Time Value of Execution

Anybody that has taken business courses in school has heard the term ‘time value of money’. That means that money’s value changes over time based on what could be done with it. For example, $100 today has MUCH more value than $100 in 5 years. That’s because if you had $100 today you could invest it at 5% interest and it would be worth around $128. In reverse, if you waited to get the $100 for five years it would only be really worth $78 today. Why is this important? Well, if you are investing in things that would return less than the future value then you are wasting money. Again, for example, if you loaned that $100 to a friend and told him that you would charge him 15% flat interest to use it for 5 years you would have lost almost half of the value that you would have earned if you had invested it.

There is a corollary for business execution too. I call it the Time Value of Execution. If you wait to make a decision too long then you risk wasting time that can never be ‘re-earned’. For example, if I wait to hire the extra sales rep too long then there is an opportunity cost to not serving customers during the period that I haven’t hired someone. This TVE really extends to almost every business decision/action that you need to take.

One of the ways to manage this is to try to understand the ‘time sensitivity’ of the decision using similar terms that you would for Time Value of Money. 1 – What is the PRESENT VALUE in taking the action today (and risk), 2 – What is the FUTURE VALUE of waiting (ie. I need to deposit checks from the register. It’s after 3PM. The value of waiting until the morning is the same as the value of depositing tonight since they won’t post until the morning anyways but I could get XX more things done if I stay and work until end of day and then deposit in the AM). 3 – Every decision action or delay has an Opportunity Cost. Try to identify what that cost is and then make a decision based on the facts.

I painfully deal with this every day at iTaggit as we work to drive our business and we find that every hour is critical time. Just something that I’m learning….

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