Cost Lost…

2013 has come to an end and 2014 is here. Monday morning we start again. Work. School. It all starts. My two weeks at home with my family are over…and I only had to work for a day or two from home. I have had two superb weeks. At times it felt too short, but when I think about all we’ve done it feels just great. There was much opportunity for fun.

Some days we went places and did things. Other days we stayed put and did nothing. Things were good and no-things were good. We did lots together and some alone. We played games and did puzzles. We relaxed and rewound. Some days we had lots of choice what to do…other days we didn’t.

I find it intriguing to see what I think about over times like this. I think about my family of course, and what we are doing. But I also find time to think about other topics. And often I think about them more deeply…more time and less people.

I often send long emails over these holidays. I use these emails to ‘think aloud’… more a stream of thoughts and words rather than a coherent proposal. They must be as strange to receive as they are helpful to write.

There is more business focus in what I think about than there was two years ago. It’s the biggest difference between what I was doing in Big Pharma and what I do in Big CRO. There is so much similarity in the science I do, and the excellence of the people I work with…but the way the money works is different. I am a profit centre instead of a cost centre. I have to generate revenue (in excess of our costs) rather than spend a budget.

And the needs and priorities of our customers are paramount. Customers who partner with us but pay our salaries. Customers whose projects we work on but who control our future. Customers who we have to delight, but who we want to surprise. There is much opportunity for work.

I have learned a great deal about finance…much I had never heard of let alone expected to be using every day. And – true to form – I have found myself thinking about these concepts more these last two weeks…and a classic example is Opportunity Cost.

I always struggled with Opportunity Cost. It sounds so simple but what does it mean? There’s that moment when you propose something and someone says… ‘great idea – but what’s the opportunity cost?’ I always used to respond…‘difficult to calculate accurately’…but this doesn’t seem to work as well any more.

Opportunity Cost is the cost of an alternative option that is not done in order to pursue a specific action. An example would be me choosing between buying a cookbook or paying for a meal out. If I chose eating out, then Opportunity Cost is the book I don’t buy. And true Opportunity Cost is likely higher because the meal has no monetary value after it is done.

And this is why Opportunity Cost is so important in our work (and in our holidays). We only have limited resources yet we have virtually unlimited choice of projects, experiments and studies (as well as meals and books).

Opportunity Cost drives us – individually and collectively – to assess what we are going to do and how alternative choices stack up. I was right that an accurate assessment of Opportunity Cost is not always easy, but the more we understand our Opportunity Costs the better our decisions about how we allocate our time and our money…

Cheers

Steve

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About Steve Street

I have worked in R&D within the Pharmaceutical industry for over 29 years. Up until April 2012 all of my career had been with one company, but that has now changed. I left that company and took up a new role on May 1, 2012 - still very much within the Pharmaceutical industry and again based in the UK. I have been blogging every week now for over 9 years but only on an external site since January 2012. Email updates of the blogs can be requested using the ‘follow’ option within Wordpress. The blogs are only ever my personal view of what I see, think and feel. I am delighted if you agree and find value; happy if you disagree with my views and overjoyed if you feel motivated to comment. Most of all I am simply grateful that you read. Cheers Steve
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2 Responses to Cost Lost…

  1. Chris Barber says:

    This is a really nice summary of the transition that I too have faced. I feel it acutely having moving to a smaller company… In a smaller company, each decision has a tangible impact – and of course that includes bad decisions. In a small company bad decisions are clearly visible and may not be mitigated by other successes… By doing more informed risk-benefit analysis and considering the collateral impact on other potential courses of action, such decisions can be taken with ‘eyes wide open’ and not on a hunch or prejudice. Let’s also not forget that making a clear decision is still of absolute importance. I’ve seen too many key decisions not being made through fear of making a bad one and it can be all to easy to deceive yourself and others – for example by initiating ‘just one more study’, by requesting ‘just one more piece of data’. Again thinking it through and challenging the value (impact) of getting that extra data point helps keeping that focus…
    Happy New Year Steve – and may all your decisions be good ones, and most of them turn out right!

    • Steve Street says:

      Chris

      Great to hear from you – many thanks. And great to hear such excelent input. And great to hear someone esle in a simialr situation. And last bit not least great to hear you are doing so well.

      Cheers, and thanks again

      Steve

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