Without Justifying Opportunity Costs, You Might Prioritize the Wrong Features

Windows of opportunity are fleeting. Sometimes there’s only a short amount of time to do something before its benefits diminish.

Think of the space race between the U.S. and the Soviet Union. Launching a satellite, sending a dog into space, putting a man into orbit, setting foot on the moon. Each achievement was only extraordinary and demonstrated technological achievement if the country did it first. No one was excited to be the SECOND party to do these things.

We’ve seen similar zero-sum games throughout human history when new technologies and solutions were deployed — being first matters. It gives you a few fleeting moments to capture a market and offer a unique value proposition.

They call it a first-mover advantage for a reason. Competitors will come and copycats will emerge. The market will grow muddled with alternatives, options, and choices.

Products can still thrive by riding in on the coattails of others. But there’s always a danger that you’re too late to the party to make any inroads.

Particularly, when ecosystems are created, and switching costs grow. For example, once you started buying MP3s, you wanted all your music in that format. No one wanted to put down their iPod and pick up a Zune just to switch from Madonna to Metallica.

But if we know opportunity costs exist, why aren’t we considering them when prioritizing features?

Including Opportunity Costs in Prioritization

Prioritization frameworks are primarily geared toward weighing the benefits of one feature versus another, so we pick the best ones. Each ideally influences a metric we care about, such as increasing daily active usage or decreasing churn.

Read the Product Manager's Guide to Prioritization  ➜

We force-rank features against each other. “If we add X, the user gets Y, and this KPI improves Z. If we add A, the user gets B, and that KPI improves C.”

We then decide whether Z or C is worth more and rank the features accordingly. The winner gets top billing on our prioritized roadmap.

There’s nothing wrong with a benefit analysis focused on the positive impacts. We are trying to create customer delight, improve satisfaction, grow usage, and adoption. You can accomplish those feats by improving user experience and product capabilities.

However, this ignores the hard truth that our products don’t live in a vacuum. There are competitors, alternatives, and limited windows of opportunity that are also part of the equation. To take a truly holistic approach to prioritization requires not only considering what good things happen if we build something now, but what happens if we don’t.

Similarly, some new functionality has a half-life to consider, given their cost of delay. If you debut a new capability in January, you’re first. In June, you’re keeping up with the crowd. If you wait until December, other solutions have passed you by.

Downsides of Ignoring Opportunity Costs

Bypassing opportunity costs in the prioritization process can lead to poor decision making. The last thing you want is a post-mortem where everyone’s bemoaning the foolishness of ignoring this vital element.

Unknowingly making tradeoffs

Every choice is a tradeoff. There is always the path not traveled. (Actually, there’s an infinite number of potential roads not traveled, but let’s stick to a more manageable number).

When we prioritize features, we typically focus on which one will have the most significant impact on our goals. We build one thing instead of another because it’s a better bet to get us where we want to go.

Without entertaining the downsides to our decisions, our prioritization process has large blind spots. Knowing a choice will have potentially adverse consequences is fine, but unknowingly going that route could be catastrophic.

Getting buy-in under false pretenses

Winning over the hearts and minds of stakeholders is a key part of product management. But doing so without being fully transparent about opportunity costs is disingenuous and misleading.

If you only talk about how great one option is without discussing alternatives, they don’t have the full picture. More importantly, they may not realize what they’re giving up by supporting a particular choice if they don’t comprehend the implications.

It’s far better to surface opportunity costs early in the prioritization process, so everyone’s operating with all the available information. Every choice has the potential to gobble up resources intended for another project, scuttle potential new business predicated on a different feature being implemented, or put the product at a competitive disadvantage.

But what hurts more is burning your stakeholders by not bringing opportunity costs to their attention.

Missing out on better alternatives

Opportunity costs in the feature prioritization process may unintentionally lead to discovering a new choice that wasn’t even on the table. We all know there are multiple ways to achieve an objective. But the obvious solution can overshadow any substitutes.

Necessity is the mother of invention. Considering opportunity costs might lead you to go in a different direction that solves a problem unexpectedly. When forced to do something cheaper, faster, or with fewer resources, it taps a whole new level of creativity.

While duct tape and chewing gum aren’t exactly elegant, the need to cut costs and time-to-market often proves inspirational and beneficial in the long run. Think of all the companies that once dreamed of building custom hardware to bring their solution to market, yet co-opted smartphones and tablets to drastically reduce their timelines.

They could have spent years designing, prototyping, and manufacturing something purpose-built. Instead, they settled for something slightly less elegant. This approach allowed them to get to market much faster and cheaper than their original plan.

Successfully Incorporating Opportunity Costs Into Feature Prioritization

By now, we’ve hopefully convinced you that you’re missing out if you don’t factor opportunity costs into your internal decision making. But if you’re not already considering it, how can you add it to the mix?

Here are a few tips to ensure you’ve scrutinized opportunity costs:

Know the Reason for Everything

Our backlogs are overflowing with great ideas. Our roadmaps are chock full of goodness. Customers and executives are always coming up with another fantastic item for our product development to-do list.
Download the Backlog Refinement: How to Prioritize What Matters Book➜

But a good idea doesn’t mean much without proper context. So before anything even makes it to the prioritization stage, ask yourself:

  • What happens if we do it?
  • Does it matter when we do it?
  • Most importantly, what happens if we DON’T do it?

Armed with this information, the prioritization team is more fully informed.

An added benefit is that if the requesting party can’t answer all three of the questions above, then you can quickly slide it into the nice-to-have pile.

Don’t prioritize anything without an LOE

All features are not equal when it comes to how much work they’ll take to implement. Knowing how much time and how many people are required is useful data when weighing your options.

Beyond how “fast” and how “cheap” you can get a feature, it’s also great to know if there are any additional, less obvious costs to factor in. For example, does it need more computing power, storage, or bandwidth? Do you have to buy new software or extra seat licenses?

And, of course, what are the long-term maintenance and support ramifications? Will this new feature make us less agile in the future? Is customer service going to need more bodies or training?

All these things represent different types of opportunity costs to reflect upon.

Keeping up with the competition

Competitive intelligence should be a no-brainer for product teams. But each feature should be judged relative to peers and alternatives in the market. Every feature generally falls into three categories:

  • This feature will put us ahead, as we’ll be the first to market with this capability.
  • The feature will keep us on pace with our peers, as they’re also coming out with this capability.
  • This feature will help us catch up, as our competitors already have this capability.

Of course, we don’t always need to replicate every feature that our competitors offer. We should judge how much customers value and would use those features and not spend our time worrying about checkboxes in a marketing collateral matrix. But knowing how a feature will help the product keep up with (or surpass) others is always a useful data point.

Exit strategies

Beyond staying competitive from a pure revenue and usage perspective, more strategic imperatives sometimes drive product development. If the company is eyeing investments, an acquisition, or a strategic partnership, not adding a particular piece of functionality or capability could jeopardize the company’s strategy.

This type of opportunity cost may not be common. But when it does come up, it’s essential not to overlook the potential ramifications of bypassing a particular feature.

The morale factor

Another topic to examine is whether building (or not building) a particular feature could impact the mood of employees. This impact can take several forms.

First, if the staff must perform tedious manual tasks because the product hasn’t automated or simplified a process, it can eventually take its toll. Second, if technical debt keeps piling up and you’re continuing to add onto a rickety foundation, skepticism and cynicism can set in. Finally, if stakeholders keep making decisions viewed as shortsighted, it could compromise their faith in management’s judgment.

360-degree prioritization

Include opportunity costs in whichever product prioritization framework you select. Doing so will give your process a more comprehensive view of both the costs and benefits of the decisions your team makes. To put opportunity cost at the forefront of your sorting, consider giving opportunity scoring a try.

Want to learn more about how to communicate priorities to stakeholders? Read the Product Manager's Guide to Prioritization