Tuesday, July 15, 2014

The sunk cost syndrome / fallacy

When we invest our time and money on projects, sometimes it gets very difficult for us to abandon them, even when we know that the project is a failure. The Concorde aircraft project is a classic example for this. The stakeholders knew about the non viability of the project very early and since the investments made (sunk) to the project was huge, nobody dared to pull the plugs of the project early, which would have helped in saving huge sums of money. While making decisions we should not be looking at the sunk cost as the criteria, instead we should be concentrating on the future costs and benefits.