Opportunity Cost

When you are presented with two or more mutually exclusive options, you are going to have to pass up an opportunity. The key to making the right decision not only lies in knowing the value of both options, but in looking for a possible third option and assessing the value of that option as well. The value of the opportunities not taken are the “opportunity cost” of your decision.

A simple way to explain opportunity cost is to consider selling an item at cost. If I buy a widget for $10, and I sell it to you for $10, I have recovered my cost and lost no money…right? That is true in simple financial terms. However, consider that I could have easily sold the widget for $15, that decision had an opportunity cost of $5. I passed up an opportunity to make $5 by selling it to you at cost.

That concept changed the way I approach IT decisions, teaching me to always consider the business value and cost. No matter how good my design, the business may have other opportunities available that would yield a better return. My designs not only have to be good, they have to be valuable.

Another impact of learning this lesson…I no longer ask my friends who own businesses to sell me items at cost ;-)

Please read my article on this topic at the SearchServerVirtualization site, then come back here to leave comments.

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