What Is Opportunity Cost?
The Cost of the Road Not Taken
Opportunity cost is the value of the next-best option you give up when you make a choice. It's not just about money spent — it's about what else that same time or money could have bought.
Economists count unpaid time as a cost too — an hour spent on one task is an hour not spent on the next-most-valuable thing you could have done.
This idea shows up constantly at work: choosing which feature to build, which meeting to attend, which bug to fix first — every choice has an opportunity cost, even when no money changes hands.
A Rough Formula
Opportunity cost isn't usually a single precise number the way a tax calculation is, but the shape of it is simple: it's the value of whatever you would have gotten from your next-best alternative, had you chosen that instead.
Opportunity Cost = Value of Best Forgone Alternative
Example: a team has one sprint (2 weeks) and two options -
Option A: build an internal admin tool, saves ~5 hours/week of manual work
Option B: build a customer-facing feature, projected to add ~$8,000/month in revenue
Choosing A means the opportunity cost is the $8,000/month B would have brought.
Choosing B means the opportunity cost is the ~20 hours/month A would have saved.The mistake people make constantly - including experienced people - is confusing opportunity cost with sunk cost. Sunk cost is money or time you have ALREADY spent, and it is gone regardless of what you do next; it should not factor into a forward-looking decision at all ("we already spent three months on this approach" is not, by itself, a reason to keep going). Opportunity cost is about what you give up going forward. One looks backward and should be ignored; the other looks forward and should be weighed.