Opportunity Lost The underlying theme here is that time is money, and that doesn’t refer just to hourly wages. Time you spend doing one thing is time you can’t spend doing something else, and if “something else” is more profitable, then you’re losing money. This concept is called “opportunity cost,” a term common to economists but foreign to remodelers who don’t have a background in finance or business.
Opportunity costs manifest themselves in a number of ways. Eldrenkamp notes that the decision he made to buy laptop computers for all of his lead carpenters had financial implications that reached beyond what he paid for the machines; the investment would have little payback, and the money would not be available to be invested in something with a higher return.
“You need to be aware enough of your business to be able to step back and compare different ways of investing your resources — capital, talent, time — rather than assuming that the choices you make are going to have the best return on your investment,” he says.
This concept applies to every part of the business, including what jobs you choose to take. “Jobs that are labor-only are a bad investment of our time,” Eldrenkamp says. “We need to leverage our time against markup of materials and subcontractors.” This revelation was part of what inspired him to move to the design/build model; the return on hours spent in the office and on sales calls is higher than when doing competitive bid or negotiated contract work.
Eldrenkamp also uses opportunity costs to emphasize the importance of working as efficiently as possible. For example, assume that in one year one crew can complete six eight-week jobs. But if things go wrong and the jobs take eight weeks, they’ll only be able to complete five in a single year. So not only is money lost on each individual job by being two weeks behind schedule, the opportunity to complete another job at a normal profit level is also lost. If that job happens to be worth $200,000, at a 5% net profit, not doing that “extra” project costs $10,000.