Opportunity Cost Vs. The Cost Of Opportunities
Understanding the costs of your available opportunities — in difficulty, time and money — is the key to assessing the opportunity costs of your portfolio choices.
One of the biggest factors in valuation of an innovation portfolio is opportunity cost. Because of scarcity of resources, it’s rare that an organization can vigorously pursue all of the innovation opportunities it comes up with. Unless you have sufficient management bandwidth, technical capability, time and money to execute every idea in your innovation portfolio, you will only be able to fully pursue some of the projects.
Opportunity cost is the value given up when we make one choice instead of another. But choices are not just between different things: you must also choose between different approaches to pursuing a single thing. Within a given project, you have a number of different choices that can lead to very different outcomes. By focusing on the uncertain factors that drive the upside of a project, a team can often develop ways to dramatically increase its value.
