I have massively been underestimating my intangible costs in my life for decades. And it has had a huge impact on my effectiveness. And how the heck did I learn what intangible costs are in the first place? Well, I learned it in business school. But, it has impacted my life in a huge way. Let me explain.
Just because something is not costing you folding dollars in a business, it doesn’t mean that it is free. Any action taken or product sold could be depleting a business’ intangible assets. What are intangible assets? Great question.
Investopedia says, “An intangible cost is a cost that can be identified but cannot be quantified or easily estimated. Common intangible costs include impaired goodwill, loss of employee morale, or brand damage. While not directly measurable, intangible costs can have a very real impact on a company's bottom line.”
People tend to pay more attention to tangible costs in producing a product – raw materials, cost of labor, marketing costs, etc. But almost every process has an intangible cost as well. And sometimes that intangible cost is pretty darn expensive.
Pardon this interruption in your reading! If you want to receive inspirational blogs like this every day and original podcasts every weekend from yours truly, click below for a 7-day free trial of Pragmatic Productivity Daily!
A company might increase the output expectation on employees to increase productivity and thus, profit. But, the intangible cost of that is a lower employee morale. That lower morale could lead to less engagement at the workplace and employee turnover. And those turnovers might cost more than the money saved by increasing output expectations.
For me, one of my biggest intangible costs in my everyday life was the amount of space projects take up in my brain. For instance, a few years ago, I agreed to be the secretary of the parent board at my child’s school. You know, those groups of moms and dads that organize fundraisers, barbecues, and raffle items to raise money for teacher appreciation. They told me that the position would only take up a few hours per week of my time and that I would only have to hold the position for a year. So, I agreed. But, the intangible cost was high.
The parent board president was correct that the tasks of my new position wouldn’t be intrusive in my life time-wise. The problem was that it was one more thing added to my already full plate of to do’s. It was another iron in the fire that caused just a little bit more stress in my life. And it took away my attention from more important things like spending time with my family and building my business.
I realized as I was trying to take notes during a meeting, cook family dinner, and keep my kid busy (playing legos in front of Netflix), that the intangible costs of this obligation were too high to keep it on my plate. At the end of the year, I politely declined to stay on and I’m much better for it.
So, how do we anticipate the cost of a potential business or personal project? Well, many businesses do what is called a cost-benefit analysis. In layman’s terms, a cost-benefit analysis is a rundown of the pros and cons of taking on a project. In business, you’d tally up the costs of the project and compare them to the projected benefits of the project, including things like production and labor costs, the cost of materials, and other direct costs. In your everyday life, you can do the same thing.
If I had done a cost-benefit analysis of taking on a role in the parent group, I probably would have declined. Why did I say yes? Well, honestly, I just wanted people to like me and I wanted the teachers to be nice to my kid. The goodwill of others is definitely a factor to consider in a cost-benefit analysis. But also, I didn’t consider my intangible costs (including something called an opportunity cost – what things I could have done instead of taking notes at meetings and running school errands).
Here are some good questions to ask yourself when considering taking on a new project. Will I find the obligations of this project to be stressful? What will time working on this project replace in my life? Is there something else I would rather do with my time and resources? What long-term benefit might I receive from taking this on? Am I just saying yes because I want people to like me? (Okay, that last one might just be for me, but it’s also important.)
Sometimes really analyzing an opportunity and its intangible costs requires asking for a little extra time to decide. That’s okay. It’s worth it to make a good and sustainable decision that will improve your business. Or, more importantly, your life.
Want daily inspiration? Click below and you can try it for free or 7 days!