Opportunity cost: The valuable commodity we use but can never touch
When making business or day to day decisions, how often do you do things that could be done by others, for example by engaging someone with more experience, skills and possibly at an overall lesser cost?
What is the opportunity cost of you doing these things versus delegating or outsourcing? The results you may find startling.
Sure, you may save on costs but at what loss of value? What are you losing by not focusing on your core area, and your staff’s core areas of expertise? By focusing on cost rather than opportunity cost, we can forego much higher returns and in turn, this can destroy opportunity and value.
Let me explain:
If your time is valued at $150/hr, why do a job or task valued at $50/hr?
The opportunity cost here is $100/hr.
If your billable time is $250/hr, then the opportunity cost would be $200/hr
If you do sales and your revenue brings in $500/hr, the opportunity cost is a whopping $450/hr
The solution is to determine
How can you best leverage your time and the time of your staff
Who has the necessary expertise for the job at hand
Does the job require industry-specific expertise?
Do you have this expertise internally
What is the cost and opportunity cost of outsourcing?
What are the best and worst case scenarios of doing it internally versus outsourcing?
In making decisions like these, I like to use the best and worst case for and against scenario: What is the best and worse case outcome in doing it yourself versus what is the best and worse case outcome of outsourcing to experts. The answers you provide yourself will often deliver you the best answer.
For more information, contact Neil at 1300Hired.
https://1300hired.com.au/wp-content/uploads/2017/12/1300Hired-logo-2017.png00Neil Damerowhttps://1300hired.com.au/wp-content/uploads/2017/12/1300Hired-logo-2017.pngNeil Damerow2017-11-30 13:25:172018-09-11 12:35:55Why you need to focus on opportunity cost
In another article, I have listed the 6 telltale signs an employee can turn into a bad hire any time during his/her tenure. It is imperative to establish how and HOW MUCH our poor hiring decision becomes a liability more than an asset.
Bad Hire: The (Not-S0) Secret costs that strip away Profit
The problem in making a poor hiring decision is the overall cost to your business. The expense is not just in the out of pockets costs, but also in:
loss of team morale,
lost time,
downtime,
management time,
and loss of team productivity in covering the gaps.
The cost of making a bad hire has been estimated at anywhere from 30% of annual salary and up to $50,000. Here are the 5 big costs:
Impact of the rest of your team. They have to pick up the slack, cover mistakes and tolerate any bad behaviour. Morale suffers and your top performers may leave
Impact on Customers. Not fulfilling job responsibilities, taking shortcuts or upsetting customers generally. Your brand and reputation can suffer, and worse, customers may leave.
Performance management. A bad hire drains management time and focus on what could be spent on coaching and developing your good performers. Dealing with complaints from staff and customers also takes up management time.
Business reputation. If a business has a habit of making bad hires, this will adversely affect the reputation of the business and the manager involved. It also adversely impacts the reputation of your leadership
Cost of replacement. This involves recruiting and training costs, management time, loss of productivity and impact of the team both during and after a bad hire leaves.
For more information on how to make better hires and to minimise the occurrence of a bad hire, please contact Neil at 1300Hired.
https://1300hired.com.au/wp-content/uploads/2017/12/1300Hired-logo-2017.png00Neil Damerowhttps://1300hired.com.au/wp-content/uploads/2017/12/1300Hired-logo-2017.pngNeil Damerow2017-11-29 17:08:262018-09-11 12:30:295 things that make a bad hire expensive
