How can you avoid sunk costs in your business decisions?

1 What are the signs of sunk cost fallacy?

The sunk cost fallacy is a cognitive bias that makes you feel committed to a course of action because of the resources you have already invested in it, regardless of the current or expected outcome. This can manifest itself in various ways, such as continuing a project that is behind schedule, over budget, or underperforming, buying more inventory, equipment, or services that are not needed, rejecting a better offer or solution, or holding on to an asset, stock, or customer that is losing value. These all indicate that you are letting sunk costs influence your judgment instead of assessing the present and future benefits and costs of your options.

2 How can you avoid sunk cost fallacy?

To avoid the sunk cost fallacy, it is important to use critical thinking skills and strategies that help you overcome the emotional attachment to your past investments and focus on a rational analysis of your current and future situation. These skills and strategies include recognizing and challenging your assumptions, seeking feedback and alternative perspectives, setting clear goals and criteria, and reviewing and revising your decision. Ask yourself why you are continuing or pursuing a certain course of action, consult with people who can provide different insights, opinions, or information, define measurable criteria that reflect your current needs, values, and priorities, and monitor the results of your decision. Be honest about the pros and cons of your options, be open to changing your mind or direction if you find a better option or solution, use criteria to compare and rank your options, and be flexible in learning from mistakes and successes. Do not let sunk costs prevent you from improving your situation or taking advantage of new opportunities.

3 What are the benefits of avoiding sunk cost fallacy?

Avoiding the sunk cost fallacy can help you improve your business performance and profitability. This can be achieved by making better and faster decisions based on the most relevant and current information, instead of irrelevant and outdated sunk costs. Additionally, it can save money, time, and resources by avoiding or stopping unprofitable or inefficient projects. Moreover, it can increase creativity and innovation by exploring different options, solutions, or opportunities while learning from failures and successes. Lastly, it can enhance your reputation and credibility by demonstrating critical thinking skills, willingness to change and adapt, as well as the ability to deliver results and value. Ultimately, sunk costs are inevitable in any business but with the right strategies they do not have to influence future decisions in irrational ways.

4 Here’s what else to consider

This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?