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How would you calculate the economic value of overtime?

Lorenzo

Hi all,

how would you calculate the economic value of overtime?

I see two ways to obtain the gross value:

-Based on my actual economic package: (net monthly value/(1-tax rate %)) x 12 months

-Value based: supposing I will do on average 1.5hrs/day of overtime (maybe this value has to be higher in most strategy consulting firms?), that's 30hrs/month (no weekends included). What is the real value of this amount of time spent working instead of living my private life? (opportunity cost)

What would be your approach?

Thanks,
Lorenzo

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Andrea
Expert
replied on 06/02/2018
Former BCG decision round interviewer with 300+ real interviews in 8 years at BCG

The second of the two methods you outlined gives indeed the economic value for the worker.

Together the two methods determine the “goal posts” of how overtime pay is determined for workers (sometimes legislation comes into play where overtime must be a minimum of 1.x times regular time pay). The final determination of the exact amount takes in to account the economic value that overtime creates for the employer. That is usually estimated by understanding the incremental profitability (vs. Profitability of regular hours) these marginal hours of work generate.

hope it helps,

andrea

Josh
Expert
replied on 05/30/2018
Ex CAPCO/BCG Consultant. Specialize in Market Sizing

Hi Lorenzo,

I studied behavioral economics in college, so this is right up my alley. There isn't a right or wrong answer for this question- it entirely depends on how much you value an hour of time.

Here is another way to think about it- how much would you pay to get work an hour less each day?

Josh