Largest Profit Per Dollar Invested.

One of the most satisfactory policies of management is that which
tends toward getting the best return or profit per dollar of
investment.

We shall not refer to the quality of the product, the design, or
any other elements which affect the good name and standing of the
business, for it goes without saying that no business can be
maintained where these are disregarded. The point to be brought
out here is that, These thing being equal, the best scheme of
management for profit is one that puts the capital where it will
do the most good.

The above statement is one with which all will agree, but
strangely enough there has been a tendency to tie up capital in
ways that actually throttle the output of the entire business.

Furthermore, this is frequently done by increasing the portion of
the investment that is irrevocably tied to the existing product,
thus not only reducing the earning power of each dollar invested,
but also increasing the hazard by tying the capital to the present
product, which soon may be unsuited to the market demand.

One of the most common errors in this respect is the one that
regards the reduction of the labor cost as the paramount
consideration.

Reduction in labor cost has been the war-cry. The pay-roll has
been talked about so much that it has seemed to become the whole
thing. A man who declares that the labor cost per piece is not the
most important element is at once branded as an advocate of
old-fashioned methods.

It is needless to give assurance that there is no intention to
disregard the labor cost. The net cost per piece is a very
important element, but it should neither eclipse the question of
profit per dollar invested, nor the risk of the capital tied up.

What is the gain if the means for reduction of the net labor cost
reduces the profit more than the saving in labor? If doing so
results in an actual loss of profit, why is it done?

We can readily see that the overhopeful managers may disregard the
risk of the money invested, but we cannot see why the relative
importance, or rather unimportance, of the labor cost should be so
disregarded.

The machine tools in a plant usually determine its character. This
character is not one that can be quickly changed, but every
addition to the equipment does change it for better or worse.
Usually the installation of a new machine is hailed as a
progressive move, just because the new machine