A sunk cost decision* is the same as a sunk cost investment – if it’s wrong, it’s wrong, but ego and character and a human reluctance to revisit awkward situations can turn such decisions into expensive mistakes. Admitting to a sunk cost can lead to a loss of face and reputation, and no one wants that.
by Dirk Frame
Some managers, business leaders and politicians make a virtue of being resolute and sticking to their guns no matter what, and are often admired for it. Such leaders are good at presenting big ideas, enjoying the limelight, and staunchly defending a sunk decision regardless of the outcome.
Others are specialists for the dark times, receiverships and turnarounds. When they have done their job, such troubleshooters are encouraged to leave and make way for more optimistic types and those with “flair.” They have picked up the pieces from the sunk decisions made by others, but there’s not much glory to be had for this breed who surely drive sensible cars, wear sensible suits and go on sensible vacations.
The third breed of managers are open to persuasion. They are flexible in all circumstances, can be swayed by a good argument and listen to the evidence. They are credible and acceptable because they don’t often have personal sunk decisions to deal with. However, they may fail to assert their point of view and while they are liked, they generally get ignored when something important comes along.
Avoiding The Icebergs
It should be possible to combine the best aspects of all these styles and traits to avoid the immense costs and wasted resources which accompany sunk decisions. The trouble is icebergs lurk everywhere and it can be very foggy. Avoiding disaster requires communication and an up-to-date chart. Fortunately, avoiding a shipwreck is easier than ever in today’s digital world. But to achieve true success, managers need to improve communication and develop a keen sense of empathy.
The term “pragmatic” is generally taken to be reflective of difficult circumstances or paucity of opportunity. The principles of pragmatism are, however, universal and should be seen in a more generous light. It would be ill-advised to argue at any point in the business cycle that one should not make the most of scarce resources and use information wisely. Unfortunately, many organizations reserve this approach only for the hard times and are keen to flash the cash when the sun is shining. When times are tough, it comes as a big surprise that there is no money and the cupboard is bare. A decent plan B and rough plan C should be a fundamental part of any manager’s repertoire.
The collected wisdom of the world’s management manuals are of little value unless these fundamental behaviors drive the leaders and hence, the business. Pragmatic approaches should be encour aged and its best practitioners raised to key leadership roles. At times it may be uncomfortable, but combined with the traditional competences of vision and strat egic foresight, it should be much easier to avoid a sunk decision culture. Ignore these aspects and you could find that the chief of firefighting is once again promoted to plug the leaks.
*Just like throwing good money after bad, the term “sunk cost decision making” refers to the process of carrying bad decisions through to their logical conclusion, accumulating more problems, resentment and confusion along the way.