The simplest definition of an opportunity cost is a missed opportunity. In life, generally we have to choose between decisions that have more value. Opportunity cost is the gain that would have been derived had an action been taken by someone. It is also very important to note that opportunity cost is measured in monetary terms but time or a finite resource may also be considered.
This concept is applicable in many circumstances or scenarios. In business, many choices and decisions have to be left to get the most valuable and convenient operations or deals. Manufacturing animal feeds is our trade and we own the business premises that we operate in. Being the owner of that building, we are able to save on rental charges but that has made us not engage the building in renting services. Renting out the building to another organization to earn income and relocate to somewhere else or continue occupying the building is the choice to make. If the building to rent will realize an income then the income is the opportunity cost.
Consideration of the economic implications is one of the steps that made me make the choice of not renting the building to another business. The implications include having to provide an extra rental expense, which can pay workers or ploughed back in the business. Profit plough back means reinvesting the part or whole of the profit realized after a financial year.
Customer rapport is another important factor to look into as a step to make before making the choice of continuing to operate in the premise. We have developed and enjoyed a good rapport with our clients over the years and that alone is more than a good reason not to shift the business location. The customers are used to shopping at the present location, which is poultry seven meters from the main highway, and there is no best possible explanation to give them if they can no longer locate the business there.
We must admit that as an organization responsible stewardship is one of our best practices that include planning and management of the resources in our possession. Part of this is to grow the asset base of the business that will ensure the expansion of our balance sheet.
Arora, A., & Nandkumar, A. (2009). Cash-out or flame-out! opportunity cost and entrepreneurial strategy theory, and evidence from the information security industry. Cambridge, MA: National Bureau of Economic Research.