Would you prefer to listen to a podcast on this topic? Financial Beeswax’s Episode 9 discusses the time factor in business decisions.
The scarcest resource we all have is time. We are all allotted a specific time here on earth. How we spend that time and the relationships we invest in will determine our legacy after we are gone.
The time factor plays an important role in business decisions. It is often overlooked when deciding whether to invest in a new piece of equipment, capital asset, or even developing your team. There is a tendency for the leader just to look at the dollars and cents on the surface and fail to grasp the true underlying costs and benefits.
Can you imagine what our world would be like today if people decided not to purchase an automobile since the initial cost of a horse is cheaper? What about how many cars would be in the world today if the investment was not made to build the assembly line for manufacturing? I would guess it would have been less expensive not to spend the money on the assembly line. But, imagine the limitations in production if cars were built in a big building with no organization. Maybe workers have cars in different sections of the plant and put the car together at their own pace and each in a different way. The lack of streamlining the production method would slow output to a snail’s pace.
So, the question is what areas of your business have you not invested in to increase efficiency and are still stuck in the pre-assembly line days? Now if you do not have the financial resources to make the investment, that is one factor. But if you do, you need to consider the time factor when deciding.
The first impact of time is how much time will the new item save in staff time. This is sometimes overlooked when a company is faced with a decision involving a capital outlay. A little over a year ago, we began to look at a large capital investment for Pactola, which was hiring a software engineering company to write a program for us that is used to save our loan file data securely. The cost was expensive. But when we looked realistically at the time savings from the investment, we estimated the program would pay for itself inside of 14-16 months of saved staff time. When we looked at the capital outlay in that fashion, how could we not make the investment? Considering the time factor should be a portion of your decision process.
The next factor on time is to figure out how time savings can be better spent. Is your organization better by keeping things as they are now or are you better to make the investment and utilize this time in other areas? For us the answer was easy, time saved can now be spent interfacing with credit unions and other deals we needed to underwrite. In economics, this is known as opportunity cost. The basis is that every time you engage in some activity, you are sacrificing time that could be spent in another activity.
Our highest and best use of time is to serve credit unions to make them successful in commercial and agricultural lending markets. Reasonable capital investments that will keep us on track toward our overall mission are warranted. The time factor is also driving us to make our next improvements to our PacPortal program. This summer we should have our secure file sharing platform upgraded to provide notification to users of significant file changes when we send it. The upgrade will also provide some significant time savings on our end and make the upload process much quicker. This time savings will help us fulfill our mission.
Tackling the time factor may involve the slaughter of a sacred cow in your organization. Sacred cows make great steak but slaughtering just for slaughtering can create its own waste of time. Before the sacred cow is killed and the feast ensues, you must ask if this action moves the organization forward. If the answer is yes, then sharpen the knives!
Staff time and opportunity costs should be considered when looking at a capital investment as well as the obvious cost of the asset, cost of installing the asset, ongoing maintenance costs, and education specifically tied to the equipment. When all those factors are considered, the high cost of the asset may be more affordable than you realize.
Phil Love is the President/CEO of Pactola, a Credit Union Service Organization.