Opportunity Cost

According to Wikipedia – Opportunity cost is the cost of any activity measured in terms of the value of the next best alternative forgone (that is not chosen). It is the sacrifice related to the second best choice available to someone

Basically it means that you could have done one thing, now you are doing something else…and with all choices there is a cost to you or someone else for making that choice.

In the last week many things have happened in my small part of the Educational Technology-verse. I have had conversations about bad printing schemes, mismanaged ordering, grading, reporting, online learning etc.

As I looked at all these unrelated events, I realized that most of them had a very high Opportunity Cost, that negatively impacted the school and learning. I even mentioned to some people in a meeting that, “their process has a high opportunity cost”.  They just looked at me, and stared.

The reaction was expected. I am aware that people think opportunity cost is just about using time; but in fact it is a financial burden that should be calculated into every plan. The reason people do not factor it in is usually because they feel justified in the time they are using, or because they want to avoid doing the other choices that were available to them.

But We Have to Do IT! 

Normally someone believes or is told that they must do something and, possibly, do it in a certain way. Not only must they do it, but if they do not there will be unknown consequences. Let’s be clear: No You Don’t, and No There Isn’t.

The one thing I know about consequences is that they are clearly defined or they do not exist. Randomly creating consequences, which I am guilty of at times due to lack of planning, does not work. All that happens is loop holes are created, and the consequences mean nothing.

Always remember you do not have to do anything, especially if it is bad for your organization. I know this sound insubordinate, but I guess that is because it is. It is also a responsible stance for people in leadership positions to take. Taking a few shots to the professional portfolio is worth protecting the integrity and inner workings of the community.

When a person is tasked away from their primary task, or told to complete a job without the needed minimal set of resources, a very high opportunity cost is created.  So the timeline for anything other than a real emergency needs to factor in a change management process to minimize opportunity cost. In addition, when people are asked to do something, those people need to be consulted on what tools they need to complete the job.

I once was asked to collect some data for a group of people outside of my school who were working closely with management. They sent a spreadsheet over that was so large it would not scroll on an Imac with 4 gigs of ram. And ..for the non-technical readers – that means it was the world’s worst spreadsheet. No one even tested it out. It was so badly designed that I just made mine own spreadsheet and used it instead.

So not only did I have to use time to collect data, I had to re-create the tool needed to collect it. Does that sound like a good plan? A well thought out process? As a leader, I try to get things done when they least impact other things. It is not an exact science, but I make an effort and normally succeed.

Engineers Cleaning Toliets

Studies have been done and published in books such as Slack that highlight the importance of management doing management, engineers doing engineering, and secretaries doing secretarial work. A common sense division of labor that human beings seemed to evolve to in every culture on Earth. So why is that when I look at schools I see principals calling parents about tardiness, IT engineers (these are people with degrees and certifications) adjusting projector focuses, and teachers repairing printers?

It seems in education there is an expectation that everyone needs to be flexible and pitch-in because there are not enough people to handle all the things that are going on. Or that people need more training and until they get it someone else has to do some set of basic tasks for them.

Often, when resources are given to schools, there is little consideration for training time and the loss of work due to learning something new. In fact I find many educational solutions focus on the user needing to “learn to use the system correctly”. This is a philosophy one would not find in top-end commercial solutions. Solutions designed for people with a given skill set with the goal of being intuitive for that skill set.

The reason for all of these bad assumptions and practices is that there is no real value placed on time in an educational setting; or saying that in a different way – no one accounts for revenue lost due to these practices.

I am willing to bet that if one were to tour through Boeing, Ford, Apple, or Microsoft they would not witness engineers cleaning toilets unless they were designing a new toilet with some awesome new features. Think about that.

Money Dirty Money

So far this is all just a rant, and although people will AGREE they will mostly AGREE with there initial thought of, ” we do the best we can.” It is in these moments I am glad I modeled my childhood philosophy off of Star Wars (the real Star Wars), because when people say -“We do the best we can.”- I say, Do or Do not there is no Try”~Master Yoda.

I digress…so I need to wake everyone up by showing you how much money you are losing by wasting time doing other things.

Let’s talk about Bob the water guy.

Bob is a logistics specialist. His job is to get large quantities of things from a central location to multiple sites as quickly as possible. In this instance his job is to move 1200 liters of bottled water to 6 locations.

His company was able to buy this water for  $ .30 a liter or a total of $360.00. The water has to go to construction sites, and it is not an optional resource. However, if the supplier delivers the water the cost would be $ .60 a liter or $600.00.  So obviously Bob’s bosses want to save money so they task him to use his time and their trucks (which are already going to the sites for other deliveries) to save $240.00 per order.

So Bob is planning the delivery. He knows when the water arrives he has to have a space for it to be placed, a crew to unload it, his trucks in place, and a crew to load it. Then there is the delivery time which needs to be at a point in the work day where people can help unload the water and store it.  Bob has a job, a specific project, and he is working. He needs about 3 hours.

As he begins planning, Bob’s boss asks him to review a plan for a new storage unit- 30 minutes.

Then he has to email some feedback to the boss- 15 minutes.

He reassess the water project and starts to plan again – 15 minutes.

1 hour before the delivery Bob is interrupted again and ask to join a meeting with the accounting department – 30 minutes.

Bob returns to re-assess what is left to do before the delivery arrives – 15 minutes.

He now has about 15 minutes left before the delivery arrives. He needed 3 hours to prepare, he has worked on the project a total of about 1 hour and 45 minutes. The delivery arrives.

Although the trucks are ready and in the unloading area, the crew to move the water is not on site yet because Bob did not notify them early enough. They have to wait. The trucks will only wait for 15 minutes, after that they have to charge a fee or leave. They have other deliveries. Since the money for the water had been paid in full they waited for 15 minutes they decided to leave and return.

The trucks depart.

In another 15 minutes people arrive to unload, and they wait. Each person actually has a variety of loading and unloading jobs to do, so these jobs are not getting done. Assume they wait 30 minutes for the trucks to return; the unloading crew and Bob’s truck drivers are each wasting 30 minutes. Assume that there are 6 people in total, that means a total waste of 3 hours not doing something else.

The trucks return and the water is moved – 30 minutes.

The project is about 1 hour over due. By the time the deliveries get to their destinations, the work site will be nearly closed. If the trucks show-up too late no one will be able to unload them. This would be a further waste of time and fuel. Bob decides the delivery will happen in the morning.

The next day the trucks disperse. They make their deliveries. A few days later expense reimbursements for water hit the accounting office. Bob is asked to come to the office.

When Bob arrives and checks the receipts, he notices that the day the delivery should have been made was the same date on all the receipts. Each receipt was about priced about $1.00 a liter. That means a total expense of $1200.00 due to the delay. Apparently the local site managers thought water was so important that they could not risk the delivery not showing-up.

NOW…

If this happens one time, then the isolated incident is so small that it really does not impact the economics of the company. However, if it happens often, then site managers will start to buy their own resources just to be safe. So people will be buying items at a higher rate than the company can buy them. Yet the company will also keep resourcing the sites with identical items creating an unneeded surplus.

Management cannot stop the process unless they can ensure the deliveries, because of legal and safety issues. We are talking about core and critical resources.

Distracting and retasking Bob was an opportunity cost of about 1 hour an 15 minutes. Yet, it caused a cascading loss and negatively impacted the work at six work sites. Leaving Bob alone to do his job, and making sure he was only re-tasked incase of emergency, would have prevented all of this. Bob’s job is logistics. He really does not need to make decisions about buildings nor does he need to advise accounting – unless his time is free and allows for it.

Take this scenario and apply it to your world / your community. Consider people who seem to do jobs that are not in their purview. Ask yourself what is not getting done when they are re-tasked , and look for cascading effects.

Whatever you? El Numero Uno? If you feel you are always out of scope, start saying ‘No’. Make the argument that you need to focus on your job, until your projects are done. If a system is so crippled that everyone needs to be re-tasked to complete a system goal – then the system needs to be replaced. Working within it, and appeasing it is not good for anyone. In fact I think history teaches use that appeasement leads to conflict, not resolution or improvement.

 

About Tony DePrato

about.me/tonydeprato
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One Response to Opportunity Cost

  1. Pingback: Podcast Episode 26 – March 21, 2012 | Technology in the Classroom

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