Opportunity Costs

certified ManagementGoeroes expert badge
1 min read

Explanation of the concept of Opportunity Costs. Opportunity Costs are not real costs. In business, the term 'opportunity costs' means that you might have made more profit from another project. A company has only a limited amount of capital and personnel to execute projects. If a project is executed that turns out not to be very profitable in the end, and instead a project is not executed that would have been more profitable, then there is an opportunity cost.

An example of how to calculate opportunity costs: Project A is forecast at 3 million profit over 5 years. Project B has a forecast of 2 million over 5 years. Let's assume that the projects cost the same amount of time and money to execute. Due to lack of capacity, only project A is implemented. In the end, the revenues turn out to be disappointing, and only one hundred thousand dollars have been made in five years' time. Then the opportunity costs (2 million - 100,000 =) would have been 1.9 million dollar. Of course, for the sake of convenience, we assume that project B would have achieved the intended profit.

Article rating: 4.5 (6 reviews)
Share this article

Related articles

Popular articles

Show more

THE ONES PASSIONATE ABOUT BUSINESS CONSULTING

Consultants
Victor Demmendal
Victor Demmendal
Free
(5)
Co-founder of TheONE
I'm the ONE I'm the ONE who likes to share my knowledge. Let's hook up so I can help you.
Natalia Cieslak
Natalia Cieslak
$ 0.06 PM
Sr Product Manager/Agile Product Owner
I'm the ONE I have over 7 years experience in the digital media industry with a proven track record of managing large scale projects with international and multidisciplined teams: editorial, marketing, sales, development and technology.
Fırat Veral
Fırat Veral
$ 0.54 PM
software engineer
I'm the ONE mobile developer , gamer, digital entrepreneur
Charlotte Lines
Charlotte Lines
$ 1.11 PM
Professional Remote Freelancer
I'm the ONE who is here to support you
Nicole Diaz
Nicole Diaz
$ 1.67 PM
life & biz coaching
I'm the ONE who can help you find more meaning, joy, and ease in your life and work..