Firm Introductory Presentation
11.06.2014CRWA Annual Conference
2016
Opportunity Cost
Decision-making for water and
wastewater improvements
Opportunity Cost
• Loss of potential gain from other
alternatives when one alternative is
chosen
Opportunity Cost
• Benefit or value of something that must
be given up to acquire or achieve
something else
Opportunity Cost
• The Road not taken
• Foregone choice
Opportunity Cost
• Infrastructure improvement questions
have an opportunity cost factor
embedded in the decision-making
equation. We may just not talk about it
explicitly.
Opportunity Cost
• What are some of the standard choices?
– Repair now versus repair later
– Replace now versus replace later
– Improvements now versus improvements
later.
Opportunity Cost
• To do it NOW we have to give up the
funds that we have saved, or find new
funds, or borrow funds.
Do It NOW
• Give Up =
– Interest on savings
– Too low rates
– Ban on borrowing
• Acquire =
– Enhanced longevity
– Improved efficiency
– Avoid future cost
increases
– Maintain level of
service
Opportunity Cost
• To do it LATER we have to plan to pay
higher costs, accept a higher risk of
interruptions of service, steel ourselves
for emergency repairs and replacements
Do It LATER
• Give Up =
– Enhanced longevity
– Improved efficiency
– Avoid future cost
increases
– Maintain level of
service
• Acquire =
– Interest on savings
– Too low rates
– No borrowing
Savings Interest Rates
0
0.5
1
1.5
2
2.5
3
3.5
CD Rates
SRF Loan Rates
0
0.5
1
1.5
2
2.5
3
3.5
4
Loan Interest Rate
Construction Cost Index
0
0.5
1
1.5
2
2.5
3
Construction Cost index
Opportunity Cost
0
0.5
1
1.5
2
2.5
3
3.5
4
CD Rates
Loan Interest Rate
Construction Cost Index
What do I do?
• Become familiar with your system’s current
budget. Understand how opportunity costs
are currently factored in.
• Participate in future budget setting
discussions – you are a stakeholder.
What do I do?
• Encourage explicit discussions about
opportunity costs.
• Plan with a long-term view in mind.
What do I do?
• Ask “What are we giving up and what do we
gain?” and
• “Are we happy about what we are giving up
and what we are gaining?” If not then
encourage different choices.
Firm Introductory Presentation
11.06.2014CRWA Annual Conference
2016