The right choice for your company will depend on the size of your customer support queue and your weekly revenue. Another is projected to increase our weekly revenue by 5%. One is expected to decrease the number of incoming support tickets by 40%. We are debating the priorities of two features.
Let’s look at another example from Product Management. In this example, we can see that if Gerald invests all of his ice cream in himself, he’s missing out on the potential joy the ice cream could bring Piggie. However, if he shares the ice cream with Piggie, Piggie will be joyful, Gerald will be joyful, and there will be the added joy that comes from sharing a treat with friends. If Gerald eats the ice cream by himself, his return will be one unit of his own joy. Let’s look at a few examples:įor Gerald, the value of ice cream is the joy it brings to the consumer.
To formally calculate opportunity cost, simply subtract the return on the chosen investment from the return on the best option you could have taken. Investopedia defines opportunity cost as the potential benefits an individual, investor, or business misses out on when choosing one alternative over another.
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