Opportunity Cost Definition, Following Its Characteristics and Benefits for Business!

Business travel certainly will not always be smooth. Sometimes, business activities that have been planned in such a way can also experience economic constraints. Therefore, business people need to have alternative solutions by considering the existing potential.

One potential that can be a solution to the problem of business economics is to consider opportunity cost or opportunity costs. This opportunity cost is a marker that in overcoming problems, we will be faced with choices about which things can provide greater benefits, especially when the funds we have are limited.

So, what exactly is the opportunity cost or opportunity costs this? Also, how does it affect the business? The following is a review regarding the definition, characteristics and benefits for business. Read more.

What is Opportunity Cost (Opportunity Cost)?

Based on the definition of the Financial Services Authority (OJK), opportunity cost is income that can be obtained from making choices about investment, other than those previously considered.

Opportunity cost can also be said to be the value of losses taken to gain profits. In other words, a decision maker will lose one advantage for another.

Function opportunity costs This is a benchmark for the amount of economic costs that must be incurred by business actors in the context of producing certain goods or services, in relation to other alternatives that must be sacrificed.

The emergence of opportunity costs is due to the choices made by individuals, companies, and society regarding the scarcity they face. These costs are not only in the form of material or money, but can also be in the form of profits in the future.

Simple examples can be found in daily activities. For example, someone is faced with a situation where school and work schedules clash. Then, that person prefers to go to college and skip work. So, the opportunity cost received is that the person will receive a salary cut, in order to get good grades.

Opportunity Cost Characteristics

There are several key characteristics of opportunity cost, among which are the following:

• It's not always about money.
• Generally, opportunity cost is not a primary need.
• Has a lot of possibilities related to its use.
• Every opportunity has advantages and disadvantages.
• No matter what decisions are made, there are always missed opportunities.
• Choice setting opportunity costs depending on the conditions and priorities of each individual or company.
• The same choice will have different opportunity costs for different people.
• Opportunity value less actual revenue is the estimated opportunity cost.

benefit Opportunity Cost for Business

In doing business, the calculation of opportunity costs can have a good impact on business continuity. Some of the benefits that may be obtained by business people, among others:

• Opening Opportunities and Minimizing Business Risks

By taking advantage of opportunity costs, business people will have a number of comparisons in order to determine the most appropriate decision. The decision is taken based on the minimum risk consideration, if something unexpected happens. So, business people do not lose the opportunity as a whole.

• Assist Priority Setting

Every entrepreneur, of course, has many ideas about business opportunities that he wants to pursue. However, entrepreneurs may not run all the opportunities that exist because of considerations of cost, time and energy. Opportunity costs will help entrepreneurs determine priorities that have the potential to generate more profit.

• Facilitate Capital Calculation

Capital is one of the most basic and important factors for business continuity. Opportunity costs can help business people to predict the range of capital that must be owned before building a business with serious plans.

• Save Business Expenses

Opportunity cost calculations can identify business spending priorities. Business people will know which financing needs to take priority based on the company's urgency, so that it will indirectly save business expenses.

This is a review regarding the definition of opportunity cost or opportunity costs along with its characteristics and benefits for business.