The opportunity cost of a decision is the value of the next-best alternative you didn’t take. Choose option A and the opportunity cost is what option B would have produced. Every action — and every inaction — has an opportunity cost, because resources committed to one thing can’t simultaneously be committed to another.
When the engineer-economist evaluates whether a project clears the MARR, the MARR itself encodes an opportunity cost: roughly, “we could put this money in our next-best alternative use and earn at least MARR there, so any new project has to clear that hurdle to be worth doing instead.” Money sitting in a corporate-bond fund earning 4% has an opportunity cost of 4% — that’s the return you’d give up by spending it on a project.
Opportunity cost is the right way to value resources you already own but could otherwise deploy. In a Replacement decision, the defender’s “first cost” isn’t its purchase price years ago (that’s a sunk cost) — it’s the current market value you’d give up by keeping the defender instead of selling it now. Selling and keeping are the two alternatives; the opportunity cost of keeping is the foregone sale price.
The trap to avoid: treating “I already own it, so it’s free” as a true zero cost. If you could sell the asset, lease it, or redeploy it elsewhere, its opportunity cost is the best of those foregone uses. Engineers commonly mis-evaluate corporate decisions this way — using existing capital “for free” when it actually has an alternative use with measurable return.
See Sunk cost, Incremental cost, and Minimum acceptable rate of return for related decision-making concepts.