There are very few assets that you can build or buy by investing only time. In all cases some form of money is involved in a business project.
We use the expression "invest time" so much that the meaning becomes vague. When we work with an employee mentoring their career skills, we often say that we are investing time. In fact, we are spending time, both theirs and ours. For their time, we spent the company's money, in the form of payroll. For our time, if we are an employee of the company, we also spent company cash—our pay. There was a trade, an exchange of cash for time, between the company and us as individuals.
Time itself is a resource that we don’t own. While time is endless, we can possess it for just this… specific… moment. You have only this moment to use, and then it is gone. Another unit of time is there for us to use, and it will be gone too, followed by another.
Time is a resource that most of us squander. Stop and think for a moment; what did you do today that wasted time? Perhaps you sat watching a TV show. Perhaps the red traffic lights that stopped you wasted your time. Perhaps you spent twenty minutes looking at Facebook. Perhaps it took over twenty minutes for your computer to boot up, so you sipped your coffee. Perhaps reading this article is a waste of time!
There is another expression, buying time, that I think is confusing. Can you take money to a store and buy time? Will $100 buy you another ten minutes?
One measure of business effectiveness is the ratio of assets to revenue. The ratio should always be positive, i.e., with $1 of assets your business creates $3 of revenue and $2 of earnings. Return on assets (ROA) is an important measurement for any business. Capital intensive businesses like manufacturing will have a lower ROA than capital light businesses, like a services company. An asset-based trucking company will have a lower ROA than a truck broker.
In comparing my business with that of another business owner, we got into the discussion of comparable ROA. His business has lots of assets, and mine does not have lots of assets. His business has inventory, buildings, trucks, and machines. My business has a few computers, books, some printers, desks, and file cabinets. His ROA is much lower than mine is. My adviser suggested that I look at the time I have available to sell as an asset, as my inventory to sell.
I considered that abstraction. It is easy to calculate the time that I have to sell. Take the number of days in a year I am willing to work, and the hours each day I am willing to work, and there is a number. So lets assume I have 1,000 hours to sell in a year. That is a highly perishable asset! Just to write this essay I spent over an hour of time, consuming the abstract asset.
Considering the abstraction one step deeper, what is the value of my highly perishable asset? The response I give when someone asks me if I have any free time is “Time is not free, it is priceless!” Can I apply “priceless” to my inventory of time? NO! So how can I value my time?
Consider the basic formula of business. We own assets to create revenue. Subtract the cost of the asset and the expenses from the revenue to calculate the cash created. To create cash—the goal of any going concern—the revenue must be greater than the money invested in the asset and the money spent on the resources used to create the revenue.
How can I set an asset value on my time? I can’t without choosing an arbitrary number OR agreeing with another person what my time is worth for the service I supply. The only way to set the market price for my time is to let someone else establish the value of the combination of my time, knowledge and skills, which sets the value.
Chicken or egg. I sell my time, skills and knowledge, but the market – the place where my clients and I meet, determines the value of the combination. Like a plumber, I bring skills and knowledge to the table that sets the value of the service. As with a plumber, there is a difference between the value of my combination and the combinations presented by my competition.
I may charge $350 per hour for my services, and a competitor may charge $50 per hour. Which is a better value? If it takes me an hour to do the job, and the competitor seven hours, the value is the same if viewed from the cost of the services—both of us will charge $350 to do the job. Consider the potential value outside the simple cost calculation. What if the job required the dedicated participation of the client’s employees? The employees are dedicated to my time for one hour, while they are spending six additional hours with the competitor! Who now provides the better value?
People spend time. How we spend that time determines the value we gain from the resource. What did you do at that traffic light? If you just sat and did nothing, thinking of nothing, how wisely did you spend that time? If you looked around to see what was around, if there was something of value to you, did you improve the value you gained from that spend?
Businesses spend money. Businesses track the money they spend. That is the bottom half of the Income Statement report, the money the enterprise spent on the resources it used to create the products or services it sold. Businesses spend money and time tracking what goes onto the Expense Statement, all in an effort to reduce spending.
Do business track how people use time? Yes. But do they get real value from the exercise? There has been a huge push in the last few years to install Labor Management Systems (LMS) into warehouse operations. LMS is not a new idea; it is nothing more than Engineered Labor Standards on systematic steroids. Integrated LMS systems showed up on the scene with the old Dallas WMS platform in the 1980s.
LMS is Fredrick Taylor and his stopwatch. The WMS knows the work assigned to an employee, knows the distance, the weight, the dimensions of every object that the worker has to pick up. The engineers followed the workers around and timed them doing the work. The factors are loaded into the system. We can track how long it takes to complete each task in real time with R/F scanners and voice units. So, we can track each moment an employee spends and how much work they accomplish with some level of accuracy.
But can we really figure out how effective they are? Most will argue yes. I don't. Most will argue that LMS will increase productivity. I agree—to a point. You may see employees get more units of work done in less time, which fits the description of increased productivity. But are they more effective?
Do we increase our effectiveness by driving more units per hour?
No! And this will be the topic of another article. Think about the term effective.