Optimal Time Allocation Policy for Entrepreneurial Process Improvement
Time, Date, Venue
Monday 11th, January 2010, 16.00 - 17.00 University College London (1st floor Exec-ed room, Engineering Front Building, "Malet place" in Google maps)
For many entrepreneurs, the main bottleneck resource of their company is their own time, rather than cash. In this paper, we develop a dynamic time-management framework for entrepreneurial process improvement for contexts where time is more constrained than cash, and provide clear guiding principles for time management. We classify an entrepreneur's daily activities into four categories: firefighting, process improvement, revenue enhancement, and revenue generation, and analyze a stylized dynamic time allocation problem for maximizing long-term expected profits. We find that entrepreneurs should first invest time in process improvement until the process reliability reaches a certain threshold, then in revenue enhancement until the revenue rate reaches a certain threshold, and only then spend time generating revenue. Also, entrepreneurs with lower initial revenue rates should invest more time in process improvement and in revenue enhancement, ultimately earning revenue at a higher rate than if they were endowed with a higher initial revenue rate. Our model formally links time with money and introduces a framework for evaluating the opportunity cost of an entrepreneur's time. We highlight the performance difference between the optimal policy and two commonly employed (well-intentioned) time management heuristics and show that working hard does not necessarily imply good time management.
Steve Yoo is a PhD candidate in the Decision, Operations and Technology Management department at the UCLA Anderson School of Management,