February Tool : Cost vs. Value (self-help tool 3)

At a pretty crude level a business can be summarised as 'an organisation (of 1 or more people) which undertakes activities incurring a cost that generate value in excess of the cost - i.e. generate a profit'.

We can take this thought further and say that in a business you can look at the balance between cost and value for the business as a whole as well as the various components within the business.

For example, taking things close to home, let us take a look at yourself and the cost vs. value balance for what you do within your business . . .

Cost: As a key executive within your business you can tell pretty easily what you cost the business (as simple as adding up salary/wages, benefits, dividends etc.)

Value: This is a little harder as it can be very hard to quantify value but by using some dubious arithmetic we can get a ball-park indication that we can work with . . . take the proportion of the business outcomes that you are responsible for (e.g. a CEO/Managing Director is responsible for 100% of the business) and put a dollar figure on it (i.e. the revenue!) NOTE: the 'value' is overlapping and not cumulative - e.g. you can have 5 people each with 40-60% individual responsibility for revenue but together as a group they may only be responsible for 70-80% of the revenue.

Assuming that on average you work 40 hours per - week 50 weeks per year (an unreasonably low value for the vast majority of us but it makes the numbers simpler!) you divide the overall individual 'value' by 40 then by 50 (i.e. 2,000) to the get the 'average value per hour'. For example if you are the CEO and your business is turning over $2 million p.a. (used simply because it makes the culculations simpler!) your 'value' would be about $1,000 per hour(!). Similarly you can calculate your own value to your business.

Now that I have your attention, I can say that the actual figure is for all intents and purposes meaningless but the significance of the big number is that you rarely appreciate the magnitude of value affected under the press of your daily activities.

This leads me to ask you a questions:

This is a very powerful self-reflective questions that you need to ask yourself on a regular basis as it is very easy to get sidetracked into activities that do not give the value your business needs - if not destroying value in some cases!

The work that you do is made up of (i) activities that add value, (ii) activities that are value neutral and (iii) activities that do not add value.

Of the activities that take value away you need to ask yourself 3 questions:

1. Do I need to do this? Can someone else do this activity with a better cost/value balance than yours?

2. Do we have to do it the way we have been doing it? You need to review what you do on a regular basis as the activities can become invisible background processes that are never consciously viewed . . . , and

3. Does it have to be done at all? A lot of activities made sense in the past but have lost relevance to your current situation and are the mental equivalent of a 'security blanket' . . .

If you are able to make changes in what you do and manage to get an extra 30 minutes per day of high value activity - how much is this worth to you and the business over a week, a month or a year??

Over a year you have 200 working days, 30 minutes per day means that you would have 100 hours of extra high value activity that you undertake . . .

What are you going to do to balance your cost vs. value??

© 2005-2024, Clarity In Deed     All rights reserved