Friday, October 06, 2006

Opportunity of Life Spending

A friend came to me asking my opinion on whether he should take a “new opportunity” or just ignore it and carry on what he currently have. Both options seem promising and each gives different way of benefits. Is there any metrics available to compare these options in every possible point of view against the “opportunity”?

Metric shows the accountability of a topic. By representing the “opportunity” in form of numbers, makes it simpler and easier to understand and control. The problem is that it is quite often the “opportunity” cannot be measured and quantified. It doesn’t mean that it obscure, not at all. It’s just intangible. These intangibles factor can be quantified by taking a sample case. Economical analysis quite often quantifies these intangible factors by using business case approaches.

What interesting is that do we have to quantify every topic in such a way with any metrics tools? Opportunity can be in many forms. It may be a new vacant job, or it may be as simple as spending the money in the street corner outlet. Doing calculation in every spending may sound ridiculous. We may want to exploit more whether that spending is type of capital investment or just expense.

Defining the “opportunity” that having intrinsic returns value in the future is much more seeing “opportunity” as an investment. Mathematical approach can then be applied to quantify that kind of opportunity. Methodologies such as Net Present Value, Total Cost of Ownership, Internal Rate of Return, Return on Investment, etc provide a way of controlling and understanding the investment used widely in strategy planning and portfolio management.

The point is: considering the “opportunity” as an investment reveals the accountability of that opportunity. In fact, the way you perceive your life will describe your spending pattern. Are you seeing your own life as an investment or just an expense? Is there any return that you expect from your life spending? What is the goal or the ending story of your life spending?

What I can say to my friend was only by telling him how he would see this opportunity, investment or just an expense. Mathematical approach above may help provide a guideline analogy for better understanding of given investment.
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Salam,
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