rally' occurs financial experts tries to analyse the reason behind it. It is important to analyse what happened and why, but it is equally important to ensure the analysis passes the test of soundness. Financial expert Amit Trividi advices investors to remain careful about such short cut analysis and do a proper study.