In this Episode, I am going to discuss some of the biggest misconceptions about the trade-offs between time and money.
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Ben Parker: Today, I'm going to share with you some of the biggest misconceptions about the trade-offs between time and money.
Welcome to The Durability Podcast. This is for those that are passionate about helping their organizations plan and prepare for the inevitable future.
My name is Ben Parker, management consultant, chemist, creator, entrepreneur, co-founder, and member of the Durable Capital Group. I'm excited for you to join me as we discover what successful organizations do to build longterm durability. We explore the tactics and strategies that allow great organizations to combine the financial wisdom of asset management, the practical street smarts of the maintenance subculture with the real world paranoia of managing risks to ensure their organization's blast. We uncover what great leaders are doing from all types of capital intensive industries to make a decisions, build strong management teams, and prepare to meet the future in whatever form it comes. This, is The Durability Podcast.
Hello and welcome back to The Durability Podcast. Today, I'm going to share with you some big misconceptions about trade-offs between time and money.
My favorite favorite analytical chemistry teacher, I only had one analytical chemistry teacher, but she was awesome in that she had some really cool wisdom to share. Especially with young and undergraduate students. And probably the most quoted thing that I have received from her, and I say it all the time, but I picked it up from her. And her name was Dale Russell. She would say, "Life is full of trade-offs." All the time. Maybe not all the time, but she would say it quite a bit. And it would be in relation to things like cleanliness and accuracy. So the more you clean, the more things build up, and the faster it gets dirty. When you're talking about the chemistry world, very small amounts of things tend to matter depending on what you're doing.
So if you're working in four decimal places, a little mistake goes a long way. So you trade-off accuracy for precision in many cases. Or you have various types of effort that have to go into something to get a certain degree of accuracy. So you can either have something that's not very precise, but it was easy to do. Or, you can have something that's super precise and really accurate, but really hard to do. And that applies to all sorts of things, not just in business, not just in chemistry, but also in life itself. And I've found myself really being intrigued by how often that shows up. And several areas that it has shown up in my experience, and I just want to share a couple examples of how organizations tend to think they are making financial trade-offs.
We're going to go with this cheaper model, or this more expensive model of this pieces of equipment. We're going to build this building to this size, or we're going to only get this certain amount of data and we won't need any more. Or we can't really think of any other reasons why we would need more. But there's a lot of pieces that are interesting to look at the real trade-offs. And when I talk about real trade-offs, I mean, there's what we expect to happen and then what actually happens. Or as another mentor of mine would say, "The practice and the paint." So when you start looking at how organizations do projects, how they make decisions, and how they focus their teams, it's interesting to note the trade offs. And I'm sure you have seen all sorts of trade-offs in the organizations that you work for, you've been exposed to. So often we think we're making financial trade-offs, but the real dependent variable is the time trade-off.
For example, in the manufacturing world, operational constraints are a big issue. So is capacity. So when you are producing a product, or you have a processing line, or you have any type of manufacturing going on, your capacity to produce a certain amount of volume is limited by a number of things. And in certain instances, some of that can be the size of your facility. For example, there's one company I'm familiar with that was looking at putting in a manufacturing facility. So they built a building that ultimately was going to be more expensive than anticipated.
They had to do some additional regulations and things like that that were required at the time. But they chose to put in a smaller facility to be able to comply with, not just their financial constraints, but also with the perceived regulatory limitations. And it was one of those things where the time output over a 10 year operating window for a smaller facility dwarfed, or was much, much larger than the cost of a bit bigger facility. Even double the size, or triple the size of that facility.
And so often we see that with infrastructure where it is expensive upfront, there's uncertainty around what the future holds, of course, but there is a trade off between that space capacity, and then the ability to put product out the door longer term. So this is one of the fundamental reasons why you see manufacturing plants, processing plants, get bigger and bigger, is because the economics scale grow and the trade-offs become less and less.
So your costs, your fixed costs, approach zero, as you can put out more volume. Very standard simple concept, but it's hard when you're making those decisions to have confidence in the trade-offs you're making. And that's one thing that is, teams especially can get wrapped around the axle with. They can spend too much time deliberating trade-offs and they don't move forward. But also, there are teams that don't spend any time deliberating trade-offs, or documenting their trade-offs as to why they're making a specific trade off, knowing both sides. Knowing the longterm results or the consequences.
So what happens is then down the road, a new team comes in, or team members change, or even current team members don't fully understand those trade-offs that were made and why. So it becomes a drag on your other decisions. And every time they can't, if it's a manufacturing situation where they can't get the output out even though they have back orders and everything, because they're equipment or space constraint, whatever it is, it becomes a drag on the system. So one of the critical things that has been a really beneficial experience for a lot of teams is to go through as you're making those decisions, spend some time writing out the why, and help your team understand that, yes, we understand the trade-offs, we see it. We know it's there, but we're making this decision because X, Y, and Z. And it's interesting to see this same time cost dynamic show up in other areas.
So in that last example I gave, it wasn't quite clear that the manufacturing facility that was too small would basically incur more operating costs long-term. You'll put the same amount of volume out, or be limited in their volume that they can get out over time, versus a facility that was two or three times as large, even though the cost is not two or three times when you're doing the manufacturing, or the building of that facility. But it is significantly more. And those trade-offs are really important to understand just in terms of how they impact your longterm. And when many investment cycles focus on a short term window, so if we can do a capital project, at least in the corporate world, or the business world, it depends on what it is, it's all across the board. But if you're looking at a one or two year pay back on something, you just don't see the time range that it could impact you significantly down the road.
Another example is, during the construction phase of a new processing plant, or for example, a solar plant, where your looking at a very tight operating window, and you're looking at the costs to be able to get a facility installed and up and running. Many times, especially in markets that are commoditized, the energy market obviously is very commoditized. And especially in, the solar industry is a great example because they've pushed the cost out of the process.
They're now at an economies of scale that power generation can be maintained from a cost perspective. But it's just a relentless focus on pulling the cost out of the whole process, the whole system. And it's the only way solar works and it is working. And the piece that is interesting is, as you look at some of the trade-offs that happen as you're driving costs out of the system, many times this calculation is meticulously scrutinized. And those are some hard decisions there, but sometimes it's not. And you know, when you look at a building of a hundred million dollar solar plant, and you've got all of these pieces in place, and they're fairly simple plants, there's not a whole lot of different moving parts. There's just a lot of parts.
And you look at, okay, what does it cost us to install this facility? And then, what are all the pieces? And then, what's it going to costs us to run that facility for the life of the plant? And when you start looking at those life cycle costs, it's really interesting which trade-offs become apparent that drive the long-term expense category higher, and which trade-offs are more manageable that they can be done at the initial construction level, and not get too overwhelming.
So one of those things is when you look at operating a solar plant, the day-to-day maintenance is always a challenge. You have such a large facility, so many pieces, and when something breaks, trying to identify where it's at and what it is, a lot of times, one area that gets skipped is that they don't necessarily, during the construction phase, put in a lot of work into categorizing, tagging, and labeling.
Building a CMMS platform that's very specific. Sometimes it's just bits and pieces of that, and then it gets pushed into the operating side so that the people who are doing it everyday can manage it. But my experience has been if you do some of that work upfront, if you spend the additional 20, $30,000, whatever it is to document well what you have, put that in system that can be used for the operations side that can track and monitor. And there's a lot of companies out there that do this really well. But for those of you who are still in the learning phase of all of these pieces, this is a critical important step, is to really know what you have and what your pieces you need. But you know, over the life of a project, once you do that, you can drive a lot of cost out of the system because you're not searching for stuff.
Another example of that is in document control. You know, it's so funny. Once you look at organizations, how they're structured and how they organize themselves, they have these places where efficiency is redundant. So you have problems that crop up that could be avoided by simple solutions. One of those is in document control. If you have documents that are hard to find, and then you look at how many people have to access those documents, whether that's like a legal team, a finance team, an operations team, and asset management team, a quality team. Whatever your organization's specific needs are, or sales team, or whatever it is. If you don't have a central repository that is easy for all your groups to access, it becomes an interesting case study to look at how much money and time and effort is wasted by the different groups. Because each one is doing the same thing.
So you have four or five, six different people doing the same thing to find the same information that they have to go dig through that, say it's a manufacturing plant. And you've got to find a certain piece of equipment, or a certain specification, or drawing, or whatever it is. You're having the same group of, or a wide group of people, 10 people in some cases, spending the same time, trying to find the same document.
Where if it was organized appropriately, that process would be a lot quicker and save a lot over time. And that's just general efficiency stuff. I know it's really basic, but there is a distinct trade-off between time and money. And one of the biggest misconceptions that's easy to rationalize is that we're just trading-off one or the other, and we don't think about the implications of the time aspect when we are too price sensitive. When we install cheaper equipment, when we look at not doing certain things, or incurring certain expenses. We don't necessarily always look at the time impact to those future costs and future benefits to the organization. So just wanted to share that with you this morning. It's morning, where I'm at right now and hope you all have a fantastic day. Thanks for listening. And we'll catch you again soon.
Hey everybody. I just wanted to share with you something that has been super effective at helping organizations to really kickstart the conversation around how they're going to build a longterm durability into their management practices. And if you stop what you're doing right now, and go to www.durablecapitalindex.com, That's durablecapitalindex.com, you can sign up to take a very special assessment. This is the Durable Capital Index Assessment. It's a baseline assessment, and it'll show you exactly where you're at currently with fundamental best practices for building durability. And it will give you a very detailed feedback report that you can take and share with your team. So if you go to www.durablecapitalindex.com, sign up, take the assessment, and share it with your team, and really start that conversation around building longterm durability into your organization.