Opportunity Cost is usually one of the biggest loss of profit costs there is. For most practices today, there are four main categories of Opportunity Cost:
1. The Product or Service Opportunity Cost:
Scenario: A patient asks you for a product or service you don’t supply. You lose the profit from a sale; that is Product Opportunity Cost. Perhaps this happens very infrequently, so you offset the cost of the lost sale against the cost of managing and maintaining inventory.
If enough people ask for the same product, you will quickly conclude that you need to be supplying it in order to not lose out on future business. This is an easy one; the decision whether to supply a particular product or service is usually quite simple.
2. The Stock Opportunity Cost:
Scenario: A patient asks you for a product you do supply, but for some reason, you don’t have it in stock. You lose the sale again. Here, good inventory management practices are what it takes to avoid this.
Depending on your practice, getting your inventory correct is not always easy, and it may take some investment in systems to get this right. Again this cost is relatively easy to understand and manage.
3. The Time Opportunity Cost:
How a practice owner decides to spend his or her time is hugely important. Have you ever stopped to consider the Opportunity Cost of your time? Let’s take one of my all-time favorites- the practitioner who does his or her own bookkeeping. Bookkeeping is something that most people in business can do adequately competently if necessary and so, many do.
The thought process behind this is, “Why should I take money out of my pocket to pay someone for a job that I can do perfectly well; it won’t take all that long to complete it.”
The Opportunity Cost here is as follows: As the practice owner, you need to analyse and understand what is the most valuable and important contribution you bring to the business. Invariably, this is your ability to develop the practice, promote important relationships, build your team, make the big sales, look for the next big deal etc. When you are operating in this mode, your time has a value of R300 – R2000 an hour, depending on your practice. Bookkeeping is worth no more than R40 – R60 an hour.
Practice owners who get their heads around this one start to make big strides.
4. The Knowledge Opportunity Cost:
This is the most expensive and of all. There are opportunities all around us. What prevents us from taking them? Mostly, it’s a lack of adequate knowledge.
For example, the reason we don’t all make a killing on the stock exchange is because we lack the knowledge to do this. By educating yourself about the ways of the stock exchange, you would put yourself in a position to make a whole lot of money.
This is true of education in general, and more specifically of business education. A large proportion of people in business either have had limited business education or their business education falls short of their present opportunity needs.
Education may seem like a really blunt tool to use to be more successful in practice; but it is the ultimate one. While it may take time and money to increase your education, it is well worth it, and infinitely beats the cost of being ignorant.
Once you are able to understand the concept of Opportunity Cost, the importance and value of the concept of working On Your Practice Vs working In Your Practice should become clear.
A practice owner who works on his or her practice understands the Opportunity Cost of his or her practice not constantly improving and growing. A practice owner needs to leverage himself or herself to the point where most of his or her time is spent on the most valuable activities- namely the ones that lead to improvement and growth.
Medinol is one of the few purpose-built practice management application to meet the unique needs of independent private healthcare providers. Today Medinol helps over 130 providers throughout South Africa run more efficient and profitable practices, while delivering outstanding patient care. As an on-premise software, Medinol and the data it manages, is fully under your control. This enhances your independence and privacy: what happens in your rooms, stays in your rooms. Medinol helps manage your patient information, generates your billings, submits your claims, control your outstandings, and get your accounts paid quickly. Medinol has been in operation since 1984 demonstrating its proven efficacy. Medinol’s mission is to help independent practices succeed in an ever-changing healthcare environment. More information can be found at http://medinol.co.za.
Fudley Bezuidenhout Pr.Eng.
Founder and CEO