Friday, 3 August 2012

Outsourcing


How much is your time worth? Last time we touched on this concept in order to be able to put a dollar amount on your time. Now let's talk about how we can be more efficient with our time (and by extension, our money).

Outsourcing is the idea of hiring somebody to do stuff for you that would have cost you more money  to do. Many companies outsource all the time; why would Apple make its own parts when they can get a company in China to manufacture the parts for a fraction of the cost?

Another way to look at it is in terms of the time required to complete the task. If it takes me an hour to mow my lawn and I pay a neighbourhood kid to do it for me instead, I saved myself an hour of torturous manual labour. I can invest that hour in something that is more productive than mowing the lawn, like doing my taxes (since paying the accountant to do my taxes is probably going to cost me more than paying the kid to mow my lawn). Of course both time and money are taken into consideration when deciding whether or not to outsource a project. Essentially, the activity that you are doing in lieu of what you outsourced has to be more profitable than what it costs you to outsource the project so that you come out ahead.

If my time is worth $15/hour (based off how much I get paid at work) then it doesn't make sense to pay the kid's asking price of $20 to mow the lawn since I can "pay" myself $15 to do it instead, resulting in me saving five bucks. Of course there isn't actually an extra $15 in my pocket but by doing it myself the hour I spent mowing the lawn allows me to keep the $20 instead of giving it to the 10 year old who's trying to hustle me.

In theory this is a great idea. If we outsource everything that is less valuable, we can spend our time doing more valuable things, say paying somebody to pick up your groceries so that you can use that extra time to work overtime to get some sweet time and a half cash. However, the concept relies heavily on one thing... that you'll actually use that extra time to produce!

Let's be honest, if I had an extra hour because I paid a kid to mow my lawn, I would most likely just use it to watch television or play video games. Now instead of coming out ahead, I basically spent money to watch television.

However, there is another catch. Consider this: what if you work long hours at a high pressure job and barely get to see your family? Would paying the little hustler some cash so that you can spend some quality time with your family a bad deal? The value that someone puts on spending time with his or her family differs from person to person and is difficult to measure (as an aside, this is called an intangible and the term comes up in company quarterly reports. Other examples of intangibles are employee morale and customer goodwill). If you feel that having more leisure time is worth outsourcing work then by all means go ahead because it will make you life more enjoyable, just make sure that it's really worth it as oppose to you simply being lazy.

-the Paperboy

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