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Happy 80th Birthday, Empire Builder!
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<P mce_keep="true">[quote user="oltmannd"] <P>[quote user="Sam1"] <P>The national government awarded the contract through competitive bidding. It contains strict performance standards that must be met or the contractor must pay a failure to perform penalty. Thus, the operator has an incentive to get it right. Based on my experience, they do a good job of getting it right.</P> <P>[/quote]</P> <P>As long as it doesn't turn into "what's the least I can do and still get a gold star on my performance standard report." Do more = get more. </P> <P>I'd like to see revenue be the incentive. It makes the game simple. The responsibility for generating ideas for cutting cost and improving revenue will come from the one with most to gain and the floor for the subsidy might be lowered during the next bidding round.</P> <P> If you wanted to bid out the equipment supply piece, then you'd likely have to do the spelled-out performance standards and incentives contract. </P> <P>[/quote]</P> <P mce_keep="true"> </P> <P>The overseas subsidiary of my employer, where I worked for five years, used market share as a metric to judge its performance. Unfortunately, they lost sight of the cost side of the game, and they lost a lot of money before management figured out that it is the whole accounting equation that is important. The same would happen if the focus was on revenues.</P> <P>To survive a business must generate sufficient revenues to cover its costs and meet the expectations of its shareholders. If it does not do this over the long run, it goes out of business, unless it can get the government to prop it up. </P> <P>A successful business model starts with a concept, followed by a robust assessment of the costs to produce the goods and services. Once the costs have been identified, the pricing experts can determine how to price the goods and services. </P> <P>This may appear to be a rigid model. It is certainly a demanding one. Ask anyone who has been in business. People who cannot hack it turn frequently to a variety of non-economic arguments, i.e. the model is unfair, it fails to consider the broader needs of society, it ignores our national heritages, etc. The pleadings are endless. </P>
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