Time is Money - We Always Underestimate the Cost of our Personal Time

I am constantly amazed at the amount of time managers spend on projects without any regard to the actual cash that time is costing them. I know we Kiwis have the can-do mentality – why pay someone else to do it when you can do it yourself.

This may be a valid option when there is a known cost for an item or job that you can do in the same time, providing your time is valued the same as the third party would charge to do the job – rarely the case.

The old saying “time is money” originated with the Greeks and dates back to 430 BC. So, if “time is money” then exactly how much?

Research psychologists Saini & Monga (2008) believed that because time is malleable and difficult to place a precise value on, people would be more susceptible to undervalue their time compared to an actual cash outlay – after all, a dollar is a dollar!

These researchers tested their hypothesis and found that their assumptions were indeed true except for one occasion – I’ll get to this shortly. So if you are spending two hours driving across town to buy something because it is $20 cheaper than you can get it for down the road – it’s really costing you more – your savings are an illusion.

The use of heuristics being greater for time than money is aptly displayed by hiring managers. Most managers will conduct several unstructured interviews (little more than a casual chat) when hiring staff. They are quite willing to justify spending hours of their management time interviewing applicants thinking that this part of the recruitment process is costing them nothing, it’s free. The truth is it is costing them plenty.

For a start, an interview probably takes about a couple of hours – it’s not just the interview time, but also the lost time leading up to, and after, the interview. Added to this is the validity of the interview. Once again science steps in; telling us that if you are using one-on-one unstructured interviews the information you are gathering is darn near useless – you have, at best, a one-in-six chance of hiring a competent staff member through this process.

However, the most frightening scientific evidence is that the most used tool for recruiting – the unstructured interview – is not only the least valid, but is the most expensive. Managers are under the illusion that it is a free selection tool.

Now back to address when it is possible for people to understand that extra time expended had no additional value. Here Saini & Monga found that if a person is explained and shown how much their time is worth in cold hard cash they will be more inclined to put a value on that time expended and compare this to the savings gained.  

Let’s apply this to the interview process to highlight the value of interviewing many applicants as opposed to spending say $40 on each of those applicants first to avoid wasting money on interview time.
Take your salary, calculate your hourly rate, and then multiply this figure by three (conservative). You do this multiplication because your value to the organisation is not just the money you receive in the hand, but the total value you deliver to the organisation’s bottom line. Then you would multiply this by 2 for each interview. This assumes 2 hours per interview. As mentioned above, it’s not just the interview, but the time expended in setting up and closing the interview and returning to normal duties.

If you paid yourself 100K a year, each interview would be costing you around $288 – so rounded up, about $1200 for 4 interviews – and that’s very conservative.

In summary, let me give you a value proposition. Why wouldn’t you use some quick and simple pre-screening assessments, something like PeopleCLUES, or say the 12 minute Wonderlic mental ability test first? This will cost you (at most) say $40 – less with volume. Applicants who showed up poorly on these pre-screen tests would be quickly selected out, thus avoiding costly, and in most cases, highly invalid interviewing procedures. $160 sounds a lot better than $1200 to me!

If Saini & Monga’s research is correct, I should have now psychologically convinced you that “time is money” when it comes to doing countless “free” interviews, as opposed to spending a very small amount of cash up!