Newsletters

2012 – fall Issue

Leadership Message - The Money Value of Time

Time value of money "¦ have you heard of it? I'm sure you have. It is the financial concept that having a dollar today is worth more than receiving a dollar at some point in the future, due to the dollar's earning power. This is a well-known concept that drives financial decisions in organizations and households across the globe.

But now let's flip those words around "¦ have you ever heard of the money value of time? This is a term I recently came across while perusing the book, Financial Management and Accounting for the Construction Industry, published by the Construction Financial Management Association (CFMA). Although the term may be new to you, the experience likely is not.

Money value of time is the regular experience of the construction contractor. What does it mean? The concept draws the correlation between cost and schedule, and in doing so, explains the simple truth that construction projects finishing on time (meeting the schedule) are usually within budget, while construction projects that do not finish on time rarely accomplish the feat of meeting the project budget. To put that another way, a project completed at or under budget is rarely finished behind schedule.

The money value of time also explains one of the advantages of the design-build project delivery method. Under the design-build method, design and construction activities overlap, leading to a decreased project duration (compared to the traditional bid-build method) which, in theory, lowers construction costs. In addition, when construction service experts are included in the design phase of a project, as is the case under the design-build delivery method, project decisions impacting constructability are moved earlier in the project cycle. The earlier those decisions are in the project cycle, the greater the capability to positively influence both the project schedule and resulting project costs.

So, if the money value of time is the everyday experience in the construction industry, those responsible for construction projects must ask themselves several questions:

  1. Do we have a schedule in place that we are actively managing for this project?
  2. Are we using that schedule to communicate issues or concerns with our project partners?
  3. Where is our focus? Have we realized the relationship between time and budget and shifted our leadership emphasis to driving the project schedule as opposed to just watching the project costs?
  4. As owners, are we willing to move beyond traditional bid-build methods and realize the positive money value of time impact experienced in the design-build world?
  5. As contractors, are we using the schedule and changes from the schedule's baseline to prove the cost impact of schedule extensions and accelerations?

As leaders, we make choices every day. Are we willing to make the difficult choices and engage in the crucial conversations needed to drive the project schedule? Making those choices and driving those conversations will lead our projects to experience improved financial success.