Opportunity Cost in Policing

Strategic planning and project planning require the consideration of many details.  The same tight focus that planning can require might also blind police planners from the broader picture which in turn could create difficulties down the road, maybe even cost the department a real want or need.

One way to pull the lens back on a plan to gauge it against the needs of the whole organization (and in turn the community), is to include a review of the opportunity cost of the project.  Opportunity cost is an essential element of the cost-benefit analysis that should always take place when spending taxpayer dollars.

An example of this focus issue is where an agency is exploring a technical investment, say a software solution to a problem or need, and is weighing a handful of vendors or comparing equipment options.  The decision-making process is appropriately at work in this vacuum, but the initiative itself needs to be regularly weighed against the other wants and needs of the police department.  The comparison should obviously be made before work on the project is green-lighted, however it should be compared several times during the process in case the environment and needs have changed, the project stagnates or begins to demand more money and resources than predicted.  At a minimum, it should get a health check before every major capital expenditure is completed.

Traditional definitions of opportunity cost in business revolve around cash.  Brigham and Ehrhardt (2011) define opportunity cost as a cash flow that a firm must forgo in order to accept a project.  For example, if the project requires the use of a building that could otherwise be sold, then the market value of the building is an opportunity cost of the project.

For the policing industry, opportunity cost is simply what was set aside (capital improvement, service, processes, technology, tactical plan, etc…) when a decision is made to go with a particular initiative.  It is not the casual consequence of making a decision.  If an opportunity is passed by for another, the result of the one chosen really needs to work and provide or exceed the return that was expected.  If not, then the cost of the chosen project is much more than the money and resources that appear on the books, we have to include the fact that was set aside never happened.  That can be much more expensive.  And painful.  And embarrassing.

Some quick considerations:

  1. The right opportunity may only knock one time.  All police departments are restricted by limited money and resources.  The clock cannot be turned back, and the money will not reappear.  If the wrong decision is made, all that is left is the idea funeral (where good and bad ideas are grieved away).
  2. Idle money, time and resources are not effective.  If they are not in use, they are gathering dust and are just being wasted.  That said, they should never be used for the sake of using them.  If that is the case, then the real opportunities went unrecognized.
  3. Everyone in the organization needs to be at the table during the planning process.  This ranges from brainstorming to specific and persuasive pitches from sections and units in the police department.  An effective opportunity lost because it was never heard out is tragic.
  4. Forecast future opportunities.  Whether or not funding or resources are likely to be available in the future for a given project adds healthy tension to the decision-making process and will definitely define opportunities.
  5. Keep the S.W.O.T. analysis process alive, dynamic and sincere.  A genuinely crafted S.W.O.T. keeps the broad vision in focus.  Priorities of the elements in the analysis can be adjusted on the fly and new elements can be added, adjusted or deleted as the environment changes.  Projects and initiatives that are proposed in the department should also be compared to the S.W.O.T. analysis and in turn, to the strategic plan.
  6. If the best choice was not made, get off the train as soon as possible (to save as much money and resources as possible and stop the escalating commitment). Move quickly to divest the capital expenditures that are about to be ghosts, and above all, learn from the experience.

To get one thing that we like, we usually have to give up another thing that we like. Making decisions requires trading off one goal against another. – Greg Mankiw

What are some of the strategies that your business and industry use to make sure the right projects are selected?

© 2014 David A. Lyons

 

This entry was posted in Finance, Operations, Strategy, The Business of Policing and tagged , , , , , , , , , , . Bookmark the permalink.

Leave a Reply

Your email address will not be published. Required fields are marked *


*


Recent Posts

Categories

website security
© 2014-2016 PoliceBusinessAdvisor.com | © 2014-2016 David A. Lyons | All Rights Reserved
WordPress Theme by Simple Themes