Army Lessons Learned 2: The Significance of Opportunity Cost in Decision Making.
Author’s Preface: For more than a year now, my daily ritual has included sharing “coffee thoughts” on Facebook. These musings are not crafted as definitive articles; rather, they emerge from the quietude of my morning routine, accompanied by a comforting cup of coffee. They represent a time when my thoughts are free to roam, unencumbered by the day’s impending demands. These reflections are intentionally unstructured, serving as a canvas for spontaneous creativity. Encouraged by friends, I’ve ventured to curate these reflections on Medium, hoping they enrich your reading experience. — T.S.
Lesson 2: The Significance of Opportunity Cost in Decision Making
Today’s “coffee thought” delves into a crucial concept I’ve gleaned from my time in the Army: the notion of opportunity cost. At first glance, opportunity cost appears straightforward and intuitively simple. However, my experiences have shown that its practical understanding is often overlooked, even by seasoned leaders. It’s vital to recognize that every decision incurs an opportunity cost, without exception.
So, what exactly is opportunity cost? In economic terms, it refers to the potential benefits lost when choosing one alternative over another. For instance, a farmer opting to plant corn forgoes the benefits he might have gained from planting wheat or soybeans. Similarly, if you spend $80 on new sneakers instead of paying your electric bill, the opportunity cost isn’t just the unpaid bill; it extends to the consequences like power outage, spoiled food, and potential work-related repercussions — like showing up late because your alarm didn’t go off.
Although these examples seem clear-cut, real-world scenarios often present complex, unpredictable, and uncertain opportunity costs. Ignoring these costs can lead to a myriad of problems, from personal issues like divorce to financial losses and flawed decision-making. The recognition that our resources — time, money, energy — are finite makes understanding opportunity costs crucial for maximizing the value of our endeavors.
In the Army, decision-making often involves allocating various resources: personnel, equipment, time, morale, and more. I’ve observed that even high-ranking leaders sometimes struggle with this aspect, avoiding the complex trade-offs involved. However, ignoring opportunity costs doesn’t make them disappear; it merely leaves you unprepared for their consequences.
Even with a good grasp of opportunity costs, there’s still the element of uncertainty. While there are numerous tools and techniques to manage this uncertainty, the real value lies in engaging with the process of considering these costs. By doing so, you’re better positioned to adapt when faced with unexpected developments.
For instance, when transitioning from the military, I faced a choice: attend a remote MBA program in Alaska or move across the country for a more prestigious, residential program. The decision hinged on opportunity cost. Staying in Alaska allowed my wife and me to maintain our desired lifestyle, start a business, invest in real estate, and enjoy flexibility, all while benefiting from a top-tier education funded by military benefits. Alternatively, relocating promised a more prestigious degree and potentially better career opportunities but came with significant trade-offs like increased living costs, family disruption, and delay in homeownership.
Despite the pandemic-induced uncertainties and the potential for remote learning in residential programs, I decided to stay in Alaska. Was it the right decision? Time and reduced uncertainty have increasingly affirmed my choice, despite the challenges in networking and building relationships in a remote learning environment. Recognizing these opportunity costs has driven me to find creative ways to compensate, such as attending career conferences and engaging in local business communities.
In summary, my decision-making process involved weighing potential outcomes and their probabilities. Predicting the future is inherently uncertain; you’re bound to be partially wrong. However, the key is to be more right than wrong, to give yourself options and remain adaptable. This process starts with identifying and evaluating potential opportunity costs, positioning yourself advantageously from the outset. In military terms, it’s akin to seizing the “high ground” early on — a strategic advantage in both planning and execution.
