Opporutnity Cost in Leadership

Executive: Well Dave, let me run this by my executive team, because I’ve learned the hard way that If I don’t, things don’t go well.

Dave: (Inside voice)… Smart man

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In economic theory there is a concept known as opportunity cost. Here’s the idea behind the words:

 

Scarcity of resources is one of the more basic concepts of economics. Scarcity necessitates trade-offs, and trade-offs result in an opportunity cost. While the cost of a good or service often is thought of in monetary terms, the opportunity cost of a decision is based on what must be given up (the next best alternative) as a result of the decision. Any decision that involves a choice between two or more options has an opportunity cost (From Net MBA: http://www.netmba.com/econ/micro/cost/opportunity/).

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Opportunity cost weaves itself into the texture of so many “leader moments.” Decisions abound: where to spend your time and energy, how and when to engage people, where to push and where to ease up, when to move and and when to wait. It goes on.

In economics, opportunity cost is the process of asking at least one important question:

     If I use scarce resources “here” rather than “there” what will be the consequences of that choice?

It’s a great question for the economics of leadership as well. If I don’t bring my executive team into this discussion before making the final decision, what will be the result? If I don’t use the scarce resource of my time and energy on the conversation that creates ownership and instead I spend the time in my office doing something less demanding, what will be the cost?

Opportunity Cost Consequences

If A (staying in my office), then what?

If B (creating the space for team ownership), then what?

 

Now, I’ve set this scenario up to clearly favor B. But, sometimes it might be more appropriate to choose A, or H or Q. It just depends on the opportunity cost ramifications. And, that is only discovered when we lead from a mindful place–awake to decisions and their effects.

 

Don’t fall prey to a scarcity mentality (there’s not enough), but rather a scarcity stewardship (since the treasure–time, energy or whatever–is limited, what is the best way to spend it and what will happen if I don’t?)

 

O ya, sometimes we’ll get the decision wrong. Welcome to being human.

 

 

 


 

 

2009-09-28T13:22:24-04:00

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Written by Dave Fleming