Once you’ve sidelined sunk costs, you can then move on to finding opportunity costs. These are the tradeoffs. Identifying opportunity costs help you determine what you’re sacrificing when you choose a particular course of action, as well as what the impact will be on other items once you begin. For example, all the data shows that if you put that brand new banner on the website, it’ll increase downloads of one of the products by 50%! Before you do it immediately, though, consider the opportunity costs. Turns out that it will also decrease downloads of the other product by 30%. Opportunity costs are always relevant.
There are also areas that aren't actually affected one way or the other based on which route you take. These are unchanging costs. For example, you’ve got to get rid of some website pages and on the chopping block is someone’s favorite page, so they’ve raised decline in traffic as an issue. Some quick analysis shows that only a handful of people visit that page, few end up downloading anything, and even fewer buy anything, so deleting it won’t affect much. Unchanging costs are always irrelevant, and everything that isn’t a sunk or unchanging cost is a relevant cost. Once you figure out the relevant factors, you can determine the best solution among your alternatives based on the amount that relevant factor would increase or decrease.
Incremental analysis is a great tool that I’ve borrowed from the world of finance as a unique way to think outside the box when solving any business question. It’s a method of quickly sifting through what’s useful and what isn’t, and is a framework that can be applied to help you arrive at the best solution.
But, if you find a real pearl, email me directly.
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