“Economies of scale” I’m sure is basic knowledge for anyone who had/s economics as a subject. In simple term it means as business expands, the cost of production per unit comes down. It is proven and universally accpeted concept. This concept is not confined just to business and economic classes, it touches our day today life as well.
Witness to this will be… Say if you want to eat samosa yourself, you will buy from the nearby shack rather then make it yourself… but if you were with a bunch of friends or you have big family (say about 10 people) then you might as well fry it from your kitchen…because the cost (perceived) of frying from your kitchen for one person is higher then buying from a shack… but for 10 people the perceived cost of local production (from your kitchen) is lesser then buying from the shack.
The other evening while I was having my normal hybrid exercise (half-way walk and half-way jog), I was pondering on how can I reduce my personal expenses…Off late, due to pressure to take possession of my house, I’m kind of crunched in budget because I have to give a final settlement amount and also I need to have some woodwork done… Somewhere a thought just struck me, whether parting with my roomie (about 2 months back) was/is economically wise?
Going by the above concept and also by stereotypical assumption, household expenses when spread across more people comes down (put aside fixed cost like rent, electricity, cable, newspaper, maid, etc., which anyway are). So the answer to the above question was initially “Off-Course”; because the fixed costs were shared then. Since I was anyway prepared for bearing all the fixed cost myself, so I tried drilling down by probing the question a bit further to other cost. I tried using something similar to ceteris paribus concept (all other things constant) by putting the fixed cost environment constant or vanished. I tried analyzing the impact of variable cost in solitary because I thought (Economy of scale) my variable cost would have shot up like wild weeds. (Variable cost comprises of groceries, toiletries, entertainment, etc. this are cost based on consumption level – the more you consume the more the cost is).
So, with an ear phone plugged and sweat all over, drilling down my domestic cost and comparing against some previous month data, while at a motion of about 10 KM/Hr was quite woody in the head. But somehow I wade through the woods of my mind…It’s still fresh in my mind that when I was sharing house, we used to clock about Rs 2000 per person per month for our variable cost (apart from the fixed cost and booze). I tried summing up all my groceries, toiletries and entertainment expense for the past two months (from when I started staying alone) and it gave me some figure in my mind which was kinda interesting. Except for those occasional house parties, I still remember that there was hardly any expenses incurred on my variable domestic expenses. Evidence of it would be that the frequency and ticket size of my domestic costs have fallen substantially in the last 2 months:
- I would have not asked for the 20 Liters water bottle for more than 3 times…Previously, we used to order about 3 times in 2 weeks
- I would have visited the nearby super market for not more then 3/4 times and that too with a spending of not more than Rs 250 per visit…Previously, supermarket was every Sunday affair with a per visit spent of about Rs 400/500
- Today, my frequency to the vegetable vendor is less than once a week that too with a spend average of about Rs 60…Previously it used to be at least twice a week with an average spend of about Rs. 100 (It can be disputed here that brother inflation was riding the bull then)
Does this means I spend lesser staying alone? Maybe maybe not …
With the intention of justifying my decision of staying alone, I thought it’ll be fulfilling if I can back up with some data. So, I opened the old dairy where we used to maintain our monthly expense and I keyed all the figures to make a table. In order to calibrate my hypothesis more, I took off all fixed cost and even the money spent on buying booze (Ceteris Paribus). So, this is how the table looks like:
I was not far away from the Rs. 2000 which I’ve quoted in the above. To be as accurate as possible, since I shared house for about a year, I calculate the number of months as 12.5 (though the above table has only 10 months). Also, there are few expenses which were not recorded because we forgot or because we don’t remember the exact amount so we rounded it off to lesser amount or there were few small ticket size expenses which we didn’t record (just for the sake of it)…What I’m trying to say here is that there is a probability of the above figures higher in reality.
Though I don’t record my personal expense after staying alone, but on recalling the number of times I went for domestic shopping, if I exclude the booze spends (which anyway is not part of the above table as well), I should not have incurred more than Rs 2000 till now. (This is excluding my night outs which anyway are not included in the above table as well).
Is it then that i’ve transcend “Economy of Scale”? …
The answer is a big NO…but there seem to be some favourable behavioural change…
To cement this eureka shout, I analyzed the component of spends (when I was sharing house) as to what could be the reason. I observed few trends of big ticket size spends which were quite regular then, which is no more now:
- The frequency and ticket size of supermarket spends were big
- There were few occasional lunch and dinner from outside which is negligible now
Then I tried reasoning by correlating as much as possible and this is what I could come up with:
- My vegetable drawer and fridge is much emptier then it used to be. Previously, at any point in time we will have vegetable items which will last us for almost a week.
- I now don’t have any re-order level system. My re-order level is when the item is exhausted and I desperately need it, I’ll call the nearby departmental store and they will deliver in half an hour time. Previously we used to have at any point in time at least two extra soaps, an extra pack of detergent, an extra tooth paste, extra washing soaps, an extra saving cream and list goes on. We basically were rainy day skeptics…though I could not find a reason why a Mumbaiker should be worried of rainy days…?
- We use to call food from outside for dinner or lunch (on holiday) even though our maid would have cooked us something (though sometime it’s because she didn’t cook). Hence, there were more waste then it is now. Proof of it would be, though my shopping is much lesser today but I have bigger collection of plastic bags, which are used for disposing garbage (In simple term, garbage is much lesser now).
Barring point three, the secret to the other points to me is I procrastinate my re-order time, I’ve zeroised my re-order level, which hitherto was very high. Though this was never the intention, but somehow I just developed this habit off late and it worked. It might sound a bit cheesy, it might be a bit un-convenient at times when you want to eat something but you have to walk down to the nearby store or you have to wait for the delivery boy…but it kind of benefitted me in cost cutting.
An off shoot benefit which I’m hypothesizing now is that, it’ll help me reduce my flab because my calorie intake will be lesser…If supply is less then obviously consumption will also be less…
Also, another off shoot could be that you minimize waste…for the obvious reason that when you don’t have enough to eat you definitely will not have enough to throw away.
I’ll try to back up this hypotheis with data by maintaining a dairy of my personal expense and I’ll share in few months from now…Also I’ll try to confirm this hypothesis in other area as well…Keep watching!!!
“Procrastination might be a thief of time…It is also a thief of cost!”