Martin Summerhayes (martinsummerhay) wrote,
Martin Summerhayes
martinsummerhay

The "cost" of everything; the "value" of nothing; what is your definition of money?

It is that time of the financial cycle:

Whether it is budget setting in your company if you are in the middle of planning for next financial year [that starts April 1st], the horrible month in the family where big bills seem to land unexpectedly [aka a £500 car service], or if you are in the UK, you have just submitted your electronic tax return and in all likelihood, had to pay some form of back tax.

It feels at the moment that everyone is talking about money. In fact the cost of money - how much you have to pay for this, for that, to that person or organisation. However, very few people have been speaking about the "value" associated with it......

OK, you might think I have gone off to laa-laa land, but just hold with me for 2 minutes. I saw a query today on the definition on money. It went:

Money is often defined in terms of the three functions or services that it provides. Money serves as a medium of exchange, as a store of value, and as a unit of account. Medium of exchange. Money's most important function is as a medium of exchange to facilitate transactions.

Medium of exchange: Without money, all transactions would have to be conducted by barter, which involves direct exchange of one good or service for another. The difficulty with a barter system is that in order to obtain a particular good or service from a supplier, one has to possess a good or service of equal value, which the supplier also desires. In other words, in a barter system, exchange can take place only if there is a double coincidence of wants between two transacting parties. The likelihood of a double coincidence of wants, however, is small and makes the exchange of goods and services rather difficult. Money effectively eliminates the double coincidence of wants problem by serving as a medium of exchange that is accepted in all transactions, by all parties, regardless of whether they desire each others' goods and services.

Store of value: In order to be a medium of exchange, money must hold its value over time; that is, it must be a store of value. If money could not be stored for some period of time and still remain valuable in exchange, it would not solve the double coincidence of wants problem and therefore would not be adopted as a medium of exchange. As a store of value, money is not unique; many other stores of value exist, such as land, works of arts, etc.

Unit of account: Money also functions as a unit of account, providing a common measure of the value of goods and services being exchanged. Knowing the value or price of a good, in terms of money, enables both the supplier and the purchaser of the good to make decisions about how much of the good to supply and how much of the good to purchase.

Now that is the theory, lets give it some meaning. In one part of the organisation I run, we need to reduce the costs by £10,000 per month. Simple maths states that if the fully loaded costs for one member of the team is £10,000 then simply get rid of one of the people. This is the "COST OF EVERYTHING" argument!

Rather, lets think of the "STORE of VALUE". That person has delivered results for the past 10 years. They are valued as members of the team. Rather, lets look at the total costs to deliver the service and if the overtime, travel and other non-productive costs are £10,000, lets cut them, rather than the person.

Another example. A team are delivering outstanding cost reductions to a number of customers - to the tune of £100,000's per year. However, because the the original long term budget was set incorrectly by the previous budget holder, the only option is to disband the team. Lunacy. Shear lunacy! Rather, lets get the customers to reflect those savings in their plans to deomonstrate the value the team are adding.

Final example. Personal One........ The cost of the car service v's your daughter driving 200 miles in a car that has not had a service in a year? What value do you put on someones safety? You would not even question it - would you?

So, the next time someone asks you to cut costs, take headcount out, questions to the cost of everything, just ask yourself, what is the value that money delivers? By the way, the pause and reflect technique from mindfulness does help in this. Let me know what you would do, have done, could do - in these circumstances.....

Tags: alan watts, money, work
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