Art Jacoby's Monthly Newsletters
Newsletter Library - August 2006
Understanding Opportunity Cost
Have you ever found yourself spending time on tasks that could be performed by a person making $20 an hour, instead of focusing your energy on developing new business for your company? If so, then you’ve missed out on a more lucrative use of your time. Welcome to the world of thinking about Opportunity Cost!
Opportunity Cost is what you sacrifice in time, money, and/or energy by NOT taking the best alternative path. For example:
- You do your own bookkeeping rather than develop a new product.
- You fix computers rather than coaching subordinates.
- You pursue a saturated market rather than a new, emerging one.
- You don’t engage a recruiter (in order to avoid their fees), and it takes much longer to hire a critical employee.
These are just some examples of the inefficient choices we make every week in business.
Thinking about Opportunity Cost is particularly important for companies in transition, as they have more choices to make and less time to make them. However, a rigorous Opportunity Cost analysis will significantly improve decision-making for any company, and generally improve the probability of success.
So, you have a choice: incorporate Opportunity Cost thinking into your decision-making process, or ... is there a better alternative?
Art Jacoby advises high potential growth companies.
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