If you study any formal course in finance it won’t be long before you are faced with the concept of “time value of money”. What it means is that there is a cost to the delay in receiving money, and so we say that “a dollar received today is worth more than a dollar received in the future”.
There are two reasons why it is better to receive a dollar today than a dollar in the future. First if you receive a dollar today, then you can invest it and get an additional return. Second, there is always a risk that you will receive less than promised, or nothing at all.
For more numerate readers, that you might consider accepting 97 cents now, rather than $1.00 in a year time. If with certainty, you could earn 3 cents in interest over the year, then (taxes aside) you would be just as well off taking the 97 cents now, as waiting a year for your $1.00. If you could pay off a loan, say a credit card, with the money received now, you might be as well off taking 85 cents now, rather than wait a year and pay credit card interest. Essentially, the more risk you might not receive the money in the future, and the greater the return you can gain from investing the money now, the less you would be prepared to accept now.
So in finance, time has a clear monetary value and as touched on above, the methods of working out that value are well-established. But what about other ways of putting value on time?
Applying the time value of money concept, it’s quite clear that getting something signed off or delays in finishing a project can be costly. That’s probably obvious when considering large constructions – delays in finishing a big hotel (for example) mean there is a lot of money sitting around earning nothing – but it applies just as much to day to day activities that we all undertake at work.
When the tax office stuffs you around, when the local council continues to vacillate over an approval, when legislative changes or indecision prevents you from making a choice, all of these things create risk and delay. They stall the receipt of revenue, they create project risk and the burn time you could be spending on other things. Sometimes these delays and problems are so bad that they involve employing additional people. Overall, the delays themselves make it more expensive to do business.
Perhaps the monetary side of that is obvious, but there are personal and social costs too. Not building an efficient road network or a high speed rail link between Sydney and Melbourne steals people’s time. Small amounts each trip perhaps, but over one’s life, time that adds up – time that could be spent with the family, time spent fishing or at golf, time spent blowing the froth off a few with good friends. Perhaps that sounds trite, but I put it to you that those people who create delay, who don’t do their jobs well, who don’t care, who give you the run-around, who are attending to their personal stuff while charging you, who go on strike during your holidays, these people are stealing your life.
In an era where for many of us work is demanding, and responsibilities of all types high, it’s time we started to take a stand on time-thieves. It’s time business recovered some of the ability to select and fire employees, to insist that Government departments and officers are held accountable, simply to enforce the social contract implied through employment and regulation. Failure to do this means business operators will have to change more and more for producing the same goods and services, and those that cannot will simply drop out.
That’s what you can look forward to if the current combination of individualism, workplace bias, and allergic reaction to productivity improvements is not addressed.
David French is a consultant with Capricorn Investment Partners. He has many years’ experience in successfully building, managing, researching and advising small businesses of all types.
Please note: The information provided in this article is general advice only. It has been prepared without taking into account any person’s individual objectives, financial situation or needs. Before acting on anything in this article you should consider its appropriateness to you, having regard to your objectives, financial situation and needs.