Sunday, October 04, 2009

When £3k is more than £83k

I once had an argument with someone who took a nominal amount of time, multiplied it by the internal billing rate of the company's engineers, and the number of employees, and came up with a 'cost' of £83k in order to strike down a proposal.

This seems to be a fundamental misconception that occurs time and time again in large companies and in government: that something denominated as a currency is somehow money.

Money only exists at boundaries. Boundaries between people, boundaries between organisations, boundaries between countries, but boundaries nonetheless.

Aside from the fact that essentially nobody was actually paid at the internal billing rate, they were all on salary anyway. No matter whether they spent the time watching an installer's progress bar, picking their noses, talking at the coffee machine, or actually working, they'd be paid exactly the same amount.

The alternative suggestion related to a saving of only £3k, but £3k of incremental spending on energy bills: extra money that would have to be spent, that would have to leave the company. A transfer of wealth from us to the energy supplier.

My counterparty in this argument thought that, since £83k was much bigger than £3k, it was self-evident that his way was better. I disagreed. The £83k never existed, never would exist, and was merely a figment of some fevered imagination.

Now, at full utilisation, where time really was money and a delay would cost us sales, the internal billing rate would be a floating currency, with an exchange rate of around IB£2 to £1 - a sign that inflation had already bitten - but it was treated as though the IB£ was pegged 1:1 to Sterling and was somehow real rather than an accounting abstraction.

It got me wondering about where else such ideas crop up, and helped crystallise some arguments I'd been pondering for months. More to come.

- KoW



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