Compound interest is a powerful concept that has helped people to multiply their wealth. In this post, I want to use it as an analogy of how developing (or not developing) your managers in the engineering world directly correlates to how fast your firm can grow (or fail).
Wikipedia defines compound interest as the addition of interest to the principal sum of a loan or deposit, or in other words, interest on interest. It is the result of reinvesting interest, rather than paying it out, so that interest in the next period is then earned on the principal sum plus previously accumulated interest.
For example, if you invest $10,000 today into a retirement account that yields a 7% return annually, after year one, you will have $10,700 in that account. Now, in year 2, instead of starting with $10,000, you start with $10,700 and therefore, after year 2, you have $11,449 in that account. If you never add another dollar to the account, after 30 years, you will have $76,122.55 in that account, an increase of 661%. Not a bad investment.
Compound Interest in Management
At the Engineering Management Institute, we are always talking to consulting firms about investing in people leadership or project management development for their managers. Many firms proceed with our programs, but others pass on development, citing excuses such as:
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