Time Value of Money: Beyond Dollars and Cents
- Shripathy Suresh
- May 4, 2024
- 2 min read
Updated: Dec 14, 2024
Mind map for TVM
Ever wondered why a bird in the hand is worth two in the bush? It’s not just a saying; it’s the Time Value of Money (TVM) Principle. While seemingly removed from operations, marketing or analytics, understanding TVM can unlock powerful insights.
Let’s consider launching a marketing campaign today generates an immediate ROI, but delaying it by a year sacrifices that potential return. Money’s value diminishes over time. ⌛
🔑Key concepts:
Time Value of Money (TVM): Money has a greater value today than in the future due to its potential to earn a return over time ⏱️
Future Value of Money (FV): The value of money in the future considering its potential growth through interest or investment 💵
Present Value of Money (PV): The current worth of a future sum of money, considering the TVM💸
Return on Investment (ROI): The current worth f a future sum of money, considering the time value of money 📊
Opportunity Cost: The potential benefit given up to pursue another option
How does TVM translate to your work?
Operations: Evaluate timelines, resource allocation, and prioritizing projects based on their future value 🏭
Marketing: Optimize campaign budgets and timing by understanding the time value of potential returns. 📈
Analytics: Factor in the time value of future cash flows for more accurate financial forecasts and data-driven decisions 🖥️
Mastering TVM doesn’t require complex calculations (basic knowledge of MS Excel with basic knowledge in TVM would be helpful), the basic principles would also empower you to:
Make better financial decisions with a future-oriented perspective.
Improve communication and collaboration by translating financial concepts into practical insights.
Gain a competitive edge by applying financial knowledge to your core skills.
💭Share your thoughts in the comments below! Have you encountered situations where understanding TVM have been beneficial in your work?
