Sunk cost fallacy: Why you should put past investments behind you

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A major pitfall among project managers is the so-called "sunk cost fallacy. As a project manager, making decisions is an essential part of your daily routine. However, do you realize on what basis you make those decisions every time and what often makes you decide not to make an important decision?

An example of sunk cost fallacy

A friend of mine recommended the TV series Homeland to me, an exciting series with topical terrorism themes. I was so fascinated by the enthusiasm with which he tried to convince me to watch this series that I actually wanted to give it a chance. However, I hadn’t realised that this series had already been going on for six seasons and each season had, roughly, twelve episodes of about 45 minutes.

After finishing the first season on Netflix, I felt like this series wasn’t ‘it’ for me, but I decided to continue because I’d already invested 12 x 45 minutes in it. I thought season 2 was so bad that I started to question why I was putting my valuable time into it. I realised that I had fully walked into the ‘sunk cost fallacy’ pitfall. I had now invested so much time in this series, that stopping now would mean it was all for nothing.

Making rational decisions on a project

A while ago, I was working for a client where a complex project was started with a large investment in hardware. Halfway through the project people recognised this project would never be able to realise the benefits of the business case. Still, it was decided not to stop the project because they had already made such a large investment. People didn’t realise that the costs would only increase while the goal would never be reached. Stopping now would mean losing face, but continuing now constituted a certainty of failure.

There where decisions are made, people strive to look consistent. Consistency is a sign of credibility. If we were to decide to stop in the middle of a project, we generate inconsistency by admitting that the earlier decision to start the project, and make the investment, was wrong.

Especially in projects, you often end up in a situation in which you need to be able to rationally decide to continue with a project based on the now and your estimation of the future. The investment you already made in the project can’t play any part in this decision. Even if the costs have already added up so high, you need to completely ignore the costs to make a rational decision.

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