What is the opportunity cost of taking on a project?
Opportunity cost is the loss of potential future return from the second best unselected project. In other words, it is the opportunity (potential return) that will not be realized when one project is selected over another.
What is sunk cost in PMP?
Sunk cost is the cost that has already been incurred, and there is no way to recover this cost. It is always equal to the Actual Cost spent to date. According to Wikipedia – “In Economics and Business decision-making, sunk costs are retrospective (past) costs that have already been incurred and cannot be recovered.
How is opportunity cost considered to be important in the costing of a project?
Opportunity cost is the estimated return of investments you don’t make compared to the expected return of investments you do make. It’s an important factor to consider when allocating time or resources to any type of project (essentially, “would my time or money be better spent elsewhere?”).
What is opportunity cost PMP?
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. Risk management and capital budget management are some of the ways in which a project manager can minimize the opportunity costs and maximize the returns in his projects.
What is opportunity cost in everyday life?
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). A commuter takes the train to work instead of driving.
What are some examples of sunk costs?
A sunk cost refers to a cost that has already occurred and has no potential for recovery in the future. For example, your rent, marketing campaign expenses or money spent on new equipment can be considered sunk costs. A sunk cost can also be referred to as a past cost.
What do you mean by opportunity cost Class 11?
Opportunity Costs are the benefits that an individual, investor or business forego (miss out) , when they choose one alternative over another. Opportunity Cost is the next best alternative, which is foregone, when a particular alternative is chosen.
What is a good example of opportunity cost?
Examples of Opportunity Cost. Someone gives up going to see a movie to study for a test in order to get a good grade. The opportunity cost is the cost of the movie and the enjoyment of seeing it. At the ice cream parlor, you have to choose between rocky road and strawberry.
Is the PMP exam based on opportunity cost?
We may find a few questions in the PMP® certification exam which is based on the concept of opportunity cost. For the exam opportunity cost is usually a monetary value. Let us take a look at a few sample questions based on this concept.
How are opportunity costs used in project selection?
Opportunity Costs can be great tools for project selection in an organization. We may find a few questions on the PMP®certification exam based on this topic. Like many other decision makers, project managers should thoroughly evaluate the opportunity costs and plan well to manage them.
What is the opportunity cost of project banana?
Answer: When selecting between two projects, the opportunity cost is simply the value of the project that was not selected. In this case, we selected project Apple over project Banana. This means that our opportunity cost = the value of project Banana = $28,000.
Which is the correct answer for opportunity cost?
The correct answer is B. Explanation: Opportunity Cost is the potential return of the second best option that was not selected. It is NOT the sum of all potential returns that were selected or the difference between the potential return of the project selected and the second best option.