As a person who took “Econ for Psych Majors” in college (with all due respect to my econ-minded psych-majoring compatriots), even I can say the concept of “opportunity cost” was intuitive to me from the get go.
As an example, my husband and I are going to see Seinfeld live in NYC tonight, in honor of our anniversary. And let me tell you – there are some explicit costs associated with this event – from tickets to transport to babysitting oh my. Could I give you a precise and measurable number? I could. But I’m not that kinda gal.
So, as an amateur economist, I might ask: Why go?
Well it’s the opportunity cost. In other words, the costs of not going would outweigh, for me the costs of going. Such delights as:
- Growing into old age sans memories of Seinfeld’s live performance
- Many more than 12 years of marital resentment directed at me
You get the picture. So how do the costs of going compare to the costs of not going? The truth is, it’s hard to say. Both sides of the equation are legitimate – one side is just easier to quantify than the other.
And herein lies the conundrum so many teams and businesses face today.
Let’s look at some examples:
- Example 1: You’re a fabrication company and you have to invest dollars and time in training your employees on safety procedures. The costs of training are clear. The opportunity costs of not training? They range from inefficiency and quality control issues to… injury and death. So what do you do? For most, the opportunity costs grossly outweigh the explicit costs: so we invest.
- Example 2: You’re a sales organization in a growing company and you’ve just outgrown Excel as your CRM tool (congratulations!). It’s time to invest in technology. The costs of doing so? Explicit, measurable, and possibly substantial. The costs of not doing so? Lost sales, dissatisfying customer experiences, etc. But probably no one dies. Do you invest? Likely…???
- Example 3: You’re a professional services organization and everyone on your team is burning the candle at both ends. The hours of 9 – 5 are packed with meetings, so actual work has to get done outside of those hours. Which means baseline execution is the best we can do, and creativity just isn’t an option. You need to break the cycle. You need to spend a dedicated day or two with your team to understand what isn’t working – where the obstacles, the inefficiencies, the process breakdowns are happening that slow them down. The costs of doing so? A professional facilitator, lost productivity – measurable. The costs of not doing so? We all know where this ends…
Some of you reading may be part of an “Example 1” kind of organization, and the investment in training in your case is likely a no-brainer.
For those seeing themselves reflected in the pool of “Example 2” I’ll make a bet you invest. You gotta spend it to make it – right?
For so many of us, though… we’re leaders or people (or both – ‘cause leaders are people!) in an “Example 3” kind of situation. The costs of “no” are highly unquantifiable… but they are oh-so-real. The costs of “no” include burnout, perpetual inefficiency, lack of innovation, and high-potential talent attrition to name but a few.
So what’s the equation that tells us to say yes? What metrics can we use to underlie a decision to invest in identifying the opportunities to catalyze our team’s performance? Sometimes it may be nothing more than a leap of faith for a leader. If in your gut you know something at work isn’t working for your team… maybe that’s precisely the data you need to say yes.