Opportunity cost is a term used in economics to refer to the cost of an alternative that must be forgone in order to pursue a certain action. In product management, opportunity cost is an important concept that helps managers make informed decisions about which products to develop and which ones to prioritize.
The opportunity cost of developing a new product is the value of the next best alternative that could have been pursued instead. For example, if a company decides to invest in developing a new mobile app, the opportunity cost is the potential revenue that could have been generated by investing in a different product or project.
Opportunity cost is not always monetary. It can also refer to the time and resources that are required to develop a product. For example, if a team spends six months developing a new feature for an existing product, the opportunity cost is the potential revenue that could have been generated if the team had spent that time developing a completely new product.
Product managers must consider opportunity cost when making decisions about which products to develop and prioritize. They must weigh the potential benefits of each product against the opportunity cost of not pursuing other alternatives. This requires careful analysis of market trends, customer needs, and available resources.
In order to minimize opportunity cost, product managers must constantly evaluate their product portfolio and make strategic decisions about which products to invest in. They must also be willing to pivot and change direction if necessary, in order to maximize the potential value of their product portfolio.
Overall, opportunity cost is a critical concept for product managers to understand and apply in order to make informed decisions about product development and portfolio management.