Opportunities & the Most Valuable Non-Renewable Resource
One of the perks of relocation is getting to know new and interesting people! Early on I met someone who does some fascinating work. Out of respect for her privacy, I’ll refer to her as Emily. We had a conversation recently about Emily’s desire to make a change and potentially open up her own business. She works with ingredients sourcing and the current business owner does not share the same values. And the current arrangements are reducing her ability to be present for family. With potential business founders I always discuss opportunity costs. That conversation got me thinking.
What has been on my mind since is this question:
As a business owner / leader / manager/ etc., what are the real opportunity costs associated with our various options?
Let’s start with the definition of an opportunity cost. This definition provided in an article by Andrea J. Caceres-Santamaria, senior economic education specialist at the St. Louis Fed is one of the most plainly stated explanations that I have come across.
“The value of the next-best alternative when a decision is made; it's what is given up.”1
The notion of opportunity costs is based on the premise of scarcity. In our educations, we are normally confronted with the reality that this is a necessary and critical element of understanding true [microeconomic] costs. A purely accounting-based perspective on costs does not help us paint the full picture. Opportunity costs are traditionally categorized as explicit and implicit opportunity costs. There’s even a formula.2
Opportunity Cost = Return on best forgone option - Return on chosen option
Explicit opportunity costs include the tangible and readily quantifiable aspects - directly forgone income steams and associated costs - of an alternative.
Implicit opportunity costs are (as the word “implicit” implies…) far more difficult to quantify and may or may not materialize. In other words, implicit opportunity costs are here to make sure you are considering what *might* have been.
Great material and useful information to have. But this alone is significantly incomplete for decisions where we have true autonomy. Especially when we are directly impacted by the decision. And in Emily’s case, should she stay put, or make a move?
What the formula for opportunity cost omits is the value of our time. And what we spend our time doing is a direct extension of what and whom we value.
There is no way around it.
When considering the opportunity cost of a decision, know that time will be spent on whichever endeavor is chosen. So in addition to considering the opportunity cost of a decision, I challenge all of us to:
Closely consider how we currently spend that most valuable nonrenewable resource.
Determine if changes are needed and why. This requires very real internal reflections and honest conversations. If you struggle with this sort of exercise, seek guidance from a trusted advisor.
Understand the implications of time in the looming decision. How much of it is required? How can time no longer be spent if the option is pursued?
Choose in alignment with what and whom is valued most.
Emily knows that the opportunity costs and the value of her time are too great to stay put. I’m excited to walk with her in this process of exploring a potential new business that moves her into alignment with her core values.
Greg McKeown wrote this week in his newsletter The Essentialist that “The great and unfortunate reality of life is there are vastly more things expected of us, asked of us, and hoped for by us than we can possibly do with our limited time and resources.”3
Are you spending your most valuable limited resource in ways that matter to you?
“Time is our most valuable nonrenewable resource, and if we want to treat it with respect, we need to set priorities.” - Albert-László Barabási 4
Wishing you a well prioritized weekend,
Courtney
https://research.stlouisfed.org/publications/page1-econ/2019/10/01/money-and-missed-opportunities
https://www.businessinsider.com/personal-finance/opportunity-cost
https://www.linkedin.com/pulse/what-you-prioritize-3-steps-help-know-focus-greg-mckeown/?trk=eml-email_series_follow_newsletter_01-footer_promo-3-primary_cta_link&midToken=AQGbvmPv70JVoQ&fromEmail=fromEmail&ut=1Ibd4PqIlUsWs1
https://barabasi.com/book/bursts
