Yes, your career has an NPV. Surprised?
Video Transcript: Calculate your career NPV
Hi, I’m John Borrowman. I’ve recruited in the fields of business valuation and litigation support for over two decades. And I think that gives me a perspective that you won’t find anywhere else. And so today I want to talk to you about the NPV of your career. It probably never occurred to you that your career actually has an NPV, but it does. And you probably calculate it more often than you might think.
Now, fundamentally you understand that calculating an NPV involves looking at a series of projected cash flows and discounting them for risk. When you do that for a client, of course, you double-check your model to be very, very precise. But, when you do it for yourself, you can face a hidden risk because your ‘personal model’ may be built on suppositions that just aren’t quite accurate.
Let’s start here. In your case, cash flows would be salary and bonus. Your risk is the risk of continuing and improving them over time.
What I’ve found is that most people have a very reasonable expectation of the dollar value of those cash flows. It’s the risk side of the equation that gives people trouble. It can be easily over-estimated or under-estimated.
Underestimates can happen when you’re not monitoring changes in risk over time. One day at your office, you look around and it looks like plenty of room to climb up where you are. Things look good. You estimate that there’s good cash flow far into the future. High NPV. Right?
But fast forward two or three years. You contribute a lot. You’ve carried your load. You’ve done your part to make the practice better. You look around and the same people are still on the same rungs of the ladder. Now, the cash that you anticipated, that’s still there. That has been there. But the risk is different. NPV? Maybe not quite so high.
Personal attitudes can also be variables that will help disguise risk. For example, in what I was just telling you, even though you feel stuck on the ladder, it could be a practice where there are people you like working with. It’s a nice comfortable environment. And so maybe you disregard the risk. And by the same token, a personal dissatisfaction with a situation can also cause you to overestimate the risk of staying and cause you to under estimate an NPV.
Calculating risk in connection with a job change is really tricky. Assimilating into a new office environment carries a risk. Taking a new employer’s word for it when it comes to advancement and income opportunities carries a risk.
The real culprit here is simply the lack of reliable information. Because what I have found is that risk can sometimes be higher—and sometimes be lower—than it looks like to you.
Everyone has questions every now and then. Am I being paid fairly? Am I in the right place? When you have questions, I can help you find answers. Give me a call.