The law of diminishing returns is one of the most important principles in the world of economics. It helps you find the right balance in production in your organization.
Regardless of the products or services you provide, understanding the law of diminishing returns will have a huge impact on your organization’s efficiency. The concept of diminishing returns applies to you if you:
- Complete a report but still work on bits and parts continuously, thinking it’s not good enough
- Research for many hours trying to find more and more resources and support for a project, but not yet started the actual work
- Spend extra time and effort (more than needed) to make a project better.
It takes knowledge and effort to find the right balance between factors of production. Understanding the law of diminishing returns will boost your productivity and performance. In this article, I am going to help you understand the law of diminishing returns with clear examples.
What is Diminishing Return?
In the world of economics, the law of diminishing returns states that in every production process, there is a point where adding an extra production unit while others are constant will lead to a decline in the overall output. It is also known as the law of increasing costs since adding an extra production unit decreases returns and the cost of production eventually goes up.
In terms of productivity,[1]
The point of diminishing returns refers to a point after the optimal level of capacity is reached, where every added unit of production results in a smaller increase in output.
The biggest issue is knowing when you have reached this point. As a leader, you need to ask yourself this question:
How long do I continue working on a project until I declare that it’s good enough? – And this extra time spent will not affect the outcome significantly.
Examples of Diminishing Return
The law of diminishing returns applies in different areas of your life. See if these examples resonate with you:
- You’ve been working non-stop on a work project to complete it on time and achieve the objectives. While you might think that working all the time will help you be a step ahead, the reality is you’ll get diminishing returns in your productivity and performance in the long run. Worse still, you will be stressed and exhausted, and your health and even your family relationships will be affected because you simply neglect other aspects of life trying to make that project perfect.
- For meetings at work, the first hour tends to be the most productive. Adding a second or third hour usually doesn’t contribute to the outcome significantly. A lengthy becomes tiring and boring for everyone involved and is not productive at all.
How Perfection is Related to Diminishing Return
How many times do you find yourself stuck collecting data and analyzing a problem for weeks or even months before coming up with the best solution instead of taking action to actually resolve the problem?
Why do you do so? Are you trying to figure out a perfect solution and create the perfect condition so the outcome will be perfect?
But will your solution ever be perfect even after spending tons of time and effort on research and analysis?
The answer is likely no.
Paralysis by analysis happens when we try to seek for the best, or even the perfect way of doing something or solving a problem. In most cases, perfectionists have the fear of failure and tend to avoid potentially harmful situations. They don’t want flaws in what they do and in themselves.
But the truth is, perfection doesn’t exist. Waiting for the perfect time, or trying to make something perfect not only wastes effort but also delays making progress significantly. This is when perfectionism leads to diminishing return.
How Diminishing Return Affects Your Productivity
Diminishing return affects your productivity in four major ways:
Investing More but Getting Back Less
Spending a lot of time and energy on a task or project doesn’t always mean that you’ll get better results. A study conducted by Stanford found that you can get more done by doing less.[2]
The truth is, investing a lot of time and energy after reaching the point of diminishing returns does not affect your results significantly.
Not Completing Anything
When you endlessly invest effort into something, you delay completing it; so you will end up not completing anything.
Putting off Decision Making
To achieve an outcome for every task, you need to make decisions.
Some people tend to spend too much time researching and analyzing data in order to make the best decisions. While this sounds like a logical thing to do before making a big decision, most of them tend to get stuck at this stage and are not able to make a decision.
Wasting Time and Losing Opportunities
When you spend a lot of energy on a project and fail to achieve the objectives, you’ll end up wasting time and losing opportunities. I have explained this in my other article about opportunity cost.
Opportunity cost is usually expressed in terms of how much time and value must be forgone to pursue an opportunity. For example, if you choose to spend time researching and analyzing results, the cost of this is the value of the time you would have spent testing your ideas in the field and getting feedback.
What You Can Do to Prevent Diminishing Return
There are two effective steps that you can take to prevent diminishing return:
Step 1. Use the Superstructure Method
The Superstructure method is Lifehack’s unique method for quantifying the value of your tasks, so you can organize them in order of importance.
Once you adopt the Superstructure Method and begin prioritizing tasks in your daily life you’ll see BIG rewards.
These will include a huge jump in your productivity and work output. You’ll also feel less stressed and overwhelmed, which will give you time and energy to be more expressive and creative.
Just imagine…
The new you could be getting more done while also having better mental and physical health, and more spare time to do the things you love.
This is not some fantasy. This is the life I lead right now. And it’s the life you can lead too if you put the Superstructure Method into action.
Every task has three components namely:
1. Intention
Figure out why you need to do these tasks and find out how you’ll benefit by working on the task, and how it will propel you towards your goals.
2. Value
Organize your tasks into the three categories below:
- Must-haves: Critical to achieving the objective. Without it, the outcome is meaningless.
- Should haves: Important but not critical. However, leaving it out may lessen the impact of the final result.
- Good to haves: Having it is nice, but not including it won’t have any negative impact on your objective.
How you decide to put them will be determined by your goals.
3. Time
After looking at your task’s priority, you need to evaluate the cost of each task in terms of time. The complexity of the task is reflected by the time you’ll need to complete it.
You can easily calculate time costs by splitting tasks into half-hour intervals. No task should be longer than three hours.
With limited time to complete something or make a decision, this method can help you get an optimal result.
Schedule the Tasks
By knowing the priority of your tasks and the approximate time each of them will take to complete, you now have the keys to taking positive, productive action.
And the good news is that it’s really very simple.
You just need to schedule your tasks on a weekly planner — choosing on which day and at what time should you tackle each task.
Once you begin following this Superstructure Method, you’ll quickly overcome any feelings of being overwhelmed. That’s because you’ll always have an organized weekly plan that allows you to master your time and achieve your goals.
And there’s more good news…
After a while of following the Superstructure Method, you’ll notice that you start to create a solid routine for some recurring task such as having regular meetings and replying to emails. And routines are a fantastic way of saving you time and energy, as they help you automate your tasks and keep you away from distractions. Learn more about the Superstrucuture Method here.
Step 2. Apply the 90/10 Principle
So now, you’re clear about the Must-Haves, Should-Haves and Good-to-Haves, let’s try to combine the 90/10 Principle too.
The 90/10 Principle is one of the most important principles for productivity and effective time management by Stephen Covey. It states that 10% of your actions account for 90% of your results. Trying to achieve 100% of the results is not so practical because as I mentioned earlier, perfection doesn’t exist. Good enough is good enough, and there’s no need in dragging to achieve the remaining 10%.
When people try to achieve 100% of the results, they essentially spend over 90% of their effort and resources to fulfill the remaining 10% of the results. This is more than needed and is when diminishing return happens. It is like spending 90% more of your effort to achieve only 1-2% of the results, which is not worth it.
Understanding the 90/10 Principle will help you set the right expectations and actually get things done. In fact, a study conducted by ResearchGate found that when workers are managing their tasks using the 90/10 Principle, they face less stress and become more productive at work.[3]
Conclusion
The law of diminishing returns is an economic concept that applies to different areas of our lives. You can quickly boost your productivity and performance by understanding this concept.
As we have seen, the fear of failing and anxiety about taking action are the leading reasons for indecision and failure to take action. Coming up with ideas and implementing them on a small scale will enable you to get immediate feedback, improve business processes and boost your performance.
You can prevent diminishing returns by using the superstructure method and 90/10 principle. Understanding and using these two effective tools will help you set the right expectations and achieve your goals.
Featured photo credit: Chris Liverani via unsplash.com
Reference
| [1] | ^ | Corporate Finance Institute: Point of Diminishing Returns |
| [2] | ^ | CNBC: Stanford professor: Working this many hours a week is basically pointless. Here’s how to get more done—by doing less |
| [3] | ^ | ResearchGate: THE RELATIONSHIP BETWEEN TIME MANAGEMENT, WORK STRESS AND WORK PERFORMANCE-A QUANTITATIVE STUDY IN PORTUGAL |
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