The fear of ‘sunk cost’ is killing your business. Here’s how to deal with it

Where’s everyone gone?

At a recent offsite we sat there discussing program and project prioritisation. All of a sudden one of my clients interjected and introduced the idea of ‘sunk costs’ with an analogy.

He discussed the scenario whereby you buy a ticket to watch a film at the local cinema. You’re all excited and have high expectations for what should be a rewarding film. You arrive, buy your popcorn and settle in for the trailers. The only issue, is that within 30 minutes it’s clear the film is a ‘dud’ and not worth wasting another 2 hours of your life on. So what do you do?

Do you

a) sit tight and sit it out — maybe the film will improve. You have after all spend $12 on the ticket and a further $8 on food.

OR do you

b) tell yourself this is madness, grab your coat and fumble your way out of the movie and use the time saved for something else?

I laughed as we discussed the cultural nuances across an international team. Our US colleagues would walk, the Brits not so much. I myself thought about the awkwardness of walking out and the feeling that I’d not had my monies worth.

So what does the story have to do with program and project prioritisation?

Simple.

How much on-going effort in your company on reflection might be proceeding due to the fear of dealing with ‘sunk costs’? Are you aware of a program or project that having been started and using up resources is not delivering as intended? Has new information come to light that would make you think again if you had a time machine? Is the program or project something that should be stopped?

Sunk costs are killing your business. Failure to close a failing program or project is widespread at many companies. There’s an inherent fear of failure that means teams push on, despite knowing the decision is probably wrong.

So what can you do about it?

1. Encourage escalation — the word has negative connotations but you should encourage individuals and teams to escalate when they think a program or project is off track. Make it acceptable for people to be able to warn that poor delivery is being allowed to sail through due to fears around sunk costs.
2. Review programs and projects continually — sometimes this is hard, even for a qualified project manager. If you have a PMO function then they should be able to independently track and judge whether a piece of work is going to deliver as intended. Even without a PMO function, make sure you have individuals who can intervene and assess work. They can help identify when sunk costs are crippling a ‘kill decision’ that needs to be made.
3. Pivot quickly — have a defined way to transfer resources onto new work if something is killed off due to poor delivery and outcomes. The resources saved are not infinite, so get them working on something else quickly to retain value.

The next time you find yourself leaving a terrible film, look back around you as you head for the light under the doors. Check how many other people are still sitting there hating every minute. They’re the ones thinking about the consequences of leaving. The impact of telling people they didn’t see something through. The ones fearful of having wasted money. They’re a reflection of those companies that eventually lose their way, run out of money and become history.

Do not become them. Deal with the fear of sunk costs.

At Strategy Activist we work with clients both big and small to make sure they deliver products and services effectively. We’ve been known to help companies make difficult choices when it comes to what they do and don’t do. To learn more about how we can help visit us at www.strategyactivist.com or call us on +44 7786063053.