Value is the
satisfaction of requirements at the best combined cost of acquisition, ownership, and
use.
“Requirements” are need and for some kinds of
transactions even wants or desires. The importance of properly identifying
requirements is they provide the basis for being satisfied or not satisfied.
Next is “best total cost of acquisition, ownership, and
use”. Price is the cost of acquisition. What
complicates consideration of total cost in assessing Value is the fact that
cost is largely incurred after acquisition. With the exception of price, most
costs associated with owning and using what is acquired, are incurred after it is
acquired.
Costs of ownership are insuring,
protecting, repairing, maintaining, replacing or disposing of what was
acquired. For example when we purchase a home we invariably consider the costs
of mortgage payments because it is directly related to the price; but was the
cost of fire, burglary, or flood insurance, costs for lawn, electrical and
mechanical maintenance considered? Can we anticipate a cost when the furnace
breaks down, or the house needs repainting? And at the time of purchase, do we
consider resale price? These are all costs of home ownership, but rarely do
they influence our notions of our home value.
Costs of use are costs of operating
whatever we acquired, as well as the costs of maintaining it to operate as we
intended. When it proves defective or resources are being used in excess, there
are costs for repair or replacement. We pay a price for what we acquire, but do
we get Value when the cost of its use
exceeds what we expected? Or unfortunately more likely do we really consider
those costs when we pay the price initially? And remember, the concept of Value
entails best total cost.
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