First the definition.
You manage a hotel. Last night you had some rooms that were unoccupied (or un-sold). You will never have the opportunity to sell last night’s rooms again. That is a lost opportunity.
You get a call from a local company that needs 20 rooms for tonight – but you are already full. You don’t have time to build a new extension or convert the ball-room. You have to decline the enquiry because of a lack of capacity. That is opportunity loss.
Last week I wrote about the £54 million pounds of savings I’d spotted at Barnsley General Hospital. The £54 million pounds is only achievable when someone “cashes the cheque” by either closing down a ward (highly unlikely) or freeing up resources to undertake other tasks which would have been impossible to do or would have required [for example] a new ward to be built. Cashing the cheque or cancelling the purchase order.
Then we move on to opportunity cost. The opportunity cost of a choice is the value of the best alternative forgone, in a situation in which a choice needs to be made between several mutually exclusive alternatives given limited resources. Assuming the best choice is made, it is the “cost” incurred by not enjoying the benefit that would be had by taking the second best choice available.
The Brainstorm Scorer that we use in the post-survey workshops has a balanced approach to Cost, Benefit, Speed of Implementation, Level of Approval required and whether or not the proposed idea fits into the culture of the organisation. Yes, it is a simplistic approach. And, yes, we find that people can get on with the quick wins in circumstances where they would normally find themselves bogged down by office politics and paralysis by analysis.
By the way, the Barnsley Hospital saving is costing the taxpayer £148,000 every day that somebody does nothing.