Opportunity Cost – The Financial Impact of Your Decisions

There is an “opportunity cost” for every business decision that you make.  Opportunity cost simply means that if you spend your resources to do one thing, you lose the opportunity to spend that resource on something else.

Your resources include time, attention/focus, staff, equipment, supplies and materials, space, and of course, dollars.

So, if you have $3,000 and you use it to send two technicians to upgrade their skills for delivering one of the services your practice provides, then you don’t have that $3,000 to spend on a new piece of equipment, to redecorate the reception area, or for a new marketing campaign for the practice.

This is the “cost” of that decision. It’s the lost opportunity to do one of the other items that was competing for those resources.

To be profitable, you have to evaluate how a decision will impact your business, and you have to be willing to re-think how you make decisions for your practice.

Here are some examples:
If you decide to offer a particular new service and do all the preparations to get it up and running, the “cost” may be that you don’t have the funds, skills, or the time to offer another service.
If you fail to keep abreast of current trends and issues in delivering your service, the “cost” may be your inability to serve your target market as new technologies make huge inroads in improving the delivery of that service – and you lose clients to the competition.
If you decide to keep employing a staff member who has an absenteeism problem, inadequate skills, poor approach to customer service or does not support your vison for the practice, the “cost” is the time spent repairing the damage this person does, which may drain resources, irritate your high-performing staff members, and use excessive amounts of your own time.

The “cost” of this is the lowered production level of your practice, lost clients and possibly lost staff if your good employees quit in frustration.
If you invest in a new piece of equipment and convert the break room into a new service area, the “cost” may be the staff skills development program that you’ll have to forego as well as decreased morale over the lost break room.
If you spend your time doing the books and handling collections yourself, the “cost” may be the opportunity (and time) to get before prospective clients by giving speeches, networking, or building deeper relationships with your referral sources.

Every decision has a “cost” and each of these costs impacts either positively or negatively on the production and profitability of your practice.

Sometimes the decision is simply a choice between two good options. Your strategic plan and long-term vision for the practice will help in those situations.

Your ability to evaluate the opportunity cost of your decisions is a key component in developing a higher level of profitability for your practice. Teach your staff to make these same evaluations as they go through their day. Even little decisions throughout the day can add up to big dollars over the course of several months.