Opportunity Cost
Core rule: every commitment displaces its best alternative. Report both that forgone value and the net value delta; decide on the delta, not the chosen path alone.
When to Use
- Allocating scarce time, headcount, budget, or attention across competing options
- Feature prioritization, build-vs-buy, tech-debt vs product work
- Saying yes to a large commitment that displaces other work
- Comparing a bold path against polishing the status quo when windows may close
When NOT to Use
- Trivial or cheaply reversible choices where analysis costs more than the resource
- No real alternative use (resource is idle, earmarked, or non-fungible)
- Mandatory work (compliance, security fix, hard dependency) with no optional alternative
- Inventing speculative alternatives only to look rigorous when the next-best is clearly worse
Procedure
- State the commitment. Name the choice, the scarce resource units (eng-weeks, dollars, calendar), and the decision horizon.
- List real alternatives, including do-nothing. At least: proposed option, next-best productive use of the same resources, and status quo / wait. Drop fantasy options with no owner or feasibility.
- Value each path. For each alternative, estimate direct value, strategic value, risk, and time-to-value in the same units. Prefer rough comparable magnitudes over fake precision.
- Compute best forgone value and value delta. Identify the single best non-chosen alternative (may be do-nothing).
best_forgone_value= its estimated value.value_delta=chosen_value − best_forgone_value(same units). True cost of choosing = direct cost of the choice +best_forgone_value. Prefer the option with the superior (positive) value delta after risk; a large positive chosen value is not enough if the forgone alternative is larger. - Future tradeoff / permanent forgone options. For serious alternatives (including the bold path): mark temporary recoverable costs vs permanent losses (window closes, lock-in, no re-entry). Prefer avoiding the greater permanent loss when acting downside is recoverable and non-catastrophic—even if near-term value_delta is slightly negative. Do not invent permanence for speculative upside without evidence.
- Strongest countercase and decide. Steel the case that the best alternative or its value is misidentified (sunk-cost anchoring, status-quo undervalued, or a "free" option that still burns time). Recompute
value_deltaunder that challenge. Then choose: proceed if delta stays favorable (or permanent-loss rule applies), else switch, wait, or split. Stop when ranking is stable.
Output
textChoice: … Resources committed: … Alternatives: A (proposed): value … risk … B (next-best): value … risk … C (do-nothing / wait): value … risk … Best forgone alternative: … Best forgone value: … Value delta (chosen_value − best_forgone_value): … Permanent vs temporary losses: … Decision: proceed | switch | wait | split — because value_delta … (and permanent-loss rule if used) Countercase checked: …
Verification
- Falsify: If the analysis never names a concrete next-best use of the same resources, or reports only one number labeled both "opportunity cost" and "delta," it is incomplete—add B, then report
best_forgone_valueandvalue_deltaseparately. - Stop: When one best forgone alternative and a signed value delta determine the choice, stop enumerating weaker options.
- Over-application guard: Do not run full accounting on mandatory or trivial work. Ignore sunk costs; revalue only from current state forward.
