Business Term
Opportunity Cost
Opportunity cost is the value of the next-best alternative forgone by choosing one option.
- Formula
- Opportunity cost = value of the best alternative not chosen
- Use when
- Use it for roadmap, hiring, investment, exit, and focus decisions.
- Watch out
- Opportunity cost is an estimate, so avoid false precision.
Updated: 2026. 06. 27.Sources: 1
What it means
Opportunity cost includes not only paid cost but also the value that could have been created by the option not chosen. It matters when allocating time, people, capital, and attention.
How to calculate it
| Lens | Formula / treatment | When to use it |
|---|---|---|
| Concept | Opportunity cost = value of the best alternative not chosen | Captures forgone value |
What counts / what does not
| Item | Treatment | Why it matters |
|---|---|---|
| Include | Next-best profit, time, capital, talent, learning opportunity | They reveal the true burden of choice |
| Exclude | Unrealistic alternatives, sunk costs | They are not current choices |
What moves the number
| Driver | Metric impact | What to watch |
|---|---|---|
| Constrained resources | Larger when people, time, or capital are scarce | Drives priority |
| Alternative expected value | Higher when the next-best option is strong | Makes comparison critical |
When it helps
- Use it for roadmap, hiring, investment, exit, and focus decisions.
How to use it
- Name the option not chosen and compare its value with the selected option.
Decision cautions
- Opportunity cost is an estimate, so avoid false precision.
Example
Example: spending two weeks on a low-priority feature may forgo a churn-reduction improvement that could have used the same time.
Compare with
| Metric | Difference | Why read together |
|---|---|---|
| Cost | Actual or decision burden | Opportunity cost is forgone value |
Common mistakes
- Looking only at paid cost misses the impact of missing a more valuable alternative.
Frequently asked questions
Is opportunity cost an accounting expense?
Usually no. It is forgone value used for decision-making.
Sources
| Sources | Kind | Link |
|---|---|---|
| YogoQ Core business foundation editorial baseline | editorial | — |