Price the next best alternative

The idea

Opportunity cost is the value of the best alternative forgone when choosing an action. It includes scarce time and capacity, not just money paid. A free option can still be expensive when it prevents a more valuable use of the same resource.

Worked example

A repair café has one workshop room for Saturday. A donated woodworking class would generate no rent expense and bring 12 participants. A bicycle clinic in the same room would serve 30 residents and require 80 units of supplies. Calling the woodworking class free hides the displaced clinic. The committee compares both activities against its mission, including preparation time, access, and benefits, rather than treating the donated instructor as a decisive accounting advantage.

Use it carefully

Opportunity cost depends on feasible alternatives. An imaginary perfect program that nobody can deliver is not a useful comparison. Nor should every decision be reduced to revenue: the café may reasonably value skills, inclusion, or community connection. Write down the next best available use and its relevant benefits, then make the value judgment visible. Different objectives can produce different defensible choices.

RETRIEVE. REASON. REMEMBER.

Knowledge check.

Choose one answer for each question, then check your reasoning.