Hidden Opportunity Costs of Digital Projects

April 6, 2020

Tony Zipparro

Most people can only see what they have lost by what they have had. It’s linear. It’s simple. It’s visual. The idea of myopic budget risk (ie spending more money than needed or being taken advantage of by a company) is almost always seen in isolation to the amount being spent. It is thought of as the amount of money looking to spend and how much of that could be saved by going the “right route”. 

The reality is that total budget risk accounts for the opportunity costs of money forgone for savings that never actually materialize. The invisible hand of a thief if you will, taking from a future you never would have realized anyways by the decisions made initially. 

Throughout years of working with clients we have most commonly seen this from those we have myopically taken those opportunity costs by opting for immediate savings, doing future rounds, revisions, rebuilds or agency switches to help right it.

Tony: We deal with this concept, in a lot of different areas we work with. There’s certain services or, again, this idea of budget, that has hidden, I’ll call them “hidden opportunity costs,” right? That a lot of times, we might go, you know, just quickly bridging to something like a workshop. You know, someone internal had asked me, “Hey, I can see how workshops benefit us, but I don’t really understand how they benefit the client.” To which, it was a much longer discussion, but the whole point was, many of the benefits or advantages that are gained from doing a workshop successfully, you actually never see those risks play out. Because the risks are mitigated in the beginning, and so it’s mainly opportunity costs that would have been foregone, and our minds don’t necessarily think in that way, so linking it back to budget, it’s, all right, I know, if I go in and say my budget’s a hundred thousand dollars, like, my risk is, they’re going to charge me a hundred thousand dollars when they don’t need to. I can get it for fifty, but they charge me a hundred. And that’s a very easy risk to materialize in our minds. It’s a [inaudible 0:01:08]. And so, it’s almost easy to understand. And then on the flipside, it’s more, well, what if I didn’t do that? Well, then I might have this, you know, far less superior product, or I might have something that was a waste of time and money. And those things are harder for our mind’s just naturally to quantity, because we can go, let’s say, hey, you spend a hundred thousand dollars, and you take four months to build it, and let’s say, break even. Right? It wasn’t a wasted investment, but it generated, you know, whatever you needed, to break even. A hundred thousand. Well, our minds still don’t kind of go like, those four months of time? How much were those worth, if you built it with the right agency. And I think, just like in dating, right? People are afraid a lot of times to put all their cards out on the table, to put everything out there, because they don’t know how it’s going to be perceived. And I find that a lot of times, the most, I guess, beneficially close-knit relationships we have are the people that, or companies and organizations, that have the confidence to go out there, right? Whether it be the dating pool, and say, “This is who I am, take it or leave it,” it’s those companies that we go, “Wow, we can work well together!” Hey, we’re going to try to minimize costs, mitigate risk, and build you what you need. Because if you give us a hundred thousand, and we only need fifty, we would rather do that. And I think that’s, I’ve heard, it’s a unique perspective, right? Because a lot of times, agencies are perceived as wanting to maximize on their dollar amount, which is us, in my mind, I look at the risks of, well, if you’re building something for a hundred versus fifty, it should take less time. And that time has less risk of other ideas popping up, or changes happening. So, I know that was a little bit of a rant, but… 

Austeja: I think that, there’s two points that I wanted to make. One is that, the irony is that the clients that do have copious budgets aren’t the ones that are going to be worried about that. So they are going to be very transparent about their thresholds and how much they are willing to spend. It’s the ones that have the smaller budgets that are the most scared to let go of them. And those are the ones that we most crucially need to know them. Because if you are working with a smaller budget, then it is more valuable for you to let everyone know. At least from our perspective. So the second point I want to make is that, yes, you can tell us that you have five hundred thousand dollars to work with, and we take advantage of every dollar. But at the end of the day, we still have to let you know how we have provided value in that, right? So from my perspective, it seems unlikely that we’d be able to rip a client off if we are being transparent and communicative at the level that I personally hold the team accountable to. So it’s almost like those components go hand in hand. So if you are looking for a partner, you’re looking for a vendor to provide you the service of creating an app, or building you a website, and in the initial stages, you’re feeling like the transparency is there. Being very clear about what product they’re going to provide to you. How that’s going to result in benefits to your company, and so on, and so on. If that mark is checked, then it seems like that’s the logical gauge of whether you should or shouldn’t be transparent with them about budget. Because the work is already there. The initial effort and investment in terms of a partnership is there. And so, that seems to me like the logical kind of go-to for “Let’s talk about budget.”

Tony: Yeah.

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