Time value of money advanced Subtitle: What is money, anyway? Topics: Time can be equated to money , but also conflates lots of hidden costs. What are hidden costs? How can we estimate how much money a given amount of time is worth? What is money? How much labour or resources does money represent? How can we calculate these for best effect?

1. Time Value of MoneyTime Value of Money
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By C Patel
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Index
Time value of money
Subtitle: What is money, anyway?
Topics: Time can be equated to money,
but also conflates lots of hidden costs.
What are hidden costs?
How can we estimate how much money
a given amount of time is worth?
What is money?
How much labour or resources does money
represent?
How can we calculate these for best effect?

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Summary
This session will look at the two most important
things within a business – time, and money. It will
investigate how to calculate the business costs and
advantages of time and capital, and look in particular
at what can be done in places where a clear
measure cannot be made.

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Introduction
Time is usually a zero-sum or negative-sum
resource, and must be treated very carefully –
gaining more money is always possible, but gaining
more time is not, making the time factor (and
additional costs that accrue if you go over time, or
come too close to a deadline).

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What is time?
Non-renewable
Negative sum
Factor in all resource calculations
Most influential multiplier
Mostly non-fixed and non-fixable

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What does that mean?
You cannot gain new time
You are always losing time
All calculations should include a time component
Time is there basic multiplier for any aspect of your
business (known cost x estimated time = overall
cost)
Very few situations exist where specific time is
known.

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What is money?
Neutral sum
Creates identity value
Allows equivalence between objects
Can be used to represent all resources
Cannot be used to acquire all resources

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What does that mean?
You can gain or lose money over time
You can use money to represent other things
You can use money to compare different things
You can always create an equivalent dollar value for
resources
You cannot always buy resources with money (e.g.
credibility, time, impact).

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Hidden costs
There are many hidden costs, but time is the one
most people ignore. Imagine that you are the CEO
of a startup. You probably work many more hours
than you are being paid for, as do your staff.
This is a hidden cost.

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Time conflates hidden costs
Although you can measure things in terms of money,
monetary values tend to either ignore or subsume
hidden costs.
This means focusing on cost alone will mean you
are not seeing the bigger picture

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What are hidden costs?
Transport
Labour
Required corrections
Overview/reset time
Unexpected interruptions or failures
Unexpected additional costs and time
Training & replacement periods

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Why are hidden costs a problem?
Hidden costs are easy to ignore, but the moment
you scale up or expand in any way they must be
properly assessed.
For example, in a startup, everyone’s time is worth
more, since people tend to work much harder and
commit more strongly. This means that as you grow,
time will equal LESS output per member.

13. The Problem of Projection
The hard truth is that NO economic projection can
be accurate except in very constrained
circumstances. Whatever method you use for
estimating time and equivalent cost, it will NEVER be
completely accurate
Many businesses use fancy computation measures
and complex economic measures to hide the fact that
their projections and reports are just estimates.

14. How to be realistic
First of all, know the difference between time and
money, and measure how much of each you will
need for a given task or project separately.
Give a boundary for all measures. This will
complicate graphs, but give a much clearer and
more realistic estimate.

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You can equate time to...
By labour value
By product value
By equivalent cost
Market value (e.g. industry standard pay scales)

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be aware of…
Different people’s time is worth different amounts at
different times, based on their:
 experience
engagement
interest
other difficult to quantify attributes.

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What can you do to improve your
estimates?
Know exactly what your resources, expectations,
proximate and eventual objectives are.
Know how everything works from the very bottom –
because of the nature of multipliers, this is the place
where small mistakes can have the most serious
long-term impact

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improve your estimates II
Understand your dynamics. The estimates you use
today will not be good in six months, or a year, and
the way your business works will change over time.
Avoid time dependencies wherever possible. This
includes anything whose value could change
significantly over time, such as foreign currency
rates. If you must use them, then create market
hedges to back up your data.

19. When does time = money?
there is a set labour value
there is a set product value
time is critical to the trade (i.e. stock trades,
currency trades)
it is unlikely that your market will change over the given
period
it is unlikely that labour or resource cost will change.

20. time ≠ money when…
Given factors are likely to change significantly over time
You are not 100% certain of how long an activity will take
You are not 100% certain of the success rate of an
activity
You are trying to create a flexible plan

21. When does money = time?
When your activity can be duplicated elsewhere – non-
proprietary, non-secret
&
When you have relatively required low labour expertise

23. Be clear
If you try to hide the fact that there are estimated
variables within your calculations, it will make you
look bad to those who know how to read the
numbers, who are the main people you want to
convince.
Show that you have done as much work to reduce
the error rates within your calculations

24. Be as precise as you can
By using variable measures, you can show that you have
a much more sturdy and adaptable plan.
If there are too many unknowns, do not create
speculative reports – it will be obvious that you are not
being realistic
Lead with your strengths, and be clear about your
weaknesses.
Give reasons for the numbers and methods that you are
using. ‘Because everyone does it’ is NOT ACCEPTABLE.

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Conclusions
Finding the right way to measure and estimate time is the failing of
many businesses.
Time can get you money, but money can only get you time in limited
situations.
ALWAYS add in error margins for time. In extremis, you can always
find more money, but you can almost never find more time.
Remember that time is a factor in ALL business operations – even
replacing a temp has a time (and therefore productivity) cost.

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Conclusions II
Make your calculations realistic, and explain your
variables.
Be as clear as you can about what you know., and revise
your estimates and projections as new data comes in.
Pick your models carefully, and always give reasons. If
possible, estimate using more than one model and
present results drawn from all sources.

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