PADA risks focusing too heavily on costs

We learned simple math to calculate a firm’s net profits in class before, and it is revenue-cost. For example, company A invests for their new projects and makes better work place for their employees, those are all their cost. However, company A is expecting more revenues from their huge investments. Here is company B that it wants to maximize their profits by reducing all costs, and this approach is what PADA (Personal Accounts Delivery Authority), which provide pension plans, is concentrating on. A writer of this article Rodd Ruppert did not agree with concentrating too much on their cost, and I also agree with the writer. First, if a firm’s minimize their costs, they would also be minimized their diversification because diversifying their portfolio is also another costs. Thus, NAPA would not manage their risk. Next, they do not spend money for their employees’ educations and better communication systems. In short-term, the minimize costs for employees’ educations and set up the communications systems could bring them higher revenues. However, I think invest for their employees’ educations and set up the better communication system is not consider as cost because those will bring huge profits in long-term perspective. Therefore, I do not think minimize cost does not have any relations to maximize profits. I think the minimizing cost will bring more profits in short-term period, and the company should set the goal for the long-term period.


http://www.ft.com/cms/s/0/77bdc90a-8240-11dd-a019-000077b07658.html