When evaluating alternatives for a major decision, we need to fully consider and then balance both the opportunity costs (what we cannot do if we choose this alternative) and the opportunity benefits (what we could further do if we choose this alternative).

Opportunity Costs

Evaluating the opportunity cost of a decision helps us realize that there are always trade offs to any action.  This comes about because everything has a limit – money, attention, time, resources, etc.  Pursuing one course of action means that we may not have the money, attention, time, resources, etc. to do something else.

As shown by Princeton researcher Tim Searchinger, much of the analysis related to the carbon benefits of biofuels is incomplete.  The analyses do not take into account that land on earth is a limited resource and that the carbon footprint of one acre of land dedicated to growing biofuels needs to be compared to the carbon footprint of one acre of virgin land.  The opportunity cost of biofuels is not fully considered.

Opportunity Benefits

Although speculative, the value of opportunity benefits can be substantial.  By pursuing one course of action, we may have further options and opportunities to do additional valuable activities.  In many cases, pursuing one course of action can lead to additional learning that leads to new opportunities or can be a “ticket to the dance” to do something valuable in the future.

Pursuing a small AI project may or may not provide value for the company.  However, such a course of action may give the team the insight, understanding and knowledge to pursue another AI project in the future with a substantial value.

Conclusion

To properly evaluate an alternative, we need to assess the opportunity cost by weighing the benefits of a chosen alternative against the benefit of the best alternative not chosen.  As has been written:

Opportunity Cost = (Return on Best Forgone Option) – (Return on Chosen Option)

We also need to weigh the possible benefit of additional options or opportunities that could arise from choosing that alternative.

Only after considering both the opportunity costs and the opportunity benefits of the alternative can we make a well thought out decision.