Present Value of Future Cash

 A thousand dollars in your hands today has more value than a thousand dollars promised one year from now. Why?

There's many reasons, but let's consider three.

First, if the cash was in your hands today, you could place it in an interest bearing facility, such as a time deposit.  In one year, that cash will earn additional money for you.  You could not do this with the thousand dollars promised to you 1 year from now.

Second, if you had the money with you today, any opportunity you come across between today and one year from can be acted upon.  If you don't have that money, you will end up not being able seize the opportunity.  Besides opportunities, you could also experience an urgent need for mpmey, as in the case of emergencies.

Third, for a long as the money is not in your hands, you are under the risk of not being paid your money.  In the case of a seller who sold a thousand dollars worth of merchandise to a buyer, should the buyer end up bankrupt, or for some reason unable or unwilling to pay the  money, the seller would be left with a thousand dollar loss.

So a thousand dollars today is worth more than a thousand dollars promised one year from now.  But how much more?

We can answer the question in two ways.  We can figure out how much a thousand dollars today will be worth one year frpm now. Conversely, we can  figure out how much a thousand dollars one year from now, is worth today.

The method of calculation can be as complicated as there are factors to consider, such as the risk of not being paid, the inflation rate, the possible opportunities to be foregone, and so on.  The simplest and most simplistic approach is to just consider the interest rate by which we can deposit the money if we had it in our hands today. This can be computed using the formula:

CV = PV (1 + i)^t

Where:

CV = cash value in the future
PV = cash value in the present (most commonly known as present cash value)
i = interest rate of a given time period (for example, the interest rate for 1 year)
t = the number of time periods to consider

Book Review of 'All You Gotta Do Is Ask' by Norman Bodek and Chuck Yorke

This is the kind of book that I would normally pick up at a bookstore shelf, flip through, and then return back to the shelf. It covers a topic that feels pretty shallow for a whole book.

The whole book, essentially, is about the benefits of putting up suggestion system within your organisation, and some tips and traps when you do so. The topic of an organisation putting up and maintaining such a suggestion system, to let it benefit from employees' ideas, and to boost their morale, sounds like something that can be covered by a web article or at most, a chapter in a book on continuous improvement.  A whole book on the topic feels like overkill, and I imagined it would contain a lot of fluff to pad it out.

But I noticed something in the blurb that attracted my attention.  The book’s author was Norman Bodek, the ‘founder of Productivity Press.’  As it happens, there are currently two publishers I automatically associate with material worth reading. 

One of them is 'Productivity Press', a publisher of books related to quality control and continuous improvement. They are especially known for introducing Japanese classics on these topics into the Western mainstream.  Although a fan of this publisher for many years, I did not know of Norman Bodek.  (The other publisher is The Free Press).

‘All You Gotta Do Is Ask’ is a simple book.  All it does is provide the motivation to implement a suggestion system, and provide proven tips and principles to make sure it is a success.

The book compares the average American company and a Japanese company which encourages its employees to send in suggestions.  The Japanese company receives anywhere from 50 to a couple of hundred ideas per year per employee. Of course, the latter receives the benefits, often in the range of millions of dollars in savings per year.  Almost literally, a goldmine for that Japanese company.

The book covers a whole range of topics about suggestion systems, including the psychological obstacles such as supervisors feeling threatened by inferiors suddenly realising they too possess a brain, or managers co-opting ideas and presenting them as their own, or employees being unsure what to suggest and therefore end up anxious.

In the appendix, you’ll find examples of actual improvement suggestions.  I was surprised by how mundane some can be. Here’s an example:

Before Improvement: It was hard to get a good grip on the shrink-wrap when trying to pull it off the spindle. 

After Improvement: Used a rag to hold on to the shrink-wrap to (tear) it off the spindle.

Simple as it is, it’s nevertheless an improvement. 

A key message the book continually injects is respect for the employees.  Managers must work hard to protect employees and their sense of self-respect. Ideas must be treated with respect.  This is particularly important because not all ideas will be good, and not all will be implemented.  It is important to balance reality. These are important, yet sensitive points, and the book provides recommendations on how to handle them.

There were some other useful insights.  Bodek and Yorke (the co-author) point out that the best suggestions for improvement are those that involve the suggester's work and how they can improve their own work.  It is quite easy to submit suggestions telling how others can improve how they work.  Such suggestions are useful, but because they impose on others, they are often resented, resisted, and not easy to implement.

The one thing I felt missing, which I think very important, is that the focus of the book was on employees coming up with ideas and solutions on how they can improve their own work. For professionals with a relatively large berth in terms of how they do their job, it feels weird to think about how to improve one's work and then put it up for suggestion. Most just execute their ideas for improvement without seeking (or being required to seek) approval. 

Overall, this is a short, easy-to-read book with good ideas about putting up and maintaining a suggestion system.  It cannot be the last word on the subject, but some of the ideas it presents are essential to a successful system.

Recommended.

Project Management Processes

In Session 10 of Pathways to Project Management (a publication of APM), we find a categorisation of the processes of project management:

1. Processes that define what need to be achieved.  Theses are what may be called problem and goal identification activities.  They are essential to clarify what we are trying to achieve, why we are trying to achieve them, and are they worth the cost involved?  Activities include business case and requirements development, as well as project management strategy and planning. 

2. Processes that plan the work required to achieve what needs to be done.  Once we know what we want to achieve, we need to think about the actual steps that need to be done to ahiceve the work.

3. Processes that monitor the work to ensure it will be done a planned.  Project need to achieve the constraints of scope, cost, and schedule.  It is critical to monitor the progress of the work to give us a good sense of how well we are going according to plan.

4. Processes that control change within the project environment.  These are the scope / budget / schedule change management activities.  All projects can expect change. Also included here are the Risk Management activities, which makes sense because risks are a source of project change.

5. Process that ensure the outputs of the project are fit for purpose.  In other words, quality assurance. It is interesting to compare how this differs from the ‘processes that monitor the work to ensure it will be done as planned.’ Does monitoring that the work is being done as planned exclude ensuring that the work done was fit for purpose?

6. Processes that ensure the outputs of the project are successfully launched in the business / customer environment.  In other words, handing over the outputs for the purpose of using the results of the project.

7. Processes that engage and motivate the stakeholders of the project.  Externally focused communication to ensure support for the project continues.  A project fails when it can no longer find support from its stakeholders.

How does this list compare with PMI’s Project Management Processes Groups?  The PMBOk Guide process groups are more abstract, and are not really at the same level as the Pathways process categories.  Cannot really do a useful comparison at this level.

Pathways	PMBOK Guide Process Groups
1. Define what needs to be achieved	Initiating
2. Plan the work	Planning
3. Monitor the work	Monitoring & Controlling
4. Control change	Monitoring & Controlling
5. Ensure fitness for purpose	Executing
6. Handover	Closing
7. Stakeholder management	Executing