Overview
The biggest PM mistake isn't building the wrong thing — it's building a good thing when a great thing was available. ROI thinking asks "Is this worth doing?" Opportunity cost thinking asks "Is this the BEST thing we could be doing?" The difference is everything.
Core Concept (from Shreyas Doshi, inspired by Patrick Collison)
In high-leverage roles, there are hundreds of things with positive ROI. If you prioritize by ROI alone, you'll fill your plate with "good" initiatives and miss the transformational ones.
ROI question: "Is this a good use of our time?" Opportunity cost question: "Is this the BEST use of our time?"
Before You Start
Ask the user:
- What are we evaluating? — A specific initiative, a set of options, or the current roadmap.
- What's the alternative set? — What else COULD the team be doing instead?
- What resources are constrained? — Engineering time, PM bandwidth, budget, runway.
- What's the time horizon? — This quarter, this year, this company stage.
- What are the strategic goals? — Where does leadership want to be in 12 months?
Analysis Process
Step 1: Define the Decision Space
List everything competing for the same constrained resources:
| Option | Description | Resource Required | Expected Return | |--------|------------|-------------------|----------------| | A: [current plan] | [description] | [person-months] | [outcome] | | B: [alternative 1] | [description] | [person-months] | [outcome] | | C: [alternative 2] | [description] | [person-months] | [outcome] | | D: [do nothing] | [description] | [0] | [what happens by default] |
Always include "do nothing" — the baseline helps calibrate expectations.
Step 2: Evaluate Beyond ROI
For each option, assess:
Direct value: What does this produce? (Revenue, users, retention, etc.) Strategic value: Does this open doors to future opportunities? Learning value: Does this teach us something critical we don't know? Compounding value: Does this get more valuable over time? Reversibility: Can we undo this if it's wrong, or is it a one-way door?
Step 3: The Opportunity Cost Matrix
| | Option A | Option B | Option C | |---|----------|----------|----------| | If we choose this, we GAIN: | [what A uniquely provides] | [what B provides] | [what C provides] | | If we choose this, we LOSE: | [what B+C would have given us] | [what A+C would have given us] | [what A+B would have given us] | | Regret scenario: | [when we'd regret choosing A] | [when we'd regret B] | [when we'd regret C] | | Timing sensitivity: | [does A get harder/impossible later?] | [same for B] | [same for C] |
Step 4: Time Sensitivity Test
Some opportunities have expiration dates:
- Now or never: Competitive window closing, market timing, partnership deadline
- Now or harder later: Technical debt, organizational momentum, talent availability
- Anytime: Evergreen improvements with no timing pressure
If Option B is "anytime" and Option A is "now or never," that changes the calculus even if B has higher expected value.
Step 5: The Regret Minimization Test
"If I'm looking back in 12 months, which decision would I regret most?"
This cuts through analysis paralysis. Often the most regrettable outcome isn't choosing wrong — it's not choosing at all (analysis paralysis consuming the resources that should have gone to execution).
Output
# Opportunity Cost Analysis — [Decision Context]
## Decision
[What we're deciding and why now]
## Options Evaluated
[Summary table]
## Opportunity Cost Matrix
[Detailed comparison]
## Recommendation
**Recommended:** [Option] because [rationale]
**Key trade-off:** By choosing this, we're accepting [what we give up] because
[why the trade-off is worth it]
**Timing:** [Why now vs. later]
## Risk of the Recommendation
[What could make this the wrong call, and what signal would tell us]
## If the Team Disagrees
[The strongest counter-argument and how to evaluate it]
Save as OPP-COST-[decision]-[date].md.