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by Patti Wilson
Apr 29 2016
According to Wikipedia, “Opportunity cost is the value of the next-best choice available to someone who has picked between several mutually exclusive choices...opportunity costs are not restricted to monetary or financial costs: the real cost of output foregone, lost time, swag, pleasure or any other benefit that provides utility should also be considered opportunity costs.”
Most executives do not dwell on John Stuart Mills and economic theory when addressing the cost of any career choice they make against the lost opportunity of alternative options. Though based in adult psychology not economics, weighing the opportunity cost is an instrumental factor in the career decision-making process. Unfortunately for many professionals, this cost is often not recognized until after the fact in hindsight, usually articulated as “if only I had” statements.
Giving due consideration to opportunity cost is the lynch-pin for any successful career transition, but opportunity cost is frequently overridden by other factors and immediate distractions. By considering a career transition with due deliberation and initiating a job search with an in-place strategy that accounts for opportunity cost by actually generating evaluation and analysis of multiple opportunities, we avoid the following pitfalls.
Low Hanging Fruit
During good economic times, the low hanging fruit of an immediate job offer tends to put us off searching for other opportunities out there. Our close network of colleagues was always at the ready and search firms quickly offered up positions for our consideration. We tended not to expand our career transition horizons beyond those two sources to consider additional career paths and directions.
In boom times, we sometimes jumped across industries without regard to the opportunity cost of losing a consistent track-record of experience in one sector. We never weighed and measured alternative options that were mere potentialities. Future career dreams were discounted and given no consideration in favor of the short term and the immediate. We foreclosed our options without being cognizant of the opportunity cost. In tough times, we can revisit those career dreams, alternative options and consider them with a seriousness of intent to calculate their opportunity cost and determine their viability.
The 80/20 Rule
We often totally disregard the opportunity cost when we decide to change a career or job that satisfies 80 percent of our criteria, because of the missing 20 percent (divorces can happen that way too). The problem is that the missing 20 percent becomes so urgent and demanding that it overshadows all else including the opportunity cost of choosing it.
A month’s sabbatical is highly recommended though usually never taken in this situation. I typically get calls from clients with a painful urgency to just get out of a situation that has gone beyond toleration, or they have already given notice. Before you pull the plug and throw the baby out with the bath water, proactively seek advice by speaking with executive search consultants (they are great for career perspective), colleagues, or a career coach (login to connect with a BlueSteps career coach). There can be ways to address the 20 percent while salvaging the 80 percent that will inevitably be missed. We will never know if we do not address the opportunity cost of leaving vs. staying.
Ten Years from Now
Not taking into consideration the ramifications in ten years when making an immediate career decision can be disastrous. Executives are encouraged, even driven, to think in terms of quarterly results and annual revenues. Sure, they will take the long view when it comes to considering strategy and trends but tactically, tomorrow’s bottom line drives them. That same habit influences their career decisions when looking to the next immediate promotion and salary level regardless of where it leads them.
In this case, looking backwards first can provide information that can be brought to bear on looking forward. What were you doing ten years ago? What criteria drove you to make the choices back then that landed you where you are now? Did you analyze the opportunity cost of your choices at that time? Are you satisfied with how those choices have brought you to your current career status today? What lost opportunity would you have salvaged had you considered the cost? In doing this review, identify how to bring the learning forward to apply to future career decision-making.
There is Always a Price to be Paid for a Career Choice
According to Wikipedia, “Assessing opportunity costs is fundamental to assessing the true cost of any course of action. In the case where there is no explicit...monetary cost attached to a course of action, or the...monetary cost is low, then ignoring opportunity costs may produce the illusion that its benefits cost nothing at all. The unseen opportunity costs then become the implicit hidden costs of that course of action."
Unseen career opportunity costs create the implicit hidden cost of our choices. We are blind-sided when a company consolidates sites, subsidiaries, and business units. We are shocked when a pink-slip is handed to us because we chose to stay the course, or when we are passed over for promotion by reorganization or new management when we could have moved on proactively.
There is always a price to be paid for any career choice; the choice determines on which side of the balance sheet it ends up. Did the choice become an asset or a liability to our future career success? When we fail to recognize the unseen opportunity costs, we then become vulnerable to the hidden costs of our actions. Opportunity cost is a crucial factor in career transitions and effective career management. Applying the same cost-benefit analysis to career as you would to business decisions can make the difference between satisfaction and distress.