Opportunity cost risk occurs when a better opportunity presents itself after an irreversible decision has been made. In a financial context, opportunity cost is often articulated in terms of the time value of money, and can be defined as the failure to use cash in an economically efficient way. Failure to manage opportunity cost risk can cause: loss of foregone economic funds, time value losses, high/additional transaction costs, earnings exposure, declining sales or profits, competitive position eroding over time, exposure to an income loss, and missed business opportunities.

This outlines the business risks of opportunity cost and shares the root causes and performance measures related to opportunity cost risk.