A Tale of Two Crises: How Cutting Cost Can Cost More in the Long Run

Cutting costs have the dual benefits of allowing companies to both save money and sell their product to consumers at a lower rate. In some cases though, cutting costs can have undesirable effects. Two recent news stories, the BP Oil Spill and the Tesco horsemeat fiasco, though they might seem different, have as their root cause a desire to save money while giving their consumers a cheaper overall product. Noble intents indeed, until disaster strikes, according to articles published by www.theengineer.co.uk and www.guardian.co.uk.

This was the case with BP Oil and the Deepwater Horizon Accident. After the smoke had cleared, it was discovered that substandard products were used when trying to seal a leaking well head. The courts are just now trying to determine who is to blame and at what percentage that blame lies. In a way all parties are to blame, including the American public.

Everyday citizens cry foul when gas prices rise too high, which in turn prompts the lawmakers who represent them to enact legislation that allows new sources of oil to be explored and exploited. Add to this the push for profits by oil companies, which includes slashing costs and encouraging risks, and a recipe for disaster was brewing. It all came to a head in April 2010. After all was said and done, 11 people lost their lives and 4.9 million barrels of oil had been pumped into the Gulf of Mexico. BP, Transocean, Halliburton, and Cameron eventually have to pay the price of their earlier cost-cutting measures, albeit at a much greater price.

On a similar note, Tesco, seller of frozen meals, recently came under fire for horsemeat found in its beef lasagna. While this might seem like just another case of a company cutting corners in an effort to drive profits, at the heart of the matter lies the calls by its customers for an ever cheaper product. One of the pitfalls of outsourcing to the cheapest bidder is that usually you get what you pay for, in this case horsemeat. And while stricter testing of meat could have helped prevent the whole fiasco, it leads one to wonder if the pressure for less costly food hadn’t been there in the first place, would it have happened at all.

Overall, the Gulf Oil Spill and the Tesco horsemeat scandal have helped highlight an underlying cause for such crises and disasters to happen in the first place. The push for ever cheaper products on the part of consumers leads to risk taking and cost-cutting measures. Ultimately, these inadequacies lead to even more costs down the road. Such measures seldom save money in the long run, as eventually the piper has to be paid.

For more information about how cutting cost can cost more in the long run, visit: http://www.guardian.co.uk/commentisfree/2013/mar/01/bp-deepwater-horizone-oil-spill