Week 5 – Parkinson’s law & Small plates: how a simple shift in mentality can have lasting effects on Profits.
10 MIN READ
Parkinson’s law & Small plates: How a simple shift in mentality can have lasting effects on Profits.
Parkinson’s law is a concept that states the more time someone dedicates to a task, the more time it will take to complete it. Even if we could have finished the job in a shorter amount of time, this was made public in an article written in 1955 by Cyril Northcote Parkinson, hence the name “Parkinson’s law” in this article he noted:
“It is a commonplace observation that work expands so as to fill the time available for its completion. Thus, an elderly lady of leisure can spend the entire day in writing and is patching a postcard to her niece at Bognor Regis. An hour will be spent in finding the postcard, another in hunting for spectacles, half-an hour in a search for the address, an hour and a quarter in composition, and twenty minutes in deciding whether or not to take an umbrella when going to the pillar-box in the next street. The total effort which would occupy a busy man for three minutes all told may in this fashion leave another person prostrate after a day of doubt, anxiety, and toil.”
This phenomenon is true in several scientific studies that when given extra time to complete a task, they will usually take advantage of it, even when it isn’t needed. Parkinson’s theory is that if you give yourself a week to complete a two-hour task, then, psychologically speaking, the task will ultimately increase in complexity and become much more daunting to fill that week. It might not even fill the extra time with more work, but rather more stress and tension about having to complete it.
Isn’t this about Time Management?
While time management is the bases of Parkinson’s law, it is possible to apply this same law to financial management. If you are depositing all your revenue into a single bank account and then managing your business out of that single account, you are creating a surplus mentality which can lead to needless spending.
If we apply Parkinson’s Law, we can deduct that the more money you have available, the more you will spend. This surplus spending can come at a high cost because this could leave you at the end of the year wondering why you don’t have enough money to pay your taxes, how you could have gone another year without a raise or bonus, or even worse a paycheck?
Using Parkinson’s Law to Your Advantage
Parkinson’s law says that the more of something you have, be it time or money, the more of it you will spend. Therefore, less will be available if you impose restrictions, and thus you will have less known to be consumed.
The Profit First method utilizes multiple dedicated bank accounts to manage your cash. By Using Parkinson’s Law to Your Advantage, you can change the surplus mentality and begin to achieve even greater profitability.
By determining your Target and Current Allocation Percentages, you can divide your monthly revenue into separate dedicated accounts rather than having one large checking account. You then use the dedicated accounts for the corresponding expenditures.
So why does this work?
Since each account has been pre-allocated, you begin to control your spending by eliminating the surplus mentality. Having less available means you spend less, ensuring your practice retains more of its earnings and boosts profits.
By taking advantage of Parkinson’s Law, your practice will start to see endless benefits because you are:
- Ensuring your profitability before you spend a single cent;
- No longer worried about tax season;
- No longer at risk of bouncing paychecks;
- No longer being underpaid, or worse, not paid at all;
- Finally, take a quarterly bonus for your risk and hard work in owning a practice.
How can you get by with less?
When a limited supply is available, you naturally become more innovative and conservative in utilizing the resource.
Think for a minute about a tube of toothpaste. When you first buy that tube, it is full of toothpaste, and you think there is plenty! It will last for a while! In turn, you take no concern over how much toothpaste you put on your brush; some fall off, and you don’t even care.
But what happens when you’re at the end of that toothpaste? You find creative ways to get every drop out of that tube. There’s the roll-up method, then run over the edge of the counter method, the rolling pin method, and the cutting it in half technique. You can even buy an assortment of products to get every drop out of that tube!
Why do we do this? We want to make do with what we have so we don’t have to run out to the store. But more importantly, what did we learn? Essentially, we learned two things.
First, we learned that we didn’t need that massive glob of toothpaste in the first place. We were still able to brush our teeth effectively. Secondly, we learned that we could adapt to the changing amount of toothpaste while effectively doing the task.
Now think about what a small difference changes like that can make to your practice’s financial situation. It could be huge!
Your finances are like toothpaste
The Profit First Method utilizes Parkinson’s law to your advantage. By creating smaller dedicated accounts to run your business, you will start paying attention to how you spend that money.
In turn, you will find that by having less money to spend in each account, your business will need to find ways to spend less, which will cause you to think more frugally and efficiently. Consequently, you will realize your practice did not need to spend all that money in the first place, and you will start looking for other ways to cut expenses.
After all, financial and operational efficiencies and innovation drive sustained profitability. So, ask yourself, can my practice spend 5% less on operating expenses? Will I notice the difference if you started spending 5% less on operating expenses?
Think about how exciting your year-end will be when there’s an extra 5% in your profit account. Think about all the things you could do with that extra 5%.
Being cheap vs frugal: what’s the difference?
While cutting expenses and being innovative in running your practice is GREAT, don’t fall for the age-old trap of being cheap. Instead, you want to be frugal when examining and building your financial plans for your practice.
Being cheap is all about spending less.
However, being frugal is about prioritizing your spending, focusing on outcomes, efficiency, productivity, and value, so that you can have more of the things you care about, i.e., profits.
Blindly cutting expenses or not buying products or services that will help run your practice more effectively can be disastrous. It could lead to inefficiencies causing higher staff turnover, lower patient visits, and higher staff wages due to working longer hours.
Don’t just focus on blindly cutting expenses or getting fixated on the cost of a product or service. Instead, focus on the value that product or service brings to your practice.
For example, if a solution costs $90 per month but saves your staff 3 hours a day, the solution more than pays for itself in staff efficiency. Not only that, but now your team can focus on other tasks in the office.
These are just a few ways to start taking advantage of Parkinson’s Law to grow the overall profitability of your practice.
Remember, don’t take substantial sweeping cuts to your practice; make calculated changes over time to ensure your practice can withstand the changes.
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