Every action has an opportunity cost. Opportunity cost is
– the cost, the sacrifice made, in choosing one mutually-exclusive option over another
– the alternative that does not get carried out
– the cost of an alternative that must be forgone in order to pursue a certain action
– the value of the next-highest valued alternative use of a resource.
Traditional accounting systems are not designed to capture opportunity costs. The vigilant and competent decision maker must proactively seek to discover the value of opportunity costs.
Opportunity cost is not the sum of the available alternatives, but rather of benefit of the best alternative to them. Opportunity cost is not exclusively a monetary concept; it applies to anything of value to people, including time and emotions.
I touched on this concept in a blog that deals with the idea that given limited time and energy, “Every Yes is a NO,” and to always be aware of what you are saying no to when you say yes.
Opportunity cost came to mind the other day when I read a USA Today article that said “Consumers chose not to take 41 million trips over the last 12 months because flying is too much of a hassle, according to a new Travel Industry Association study.”
Those 100,000 trips a day that due to the hassle factor didn’t happen, cost the U.S. economy $26.5 billion. This is probably a low figure as it is based on a mere $700 per trip. No effort was made to include how much would have been spent on goods and services not directly related to the travel experience: “What would be the economic impact of the traveler who did not attend that meeting, who did not make that deal?”
Interestingly, “Travelers were most critical about aspects of the travel experience that are beyond the airlines’ control, such as the airport security clearance process and flight delays caused by the antiquated and over-burdened air traffic control system.”
I’ve long had my doubts about the necessity and efficacy of airport security (locking the barn door after the horse is out comes to mind) as well as the potential positive benefits if such vast societal resources were deployed elsewhere. This study brings into sharper focus some of the additional costs of our actions (remember when Americans did not need to “show papers” to travel?) and of our lack of action (failure to proactively modernize our traffic control system).
But the point of this blog is awareness, ever-increasing awareness, of the opportunity costs that exist in our personal and professional lives and, in particular, the costs of our inaction.
What opportunity costs have you not examined? In particular, what opportunity costs are you bearing because you failed to act? Because you lack the will or motivation to face the daunting task of revitalizing the personal traffic control system of your life? The nice thing is that becoming fully aware of true costs can be motivational.