Opportunity cost is everything you could have done with the money, time, and focus you’re about to expend on a different course.
In a small business it’s never theoretical: it’s overtime you can’t afford, stock you can’t reorder, family weekends you skip, fancy software that never delivers what was promised. The list seems endless.
Opportunity cost is tough to calculate. It assumes that future benefit from something you did or did not do can be calculated. However, it is often obvious in hindsight, so learning from past misjudgements will assist future choices.
Opportunity cost steals from three of your pockets:
- Cash. Dollars used on ‘X’ would have been better spent on ‘Y’
- Time. The time spent Learning how to use ‘X’ would have been better spent deploying ‘Y’.
- Focus. Our Mental bandwidth is finite. More than one priority at any given time dilutes the return on the time we invest, as well as the quality of the output from that time. Nobody ever went into a ‘flow state’ thinking about two tasks.
For example, deploying a CRM is one of the great hidden generators of opportunity cost, particularly for SME’s. Customers will never thank you for not responding quickly to their enquiry. Failure to do so will erode hard won leads and brand credibility, while the lead evaporates.
Those hits don’t show up in the accounts this month, or quarter. Usually, they do not show up at all, but they quietly compound.
A responsible management asks themselves two seemingly simple yet very complex questions when considering the deployment of any of its limited resources.
- Where else could we spend this resource?
- What are the financial, cultural, and operational consequences of the choice we are making?
Opportunity cost never sends an invoice. It quietly drains the financial accounts, bleeds stakeholder trust, and erodes the energy and commitment of employees. These are significant hidden costs that the best enterprises minimise.
Stop chasing that new shiny object by counting what it will steal.
image by Sora
