money matters

Right. 5.30am and here I am at the computer. Why? Because of numbers. Money. And I don’t think about money much, so here goes.

If action cycles are going to work, they are going to have to work. And by work, I mean produce the kind of money flow that justifies the time people take to doing them.

I thought of another strap line: helping ourselves.

Most of the problems in the world are caused by us trying to help others, when it is ourselves we need to sort out first. Don’t take this as a personal thing, as a me-orientated thing; it’s about a shared responsibility. If we sorted ourselves out, we wouldn’t be putting africa under the pressure it is under and the problems that we induce with our economic ties. So, in the context of the action cycle, we need to help everyone in the action cycle, and for the specific consideration of this post, the money flow to make participation sustainable.

So, how much does an action cycle cost?

Let’s say everyone in an action cycle is accustomed to making £15/hour. Let’s not complicate things at this stage with freelance payments, let’s just consider simple paid employment. Let’s also ignore costs incurred before and after the one hour action cycle. And finally, let’s think of an action cycle consisting of 10 people. That’s £150. To justify this simple action cycle, it needs to make £150 worth of value. How can we justify this?

I don’t know… let’s consider it a training cost. For a team of 10 people, that’s not bad at all. Everyone learns something as they try to come up with a just-beyond-realistic objective in answer to the question, “what can be done by next week?”. If they manage two wows and commit to an objective, how much do they have to make for the action cycle to justify itself?

This one is a little trickier to evaluate. Some people may use less than an hour to contribute to achieving the objective, while others take a full working week. Let’s say, the minimum is 10 hours and the maximum is 350. That means the range of costs ranges from £150 to £5350.

And this is a pretty realistic calculation. If we are actually playing with idealistic objectives, then we should also consider idealistic pay schemes, shouldn’t we? Let’s imagine that people are making the equivalent of £50k a year from action cycle participation. That translates as roughly £25/hour. That means costings are roughly £250 for the initial hour, and £250 to £8750 depending on the number of hours worked.

Realistically, how can we measure the monetary value of an action cycle?

Here’s a simple rule of thumb for an ideal action cycle, that is, one that is hosted by an organisation/company. Add up the total per hour cost for the employees of the company, the three vertical players, and multiply this by three to get the basic cost of the cycle. We’ll call this the ante. Let’s say the executive makes £25/hour, the manager £20/hour, and the lowly employee £15/hour. Total ante for the action cycle team is £180. If the company wants to pay for people’s time at this point, they should fork out £120 — but really, this doesn’t make sense, because some will be employed, and a contract of £20 is not enough. It’s best to think of the ante as just that, the ante to playing the game. Realistically, if the players really want to play the action cycle for all it is worth, what kind of money flow should we be considering?

Realistically, let’s say the junior works their entire week, the manager one day, and the executive one hour on achieving the objective. Let’s multiply this by three to find the total cost of the objective, which turns out to be 3x (525+175+25) which is £2175. Of course, £725 is covered by the company itself in their standard wages. We might also consider that the diagonal players are also employed, so the the only real cost to the company which benefited from the objective is actually £725 paid to the horizontal players, and because they’re horizontal, that’s £242 each for an average of 14 hours spent over the week, about 2 days worth.

So, when it comes down to it, a horizontal player when approaching a company needs to be thinking that they are playing a game with an ante of £180, and it will cost the company in the order of £700-800 for the horizontal players alone should the objective be achieved. That’s for two days work, each. This means, the horizontal players need to apply their self-discipline to fix on an objective that can generate this kind of value for the company. Of course, this could merely be the quality of engagement in at least attempting to achieve the idealistic objective — that is, the learnings involved in conducting the action cycle. Even failing to achieve three wows, is £750 justified? Some would say yes. After all, the participants not only learned from their own experience — and the range of learning in an action cycle is unquestioningly vast — they also witnessed the skills and wisdom of the horizontal players. I did say, some would say yes.

Is this good enough?

My answer would be “No”. What we need is something which as close to generating £750 revenue for the company by the end of the following week. But if we are going to think like this, we might as well just stick to our day jobs —  after all, the calculations are based on bog-standard employee scales and times. If action cycles are going to do more than just work, which is something we are rather bored with — and actually standard business practice is not up for producing the level of result we need to see in the world — what we need is something which becomes indispensable to the company. What we need is money flow that the employees of the company realise is more beneficial to them as individuals than it is to hold on to their company structure. That is, in order to justify a company to send off its employees to participate in away games as diagonal players, and even for some individuals to take more responsibility into their own hands and become horizontal players themselves. Bottom line, horizontal players need to be making more than their vertical companions. How weird is that?

Entirely. Idealistic. For sure.

So, here’s a summary of the financial thinking involved:

  • calculate the man hours and cost to the company to host an action cycle internally
  • multiply this figure by three to get the ante
  • assuming the idealistic objective will take two days per participation over the week, multiply the ante by 4 to get a ball-park figure of the costing, or pot

If you really want to turn an action cycle from work into play, double this pot to estimate the as-close-to-revenue-benefit the company shall generate by the end of the week, in order to justify the pot-equivalent of the actual pay-it-forwards money-flow to the horizontal players alone.

In this way, not only are a bunch of individuals achieving idealistic objectives through a non-legal structure based on trust, learning the skills of self-determination and true inter-organisation collaboration, but the action cycle is something which actually makes financial sense. Play around with some figures yourself.

Of course, we might want to consider the effect of an action cycle having value that is not monetary. Or, if it is, it is not a lump sum but a percentage royalty based on what is produced. The variations are endless. Whatever happens, it will emerge out of practice. But we’ve got to start introducing the financial vector, right now.

And finally, why think in such mundane numbers?

The action cycle should be able to work with people who only make £1 a day, as well as those who make £1 million. Imagine playing an action cycle where the objective by the end of the week generates £1 million for the participants. Of course, there are people who are playing this kind of game in the corporate structure amid competition. In order for action cycles to justify themselves, if they really do work, they should be able to generate this kind of result. For example, a contract is made between two large companies through the timely intervention of an action cycle, or more correctly, the specific individuals who compose an action cycle, vie their skills and contacts and effort. If a multimillion pound deal goes through, the commission can be quite substantial, as everyone in property knows. So, if the pot if £1 million, then the conservative ante for such a game is in the region of £25k. That’s each player buying in for £2.5k to bring about a return of £100k each in a week. Now that’s doing business — only better.

Posted in meta, money, structure, Uncategorized | 1 Comment