The rivets and the staircase
A question often asked is why the Titanic sank so quickly. Two of the theories are in relation to the rivets and the staircase.
The issue with the rivets is that the 3 million of them used in the construction were of an inferior quality and were susceptible to failure when stressed. Following the iceberg being struck, the theory is that the damage was greater because of the quality of the rivets. Whether this was a decision based on availability or cost, the principle is the same – a short term cost or time saving can have a longer term adverse impact on value.
This does not, of course, mean that a higher price should always be paid to achieve the greatest value, but the key is for price and value to be considered as decisions are made. This is in terms of who is being asked to perform the work, their relevant expertise, the precision in the scope of the work being instructed and the timeline for delivery.
In advance of instructing advisers and service providers, consideration could be given to the following:
- Precision in articulation of scope and required outputs
- Required timeline especially if the information needs to be shared with others
- Certainty of fee and trigger points for costs to be re-assessed
- Alternative sources of information amongst the suppliers already engaged.
The final point above is simply to recognise that pension schemes use a range of specialist and expert advisers that have encountered many issues and have their own internal technical support. Drawing on this network, can, in some circumstances be beneficial.
Returning to the Titanic, the grand staircase is a reason it sank surprisingly quickly. This was because in order to accommodate the staircase, the height of one of the bulkheads had to be reduced. This meant that as the hull flooded, the bulkhead was breached sooner.
What does this tell us? Resources are finite and, by achieving a high standard in one area, the potential cost of any corresponding reduction of quality in another area must be understood and evaluated. The high standard may well be right, but if the marginal cost of achieving that standard delivers little real additional value, that marginal cost must be questioned.
The issue is that firstly the required quality needs to be assessed by considering the importance and value to the end user and then any compromises in reaching that standard understood. The debate is to ascertain the real benefit in delivering to the highest standard if all that is needed and valued is of a lower standard which can be achieved without changing the risk profile.
In the current environment, trustees should be considering their approach to managing resources and the robustness of processes. As well as publishing articles in our newsletter, we can either run workshops with you on an individual basis or perform some remote analytics which, whilst requiring only a small investment of your time, can provide valuable information for your consideration.