Thursday, November 09, 2006

Amazing argument for not going in to work

The cost of driving to and from work can be measured by more than just dollars per gallon. Until I saw this post on the blog of an attorney who works from home I had not seen just why it can make so much sense to work from home. The key concept here is opportunity cost, the value of the next most valuable alternative forgone in favor of the choice made. After computing the formula there really is no argument.

In the example the author references, a couple has bought a house that requires a 1.5 hour commute each way and being skilled technology workers they earn $100 per hour. From his post, here's the formula and how it works out:

(Commute time * Productivity per hour) * Days Commuting per year

(3 * 100) * 230 = 69K

Based on similar formulas I calculated the following numbers:

  • Yearly opportunity cost - $69,000
  • Lifetime (30 years) opportunity Cost - $2,070,000
  • 8-hour work days spent commuting per year - 86.25
  • Lifetime (30 years) work days commuting - 2587.5
  • Number of work years spent commuting - 11.25

That’s right! They will spend the equivalent of 11.25 work years driving to and from work. I defined a work year as 230 8-hour days.

Even if you're just one person earning $50 per hour and commuting only half an hour each way, that's (1*50)230 = $11,500 per year, $345,000 over your work lifetime! I don't know about you, but that would give a tremendous boost to my IRA/401k/life insurance.

Plus, the person in my example with a more modest commute would have the equivalent of an extra 28.75 eight-hour work days each year and 862.5 eight-hour work days over 30 years, adding a total of 3.75 work years if commuting was eliminated from the day. If nothing else such a reclaimed opportunity cost could help relieve some billable-hour pressure. Pretty cool.

This one's for you, Eric.

Yes, you.


Eric said...

All your maths and numbas are k00l and accurate!

I have a feeling that a lot of people that work from home are a lot LESS productive, though. That has to factor in somehow. And it's not just my XBOX and mad chess skills that are distracting me, either. A lot of time it's just the home things, like phone calls, neighbors, etc. When I work from home, I tend to go out somewhere, like Starbucks (R) or the library to get any real work done.

Kevin said...

You're right about distractions at home. I run across similar issues, the biggest being watching TV while I take a break to eat and then continuing to watch TV after the meal is done. This whole Internet thing is distracting too. Sometimes I just leave my computer off until I finish something I've been working on.

I suppose along with the above formula there must be an additional factor of either discipline or degree of isolation factored in. Coffee shop noise generally prevents me from really focusing, so I'll have to take your suggestion and try my local library.