Time is Money: How to Avoid the Sunk Cost Fallacy

Pocket watch sinking into a pile of sand.

Nonprofits face a unique set of challenges in today’s profit-oriented society. The work that a nonprofit does is often vital to the community it serves, but measuring a return on investment can be hard to do. In addition, future funding streams are uncertain – donations can drop suddenly due to changes in the economy or donor participation. When resources are scarce, we have a tendency to forego investments in new processes or equipment, reasoning that continued use of an old or outdated system (which has already been developed and paid for) is preferable to an outlay of cash or time for something new. However, we may end up using one of our most expensive resources - employee time - on activities or processes that provide little value. This is where time tracking can become a valuable tool for a nonprofit organization.

The “sunk cost fallacy” refers to our human tendency to continue on a path once we have invested time, effort or resources into an initial start-up process. Often, we don’t even realize that we are using our resources inefficiently when we fall victim to the sunk cost fallacy. Add that to the tendency of people to react to urgent matters while putting important, but not urgent, tasks aside, and you have the potential for some serious inefficiency.

By encouraging your employees or volunteers to keep track of their time on a daily basis, you can gain valuable insights into the functioning of your organization, and the efficiency of your systems. Bottlenecks become apparent, and time spent on low-impact activities can be quantified.

Every organization has to determine for themselves what the optimal time tracking system looks like, and how often to review the resulting information. My recommendation to my clients is always to look at how expenses are tracked between programs, general administration, and fundraising, and track time the same way. Reviewing time spent on existing processes and new programs on a quarterly schedule, in conjunction with reviewing financial statements, usually strikes a good balance. This approach helps you identify the impact of one of your largest expenses on program achievement – your employees’ time. After gathering this data, don’t be afraid to ask for a change to create better results.