# How is opportunity cost calculated in PMP?

## How is opportunity cost calculated in PMP?

Opportunity Cost is a concept in economics that quantifies the impact of selecting one option instead of another “next best” alternative. How to calculate opportunity cost? The simples formula to calculate opportunity cost is ‘Opportunity Cost = What One Sacrifices / What One Gains’.

## What are opportunity costs in project management?

Opportunity cost is the difference between the net value of the path that was chosen and the net value of the best alternative that was not chosen. It is a great tool for project selection in many organizations.

Which of the following is an example of opportunity cost?

A student spends three hours and \$20 at the movies the night before an exam. The opportunity cost is time spent studying and that money to spend on something else. A farmer chooses to plant wheat; the opportunity cost is planting a different crop, or an alternate use of the resources (land and farm equipment).

What opportunity costs must be considered in project selection?

When you consider the opportunity cost of a project, it is always the cost of the value of the next best alternative project and not the cumulative value of all candidate projects. Therefore, you can also define the opportunity cost as the relative cost because it is a cost of one project relative to the other project.

### How do you determine opportunity cost?

The formula for calculating an opportunity cost is simply the difference between the expected returns of each option. Say that you have option A—to invest in the stock market, hoping to generate capital gain returns.

### What are the types of opportunity cost?

The two types of opportunity costs are explicit opportunity cost and implicit opportunity cost. Explicit opportunity cost has a direct monetary value.

Which scenario is the best example of opportunity cost?

The correct answer is a. A computer company produces fewer laptops to meet tablet demand.

How do you create a project opportunity cost?

For example, if Project X has a potential return of \$25,000 and Project Y has a potential return of \$20,000, then selecting Project X for completion over Project Y will result in an opportunity cost of \$20,000.

## How do you use opportunity cost in a sentence?

The opportunity cost of taking a vacation instead of spending the money on a new car is not getting a new car. When the government spends \$15 billion on interest for the national debt, the opportunity cost is the programs the money might have been spent on, like education or healthcare.

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