The Number That’s Too Easy To Ignore
When we first join a deal team, they’re often engaged in the wrong conversation.
“What’s the spend?”
“How much can we save?”
“What’s the ROI?”
We get it. CFOs need numbers. Everyone wants savings. And there’s nothing wrong with that.
But it’s fatally incomplete.
Spend is usually the wrong number to care about. It might be accurate and easy to calculate. And certainly is impactful when you put it in a deck.
But it’s not the number that determines whether you succeed or fail.
Opportunity cost is the one you should really care about. It’s invisible. But in transformation deals, the invisible cost is the one that kills you.
What You’re Actually Giving Up
If you took economics 101, you know that opportunity cost is the value of what you didn’t choose.
But when you’re three months into vendor selection for a $200M ERP implementation, it takes some pretty serious deal discipline to be sitting around asking: “What is the opportunity cost of picking Vendor A over Vendor B?”
That requires a sophisticated transformational mindset, like internalizing the value of putting adoption before technical implementation, and understanding the outcomes associated with getting this right.
It’s much easier, and feels more concrete to focus on cost instead.
And that’s how companies end up eighteen months later, staring at programs that may be technically close to budget but completely bankrupt on value.
How Does This Happen?
Picking the wrong partner because the price looked good
The vendor came in $15M under the other guy, and the deal team declared victory.
Twelve months in, the client realizes the vendor doesn’t understand the business, their team can’t make decisions without escalating, and every milestone is a negotiation.
The “savings” got spent—and then some—on change orders, consultants to fix what got screwed up, and the internal resources burning out trying to make a bad fit work.
That’s a lot of added transaction cost, and it’s not even the worst part.
The opportunity cost isn’t the extra money. It’s the year and a half they could have spent with a partner who actually got it, and the value to the business that was never realized.
Doing the wrong deal with the right partner.
This is the one where you find the right partner who understands your industry, and who have clearly been through all this before. Their team is sharp, and the potential is strong.
Then you negotiate and enter into a contract with them that focuses on contract terms and price, before defining the value proposition. That measures them on SLAs that have nothing to do with transformation. That makes it economically stupid for them to innovate.
You didn’t pick the wrong partner. You just made it impossible for the partner to succeed.
The opportunity cost is all the value you could have unlocked with a deal that actually had aligned economics that allocated resources and drove the teaming in the right direction.
Nailing the deal but governing it like a commodity contract.
This one’s the worst because you almost had it.
You picked the right firm. You aligned incentives. You designed the deal to encourage adoption over technical perfection. In other words, you did the hard work of designing a deal that could actually work.
Then you hand it off to a contract administrator who treats every conversation like an invoice review.
Trust never forms. Innovation dies in change control meetings. The relationship that could have been transformational becomes transactional.
The opportunity cost is everything they built in the negotiation—gone.
What This Actually Looks Like When It Works
A few years ago, we worked on a program that impacted a $680 million annual spend. We had two finalists that looked the same on paper, and one finalist was substantially cheaper than the other.
We went with the other guy.
Both of them were technically very good, but to get this right required a significant amount of deal innovation. That’s where they separated.
When we started talking about deal innovation—about how to structure this thing to actually work—one of the finalists rolled up their sleeves and went into problem-solving mode; the other kept gravitating back to the status quo.
The winner got creative. They understood what we were trying to do.
Over three years, that deal dramatically improved operations, saved the client close to a billion dollars, and provided the partner a product that was unique in the industry.
This didn’t happen because the partner was cheaper. It happened because they were better. And because we worked together to structure the deal to let them be better.
The CFO could have put “saved $8M on vendor selection” in a deck. Instead, they got to put “delivered $950M in value” in front of the board.
That’s the difference between optimizing for spend and optimizing for opportunity cost.
The Hard Part
This sounds easy when you’re writing articles about it. You know you should care about fit, not just price. You know you should align incentives. You know relationships matter.
But this can be tricky when you’re under pressure, with management pushing for savings numbers.
The opportunity cost is invisible up front, and it’s hard to defend the invisible.
Yet, the most important question to ask is: “What is the cost of getting this wrong?
Not “what will we spend,” but “what will we lose?”
Because in transformation deals, what you lose by getting it wrong is always visible, profound, and deadly.
In hindsight!