Imagine you approach a 4-way intersection, how many options do you have? Some might say three, others might say four. In fact, you have five options: you can turn left, right, go straight ahead, turn back, and you can do nothing.
When analysing your options in business, option 1 should always be ‘do nothing’. This is not often the right option, but it can be in your specific circumstances. This option is often overlooked, and making a habit of naming it option 1, you ensure it will be assessed.
During the decision-making process, many people assess the return on investment, of options 2, 3 and beyond. This anticipated ROI drives a decision to ‘go’ or ‘no-go’. In principle, this is a good practice, assess what your benefits will be from investing in a product, service or staff development.
Now let’s look at option 1, ‘do nothing’. Instead of assessing return on investment, we now need to look at the cost of inactivity (COI). What are the consequences of doing nothing, what are the consequences of not investing? What will the market do, what will your competition do during this period you are not investing? This is why it is so important to make it option 1. Understanding your COI, will put any ROI in different perspective.
Many organisations struggle to distinguish between cost and investment, as on your balance sheet it may appear in the same column under the same heading. In reality, not spending money can be a greater cost to you than investing funds.
ROI is only half work, ensure you understand your COI?