petyosi/rc/thinking-opportunity-cost

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

1. State the commitment. Name the choice, the scarce resource units (eng-weeks, dollars, calendar), and the decision horizon.
2. 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.
3. 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.
4. 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.
5. 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.
6. 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_delta under 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

Choice: …
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_value and value_delta separately.
• 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.