For decades, business school students have learned that sunk costs are irrelevant to decision making, however,...

 

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For decades, business school students have learned that sunk costs are irrelevant to decision making, however, managers still find these costs difficult to ignore. Researchers have shown that, far from ignoring sunk costs, many managers increase commitment to a project as sunk costs increase. Recent experimental research from a team at the University of Melboume in Australia sheds more light on the precise motivations of managers who choose not to ignore sunk costs. The researchers found that the managers' personal motivations interact with the context of the specific project and the related sunk costs. Their study found that individuals who are focused on promotion became increasingly fixated on completion as the end of the project nears. While other managers are able to ignore fixed costs more consistently throughout the project life cycle, those who are focused on promotion are more likely to continue to invest in a project that should be abandoned when the project is close to completion. How would you advise a manager who is fixated on completion of a project that should be abandoned? For decades, business school students have learned that sunk costs are irrelevant to decision making, however, managers still find these costs difficult to ignore. Researchers have shown that, far from ignoring sunk costs, many managers increase commitment to a project as sunk costs increase. Recent experimental research from a team at the University of Melboume in Australia sheds more light on the precise motivations of managers who choose not to ignore sunk costs. The researchers found that the managers' personal motivations interact with the context of the specific project and the related sunk costs. Their study found that individuals who are focused on promotion became increasingly fixated on completion as the end of the project nears. While other managers are able to ignore fixed costs more consistently throughout the project life cycle, those who are focused on promotion are more likely to continue to invest in a project that should be abandoned when the project is close to completion. How would you advise a manager who is fixated on completion of a project that should be abandoned?

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