Forecasting and Management of Technology, Second Edition

10.1 Opportunity Costs and Choices

Since resources are limited, it is not possible to tackle every technological challenge, even every desirable one. Nor is it possible to analyze and mitigate every potential impact. To make decisions wisely, managers need tools to allocate resources with discipline. For example, a new process that generates energy might seem attractive, but what opportunities must be foregone to implement it? Perhaps concentrating on marginal improvements to conserve energy would be more reliable and bring more rapid and significant financial returns. On the other hand, taking some risk now to adapt to a new energy source might allow the company to leapfrog over the competition and gain a dominant market position in a few years. What should the manager decide? The cost of choosing any opportunity is the value lost by not pursuing another. All decisions involve such opportunity costs.

Analytical tools will never completely answer such hard questions. There always will be uncertainty. However, cost-benefit and risk analyses can provide a disciplined way to think about such problems and to consistently make wiser decisions. Society also makes choices. Some of these choices are reflected in the costs facing firms and will be considered by their managers. Other costs and benefits are external to firms and will not be considered in making business decisions unless society takes steps to see that they are taken into account. From an economic point of view, it is ideal ...