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