Time Value of MoneyTime Value of Money22ndnd Edition Edition

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By C Patel

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Index

Time value of moneySubtitle: What is money, anyway?Topics: Time can be equated to money, but also conflates lots of hidden costs.

What are hidden costs? How can we estimate how much money

a given amount of time is worth? What is money? How much labour or resources does money

represent?How can we calculate these for best effect?

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SummaryThis session will look at the two most

important things within a business – time, and money. It will investigate how to calculate the business costs and advantages of time and capital, and look in particular at what can be done in places where a clear measure cannot be made.

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IntroductionTime is usually a zero-sum or negative-sum

resource, and must be treated very carefully – gaining more money is always possible, but gaining more time is not, making the time factor (and additional costs that accrue if you go over time, or come too close to a deadline).

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What is time?Non-renewableNegative sumFactor in all resource calculationsMost influential multiplierMostly non-fixed and non-fixable

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What does that mean?You cannot gain new timeYou are always losing timeAll calculations should include a time

componentTime is there basic multiplier for any aspect of

your business (known cost x estimated time = overall cost)

Very few situations exist where specific time is known.

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What is money?Neutral sumCreates identity valueAllows equivalence between objectsCan be used to represent all resourcesCannot be used to acquire all resources

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What does that mean?You can gain or lose money over timeYou can use money to represent other thingsYou can use money to compare different

thingsYou can always create an equivalent dollar

value for resourcesYou cannot always buy resources with money

(e.g. credibility, time, impact).

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Hidden costsThere are many hidden costs, but time is the

one most people ignore. Imagine that you are the CEO of a startup. You probably work many more hours than you are being paid for, as do your staff.

This is a hidden cost.

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Time conflates hidden costsAlthough you can measure things in terms of

money, monetary values tend to either ignore or subsume hidden costs.

This means focusing on cost alone will mean you are not seeing the bigger picture

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What are hidden costs?TransportLabourRequired correctionsOverview/reset timeUnexpected interruptions or failuresUnexpected additional costs and timeTraining & replacement periods

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Why are hidden costs a problem?

Hidden costs are easy to ignore, but the moment you scale up or expand in any way they must be properly assessed.

For example, in a startup, everyone’s time is worth more, since people tend to work much harder and commit more strongly. This means that as you grow, time will equal LESS output per member.

The Problem of ProjectionThe hard truth is that NO economic projection

can be accurate except in very constrained circumstances. Whatever method you use for estimating time and equivalent cost, it will NEVER be completely accurate

Many businesses use fancy computation measures and complex economic measures to hide the fact that their projections and reports are just estimates.

How to be realisticFirst of all, know the difference between time

and money, and measure how much of each you will need for a given task or project separately.

Give a boundary for all measures. This will complicate graphs, but give a much clearer and more realistic estimate.

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You can equate time to...By labour valueBy product valueBy equivalent costMarket value (e.g. industry standard pay

scales)

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be aware of…Different people’s time is worth different

amounts at different times, based on their:

experienceengagementinterestother difficult to quantify attributes.

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What can you do to improve your estimates?

Know exactly what your resources, expectations, proximate and eventual objectives are.

Know how everything works from the very bottom – because of the nature of multipliers, this is the place where small mistakes can have the most serious long-term impact

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improve your estimates IIUnderstand your dynamics. The estimates you

use today will not be good in six months, or a year, and the way your business works will change over time.

Avoid time dependencies wherever possible. This includes anything whose value could change significantly over time, such as foreign currency rates. If you must use them, then create market hedges to back up your data.

When does time = money?there is a set labour value

there is a set product value

time is critical to the trade (i.e. stock trades, currency trades)

it is unlikely that your market will change over the given period

it is unlikely that labour or resource cost will change.

time ≠ money when…Given factors are likely to change significantly

over time

You are not 100% certain of how long an activity will take

You are not 100% certain of the success rate of an activity

You are trying to create a flexible plan

When does money = time?When your activity can be duplicated elsewhere

– non-proprietary, non-secret&

When you have relatively required low labour expertise

Be clearIf you try to hide the fact that there are

estimated variables within your calculations, it will make you look bad to those who know how to read the numbers, who are the main people you want to convince.

Show that you have done as much work to reduce the error rates within your calculations

Be as precise as you canBy using variable measures, you can show that you

have a much more sturdy and adaptable plan.

If there are too many unknowns, do not create speculative reports – it will be obvious that you are not being realistic

Lead with your strengths, and be clear about your weaknesses.

Give reasons for the numbers and methods that you are using. ‘Because everyone does it’ is NOT ACCEPTABLE.

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ConclusionsFinding the right way to measure and estimate time is the

failing of many businesses.

Time can get you money, but money can only get you time in limited situations.

ALWAYS add in error margins for time. In extremis, you can always find more money, but you can almost never find more time.

Remember that time is a factor in ALL business operations – even replacing a temp has a time (and therefore productivity) cost.

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Conclusions IIMake your calculations realistic, and explain your

variables.

Be as clear as you can about what you know., and revise your estimates and projections as new data comes in.

Pick your models carefully, and always give reasons. If possible, estimate using more than one model and present results drawn from all sources.

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Thank Thank YouYou

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