The cost of lost opportunity
Those that are budget-minded may relate to the concept of ‘wait until it goes on sale.‘ The premise assumes everything eventually drops in price so it’s better to hold off on a purchase until it goes on sale. This idea holds true for most things, especially brand new technology. The old rule of thumb with computer processors was to buy whatever CPU was the latest and greatest the prior year. After 12 months the price has dropped substantially yet you still have a processor that’s very fast, typically within the top 10% in speed of what’s available at half the price.
The counter argument deals with what economists call the Cost of Lost Opportunity. It can be assumed that new hardware or a spiffier web site offers some kind of performance benefit, either through better efficiency or additional functionality. The longer you hold off on investing in a new computer the longer you have to deal with a slower model. The longer you hold off investing in a new Intranet design, the longer your employees go without a faster, more efficient work flow.
Although every situation is unique, it is sometimes possible to quantify the difference between what the investment will cost versus what you’ll lose without the enhanced efficiency. A very simple example is purchasing a second monitor for a bookkeeper. Assume a 23″ LCD monitor costs $200 and your bookkeeper costs the company $40 per hour. ROI figures for additional screens show that for the average office worker the investment will pay for itself within 3 months or less. Holding off until the monitor goes on sale for $180 would actually cost the company money in lost efficiency.
When it comes to more expensive web projects, like adding expense tracking and reporting to the company Intranet, determining the cost of lost opportunity is more complex. Quantifying the gain in efficiency a new system will provide is not always cut-and-dried. If entering expenses electronically into an Intranet takes 25% less time than the current system, it merely requires an aggregate calculation based on each employee’s net hourly cost to the company. Not all web projects are like that, however. Some improve morale but don’t necessarily reduce employee overhead. How do you quantify the value of keeping employees informed of what’s going on with other teams?
In my duties as IT Manager, I often have to trust my gut when it comes to prioritizing projects and tasks. Some things are easy to figure out. If a senior member of our staff needs a new computer, I’ll expedite the request at a higher priority to the point of paying full retail and overnight shipping on a system rather than hold off until a unit goes on sale and shipping it ground.
The same prioritization applies to larger projects. Projects that are fairly large in scope but apply the biggest benefit to the greatest number of people take priority over smaller projects that only impact a few people. “The needs of the many outweigh the needs of the few.” Conversely, if I can bang out a bug fix or enhancement in an hour or two, even if it only helps a single user, I’ll do it because it costs such a small amount of time to implement.
Resources are limited in every organization and we wear many different hats. Finding the biggest bang for each dollar of effort is crucial. The trick is to recognize the value of implementing something at full price today — with the efficiency gains it provides — versus holding off until a later date when implementation costs may be slightly lower.
