A colleague recently made a strong case on why he should spend a few hundred extra dollars to fly into a more convenient airport, and his argument was so effective it helped me realize how much money is wasted in efforts to save money. In particular, people often undervalue (or do not value at all) their own, employees’ and colleagues’ time. As someone who started his career as an entrepreneur, I find myself even more guilty of this mistake.
Although everyone understands their time has value, we often do not realize the extent of this value or think to apply it to many situations. It is, however, pretty easy, to look at the cash value of your time. Let’s say you earn $50,000 a year. Without overcomplicating the equation to take into effect holiday, overtime, etc., you can divide 50,000 by 52 to estimate a value of $961.50 per week. You can then divide $961.50 by 5 to get $192 per workday. Then divide that number by 8 to get your hourly value, in this case $24. If your salary is $100,000 double the number, $150k, triple, etc. You should also perform the same calculations for members of your team (I would also keep the data handy).
If you are an entrepreneur, you can estimate what the salary would be to get someone to do the same work (of course, they would never be as good as you but at worst you are then just creating a conservative estimate of the value of your time). Once you understand how much your time is worth, you can then look at different activities and make more rational decisions.
The first area where understanding the true value of time has a major impact is business travel. There are two different ways this analysis should impact your travel: it can help you choosing routes/schedule and whether to travel at all.
First, as in the situation I mentioned above, it may be a better value to choose a more expensive ticket. If you have a salary of $100,000 and route A costs $500 gets you into the office at 9 AM, and route B costs $350 and gets you in the office at 2 PM, route A is the better option. Yet many companies travel policy and just overall company philosophy might push you to route B to save $150. The problem is, that $150 is costing you $240, based on the calculation above, so route B is actually $90 more expensive for your company. You are being frugal by selecting the more expensive travel.
Second, you need to decide whether the trip is worthwhile. Rather than simply looking at the cost of the trip versus the expected benefits, add in the cost of your being out of the office. This can simply be travel time if you expect to be 100 percent productive while traveling or it can be the full time of the travel. Thus, if you are thinking about a three-day business trip where airfare is $500 and hotels are another $500 but you won’t get any work done other than the business conducting by traveling, you should not consider the cost of the trip $1,000 but instead about $1,600 (if you are at a $50,000 salary). Measuring the cost in this manner makes many business trips counter-productive. Continue reading “Don’t undervalue time”