Opportunity Cost (choices)

In today’s public sector, organisational resources are at a premium; many rounds of savings, or budget reductions, have left structures at a point where the so-called ‘critical mass’ is under strain. By critical mass I refer to the point where organisational resources are being expended at a rate which maintains a forward momentum; falling below this rate leads to an inflexion point where the momentum slows and when waste occurs, i.e., the energy invested does not maintain a positive momentum.

This [situation] is compounded when operational choices are made with little or no thought to opportunity cost. Consider when an organisation has a fixed amount of available resources to undertake its known activity; if the organisation has a choice to undertake one of two projects, the cost of undertaking one project over an other is the opportunity cost.

Organisations simply cannot undertake both projects, this would be unfeasible due to what is known as the Production Possibility Cost or Curve (PPC) – see wiki. This can be expressed as a chart with two axis (see below). The chart illustrates the increase in one area results in a consequential decrease in another.