How the Sunk Cost Fallacy Applies to Project Management Investments

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Overview

There is no denying that decision making is not always easy; however, it becomes a lot harder when time or money has already been invested. The focus that is placed on prior investments during the decision-making process leads to an irrational thought process that taints the way a decision is made – this is known as the Sunk Cost Fallacy.

“From a logical perspective, investing money into an already failing endeavor is a mistake, but from a manager’s perspective, it may not seem so obvious.”

Abstract

This white paper explores the Sunk Cost Fallacy and how it not only applies to projects, but also to project management investments. Do we ignore a better situation simply because we fear wasting the time or money we have already spent? Do we sink more cost into a failing project because otherwise, it would mean admitting failure? Some companies have made significant investments into their project controls processes and tools only to realize that they are at a crossroads. While it may be tempting to include sunk costs in the decision-making process, it is important to recognize the associated repercussions.