Two kinds of cost

I often hear teams complain about their current technology investments, wishing they were using tools better suited for their business, but trapped in long term contracts. They say they’re too invested to change at this point. Or that they’ll make a change once their contract is up.

But really this is just a game of weighing two different kinds of cost.

Long term contracts are a sunk cost. The commitment you made last year, or the year before that is long decided on. You can’t go back and change it. And any rational decision you make moving forward must be made independent of your past decisions.

So, if the thousands we spent last year are in no way associated with the thousands we want to spend this year, then the question shifts to one of budget. Who wants to pay for two redundant tools at once? That’s where the second type of cost, opportunity cost, comes in. You can view a new $50,000 or $500,000 contract as unnecessary, redundant spend, or flip it on it’s head. What are you losing out on by not making that investment, and sticking with the current solution? Time? Efficiency? Talent?