Opportunity cost: no decision is free

By | May 18, 2014

what if

Opportunity cost = what if? 

I first learned about opportunity cost in college. It was a radical idea for me at the time, and frankly, clients and consultants probably don’t think about it enough.

The idea is simple, but powerful; resources you plan to spend (whether time or money) can be spent on other things. It asks the question “What if” we do it differently?

No decisions is free. There is always an alternative choice. An opportunity cost.

Some might say this is sowing the seeds of regret. Not really. It is meant to help us weigh decisions and really make us think through implications. It drives at the key economic concepts of scarcity and choice. Opportunity cost pops up everywhere:

Critical:

  • How should the client prioritize the investment among projects?
  • Should the client build or buy that capability?  Outsource or not?
  • Go to MBA full-time or part-time?
  • Should I stay in consulting or apply for a good industry position?
  • Keep renting or buy a house?

Important:

  • Staff another consultant on the project, or take all the utilization hours to myself?
  • What will the executive miss if they go to the 3 day conference?
  • Will I not get staffed if I go on vacation in March?
  • Should we staff consultant A or B on the project?
  • Review 1 more time with the partner or just send to the client?

Trivial:

  • Should I finish the PowerPoint tonight, or get a few hours more of sleep?
  • Answer this call? or keep working on Excel and call my wife back later?
  • Take my laptop into the restaurant or leave it in the rental car?
  • With limited time, should I wash/iron my own shirts or dry clean them?
  • Order red or white wine with dinner?

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2 thoughts on “Opportunity cost: no decision is free

  1. jefmiles

    Haha I like the trivial decisions although I hope your wife is not reading this..

    An interesting question on whether to stay in consulting or head to industry, would you see this as a natural progression (from consulting into industry over time)?

    Reply
    1. consultantsmind Post author

      By my estimation, only 10% of consultants make it to partner in the big 4 consulting firms, probably less in the big 3. So, the answer will be yes, consulting to industry is the long time-frame trend.

      Reply

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