Football, Food, & Opportunity Cost

In the 2nd quarter of a recent Oklahoma State football game I found myself hungry. It was mid-afternoon and I hadn’t eaten anything for breakfast or lunch. This was the type of hunger that can’t wait, but must be handled right then and there.

So I started the search… what food would hit the right spot of goodness and fullness? As I walked through the concourse, the options seems endless.

There was traditional stadium food (hot dogs, pretzels, and popcorn) but also local fast food to choose from.

As I contemplated my options, I also considered the after game meal. With local hot spots like Hideaway Pizza and Eskimo Joes potentially on the horizon I had 2 choices:

  1. Fulfill my full hunger now
  2. Get just enough to tide me over and prepare for a feast later

I chose #1 and we drove straight home after the game.

Still, to this day, I’m not sure if I made the right choice, but it’s the choice I have to live with.

In buying that hot dog and pretzel, I was choosing those over both the local fast food and the local hot spot.

That money, and that hunger, was being allocated to a specific resource, which meant it couldn’t be allocated to another immediate resource, or to a resource in the future.

Every day we make these sort of trade-offs in life and business.

In business, these choices can have a huge impact:

Inventory or assets purchased or not purchased.

The asset deployed or not deployed.

Employees hired or not hired.

Types of costs

All of these are what you call explicit costs. Costs that are defined and the result of money actually going out the door.

But there are also implicit costs. This is the difference between the 2 options you chose. Yes, you bought the machinery (the explicit cost), but that money could have been earning interest in an account. That hidden cost (the loss of interest), is the implicit cost.

But implicit costs can also include time cost. Time devoted to training this employee is time that can’t be devote to solving your operations problem.

Measuring opportunity cost

So, how do we account for opportunity cost?

The best way I know? Awareness.

Awareness only comes from careful reflection before making decisions and careful reflection is often down through questions.

Ask yourself:

  1. How much do I value this item (time)?
  2. What am I choosing not to buy (do) right this second by choosing this?
  3. What am I choosing not to buy (do) in the future by choosing this?
  4. What regrets will I have by choosing this?

If you want to better understand financial statements, here are 3 ways I can help:

  1. Purchase the Financial Statements Decoded eBook.
  2. Join the Financial Statements Decoded cohort waitlist (next one in January).
  3. Get one-on-one consulting on your financials and make more money (Booked through December 2022).

Leave a Reply

Your email address will not be published. Required fields are marked *