Lost Opportunity Cost is the potential gain that is sacrificed when a business chooses one option over another. It is an intangible cost, as it does not show up on an organization’s financial balance sheet; however, it can have a real impact on a company’s bottom line. Put simply, if your business fails to make the best possible decision, then it will suffer from this cost.
For example, if a business chooses a supplier that isn’t able to meet deadlines, then they risk losing out on valuable customers or orders due to delayed shipments. In such a situation, the opportunity cost would be the profit they could have made had they chosen a more reliable supplier.
In essence, in order to maximize their profits, businesses must always consider the long-term opportunities that could be gained or lost by making their decisions. By considering this often-overlooked aspect of their operations, businesses can stay competitive and profitable in the long run.