Opportunity Cost

Understanding opportunity cost from an economic point of view is an important lesson for any business that wants to be successful. Regardless of your industry or niche, there is always going to be a price to pay for convenience. In fundamental economic terms, you cannot have low price, high quality and low time investment simultaneously. The opportunity cost of having two of these is always at the expense of the third.

Determining Value in Economics and Business

Understanding the opportunity cost of a business choice is also a good way to determine its value. If you know what it cost you to implement a certain plan, policy, or system, you can easily calculate what it is worth. A typical example common to technology firms is the dilemma of software and hardware upgrades. Before engineers can decide whether or not to upgrade a systems component or not, they need to determine what the opportunity cost is.

opportunity cost are described as the consequences it has to choose one option instead of another.

opportunity cost are described as the consequences it has to choose one option instead of another.

For a simple, scheduled security upgrade, this is often insignificant. But systems engineers need to be aware of every patch that is delivered by software vendors such as Microsoft and Apple, because in some cases updates can break functionality. Thus, it can be said that the opportunity cost of a software upgrade in a system is the risk of having a feature that users want being incompatible with the new version. Network staff need to always be aware of what current demands users have and what the most frequently used functions are, so that nobody experiences an interruption to their workflow.

Opportunity Cost in National Terms

On a national scale, countries across the world have their own economies and deal with trade-off on a daily basis. For example, nations worldwide have huge stores of natural resources available. For Britain these resources can be in terms of fossil-fuels extracted by North Sea oil drilling expeditions, or an alternative technology such as the harnessing of aeolian energy on coastlines. On one side of the political spectrum, the opportunity cost of developing the oil wells is continued global warming and carbon emissions, while on the other side of the spectrum the opportunity cost of wind farms are the concerns of local communities related to noise and visual pollution.

It is easy to see how the term opportunity cost can be understood from a literal, financial point of view and also from a symbolic one. Opportunity cost does not always have to be directly related to money; the cost of choosing one option in business over another is often a perceived or even a human cost.

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