The sunk cost fallacy – don’t fall into this trap!

Recently organisations have been forced to make hard decisions. They have been forced to determine what parts of their business are essential with many activities paused or stopped. A lot of these are capital investment (including technology), business change and other improvement initiatives.

Business cases will have shown these activities have a compelling case for change, the benefits exceed the costs and they can be successfully delivered.

Money will have been spent on these projects. This money is gone and no decision can change how this has been spent. These are sunk costs.

Any decision about re-starting is about future costs and these should be considered against the future benefits.

We do not live in a perfect economic world and decisions involve people, emotions and different perspectives. Don’t fall into the sunk cost trap. It is better to cut your losses now than throw good money after bad on a project which no longer meets your needs.

Review business cases objectively and assess if there is still a case for change, is it still strategically important and the future benefits exceed the future costs. If all your projects re-start you are probably not challenging them hard enough.