Thursday, 12 February 2015

Costs and expenses are counted down to the last penny- so shouldn’t your time be too?

Time as a valuable resource

“The most costly outlay is the outlay of time”. This idea is attributed to Antiphon, Socrates’ contemporary. Already in ancient Greece, they knew that time should be calculated and that it is crucial to everyday life, so why do we, modern humans, disregard it so often? In every company, we are very meticulous in our accounting; we know exactly how many paperclips and coffee we need, how much we need to buy and how much we need to sell. But do we know, how much our time is actually worth? 

Selection process of pens

Here is an example of how you should consider your time: the marketing assistant gets the task to search the internet for possible pens for the CEO.  He/she finds a sample of possible pens, presents it to the marketing director, who then chooses the final three and then presents these to the CEO (because he of course has the last word). He is pleased with one of them, but then the price doesn’t suit him. What now follows is negotiations about the price and at the end, he gets a beautiful 10% discount. For an order for five thousand pens at a unit price of $0.10, that is a saving of $500. Or is it? Let’s count:

Selecting pens
1,5 hrs

1,5 hrs
1,5 hrs
1 hr
Price Negotiations
2,5 hrs
1 hr
0,5 hr
5,5 hrs
2,5 hrs
1,5 hrs

So a total of 9.5 hours were spent for this simple process, which is almost a quarter of a working week. Four hours alone were spent negotiating the $500 discount Now let’s think about how much the hourly rate of the marketing assistant is, including taxes and additional costs (such as computer, internet, light, heating)? Not to think about the price for the CEO’s time. Did you calculate it? If you did, then multiply the total by two, because it’s not just the time spent in negotiations, but also the time you could have spent doing something useful.

We could probably think of ten ways how to improve the process, shown in the example, from the top of our head, but do we really have anything to base it on? I got the data for this example by the same method, that many companies may use -  half of it was an educated guess, the other half I just made up. Do you see the disproportion here? While the price for pens had been tracked to the last penny, time spent on a process was an average guess (hours here or there), which can mean hundreds of dollars, yet we continue to rely on these estimates.

Time as a resource in core processes

In every company, there are tens or even hundreds "buying pens" situations per year. However, human time is also resource you need during the core processes of your company, i.e. those, that earn you money. Each core process can vary according to your business, but either way, if you are unable to track the time invested on each of your projects and products, you still have inaccurate information about their profitability - regardless of the fact that you know the price of the last screw.

Time as a resource for support departments

Another resource which consume a lot of time are “support departments”, whose work doesn´t directly influence the revenue of the company - the IT department, accounting, asset management, and for some cases even marketing. Which department is support may differ field from to field - fleet management is critical for shipping/transportation companies,  while the e-shop owners will never agree to see marketing just as support.  The common denominator of support departments is the fact, that they take up a lot of the company´s time without directly affecting the revenue and that it is crucial to assign these costs to specific projects.

Track, track... and track! 

The time you spend on something cannot be accurately estimated, not without any previous experience and/or accurate data. You simply need to have an overview of your time.

Time tracking is a relatively difficult task for companies, as it must be detailed and provide enough information, while remaining easy and fast. There are many available tools which meet one or the other but finding one that can manage to balance both is like finding the needle in the haystack. We strive to make our tool, primaERP TIME TRACKING, to be exactly the tool to help you accurately evaluate your expenses. :-)

To sum it up: Time is the rarest resource of a company, even more important than money, so pay (at least) the same attention to it.


kavithasathish said...

A good blog for the people who really needs information about this.
Good work keep it up.
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