Life is filled with forks in the road.
Do you go left or right?
Each decision and choice offers plenty of opportunities.
When weighing our options, we must calculate the opportunity cost.
The term “opportunity cost” comes to us originally through micro-economic theory. It basically means that you lose a particular benefit or value when you give up one opportunity for its alternative.
Simply put, if you chose one activity you are giving up the opportunity to do another. The formula micro-economists use is Cost of one option – Cost of the other option = Opportunity cost.
If you are a woman in agriculture, I don’t need to tell you about the myriad decisions that pop up every day related to the farm business, your agribusiness career, or your family.
Each decision and related opportunity inherently hold a cost: we can do the thing we think we should do or do anything else that will take up the same amount of time – and which might be a better choice. The trick is to proactively figure out the opportunity cost so we can choose strategically.
The alternative choice might be an equally good option, but the thing is, there’s a cost to not doing the first thing. “The cost of not doing other things often remains invisible,” writes Dorrie Clark in The Long Game. “And in order to make good choices about our time, we need to bring it to the surface so that we can make meaningful, proactive choices, and not just accept whatever is offered to us.”
For example, a friend invites you to go see a movie – and you’ve been so busy and stressed, you certainly deserve it. But if you choose to spend time and money going to a movie, you cannot spend that time at home reading that new cover crops 101 book you just bought, and you can’t spend the money on that new farm accounting app.
Another everyday example is choosing between two brands of bread at the grocery store. If you buy a loaf of your preferred brand but it costs ten cents more than another brand you like less, that difference of ten cents is the opportunity cost of buying your favourite bread.
Or – and this is a difficult one – the time you choose to spend working on your business versus time spent with family or vice versa. You will advance one at the expense of the other.
Opportunity cost becomes the value of what you lose when choosing between two or more options.
If you want to make a strategic (i.e., profitable/efficient/healthy) choice when facing several options, you’ll have to assess the costs of each. To make an informed decision, you must determine how long it will take to absorb the opportunity cost and begin to make a profit from that choice.
Your opportunity costs are unique. Your life choices and subsequent loss or gain of value in a decision will not be the same as your bestie’s or business partner or sister. This website suggests considering two things when making life decisions: personal self-reflection regarding the benefits of the first choice and the opportunity costs of the next best choice.
Charlie Munger, vice-chair of Berkshire Hathaway, said, “Opportunity cost is a huge filter in life…The right way to make decisions in practical life is based on your opportunity cost. When you get married, you have to choose the best spouse you can find that will have you. The rest of life is the same damn way.”
Apply an opportunity cost filter to your business and personal decisions and how you choose to spend your time to find the opportunities that resonate most meaningfully with your life.