Do you wear clothes that you no longer like because you plan to get your money’s worth? Are you struggling with an outdated software program that can’t meet your technology needs?  Do you choose to finish a boring book just because you have already read the first five chapters? The costs associated with these decisions are unrecoverable and you may be a victim of the Sunk Cost Fallacy.

What is the Sunk Cost Fallacy?

The Sunk Cost Fallacy occurs when you make irrational decisions based on resources already spent rather than looking at the future outcomes based on those decisions. You fear “losing” what you have already invested and stay the course, even if it is no longer in your best interest to do so.  The fallacy justifies that the more you invest, the more you fear losing, therefore you continue to add resources into the past decision. Your initial decision may no longer be the best fit for your future needs, but you do not make a change based on your past investments.  It is a brutal cycle. It can be difficult to abandon an idea or purchase after investing in it, especially if there is an emotional component involved.  You may feel walking away is a waste of everything you have put into it thus far and a feeling of guilt ensues.  This leads to wasting resources on an unsatisfactory decision and missing opportunities that may provide an optimal outcome. Take a moment and think about your personal and professional experiences with the Sunk Cost Fallacy.  Were you able to change directions to alter the future result? Or did you continue in the downward spiral?

Once a resource has been spent and cannot be recovered, it is considered sunk.

Examples of Sunk Costs:

• The time you have invested in researching or working on a decision
• The effort put forth on tasks to accomplish the project
• Money spent on materials, equipment and training
• The emotional component – mental strain and worry
• The people investment – relationships that have been built along the way

 How did you get here in the first place?

• Cost – Did budget dictate your purchase initially? Did you buy cheaper because you had to? Alternatively, did you buy the most expensive thinking it was the best?
• Time investment – Are you hesitant to switch due to all the hours invested thus far in the current project?
• History – “This is what we have always used and will continue to use.”
• Familiarity – Avoidance of change
• New Processes – When purchased, did it “fit the bill” but now it doesn’t?
• Incorrect information – Were you misled as to the capabilities of the product?
• The decision was not yours – Did a family member or business department make the decision for you?
• Disruption – Staying with the current investment so there is no down time during a switch
• Aversion to loss – Sticking with a bad product to avoid wasting resources
• Failure – Switching would be an admittance of guilt for picking the wrong product
• Unrealistic goals – Is this really the best product, regardless of evidence to the contrary?
• Hope – It may still work out to be the best solution down the road

Do any of the above sound familiar?  Are you trying to find “work arounds” to keep your current product?  Are your standard operating procedures antiquated?

Steps to Break the Cycle:

The most crucial items to focus on include future benefits and being open to change. The following are ideas that can assist with this revision:

• Awareness. Just knowing the sunk cost fallacy cycle can help you avoid it by logically looking at all angles.
• Set some goals and have checkpoints. It is important to review and evaluate your investments and be willing to walk away or change direction when needed.  This will help assess your strategy and perhaps avoid putting additional time and money on the incorrect product.
• Collect feedback from your daily users periodically and evaluate whether it is working for the team to ensure the investment is meeting their needs.
• Control your emotions. Objectively view the decisions and realize that each investment is not worth pursuing. Your emotions may cloud your judgement on whether to continue or change directions.
• Resistance to change. Finding opportunities for growth can sometimes far outweigh the benefits of the “old tried and true.” It is a natural tendency to want to continue with what we have, instead of changing directions.

Conclusion

Don’t quit! Never give up! Don’t waste!  You’ve heard them all.  Sometimes trying something new is the hardest decision of all.  And it may be the most painful. Committing resources to an unsuccessful endeavor does not mean you need to continue.  It’s never too late to change course – no matter how much you have invested.  You should be cognizant of making decisions based on future benefits, rather than past investments.  In doing so, you will continue to make more effective use of your time and resources. If you are considering making a change with your Special Education and/or Medicaid software, Go Solutions can help.  Please contact us to get more information on how our software can make a difference in your future.