It happens every so often: Climbers push for the summit of Mt. Everest and encounter inauspicious weather, run out of oxygen or reach the point of exhaustion, and yet they still move onward and upward. Those of us at sea level might denounce their decision as stupid. Loved ones will ask themselves, “Why didn’t they just turn back?”
The question has an answer, and it doesn’t only apply to diehard alpinists who have invested years of preparation and tens of thousands of dollars to scale the highest peak on the planet. It’s a phenomenon called the “sunk cost trap,” and every day, in workplaces the world over, it causes otherwise sensible people to carry on with doomed projects rather than cut their losses and start anew.
“It’s hardwired into our brains. When we’ve invested a lot of time, money and resources into an effort, we don’t want it to go to waste so we throw good money after bad and escalate our investment in a lost cause,” says Michael Roberto, management professor, Bryant University in Smithfield, R.I.
The reasons are organizational as well as psychological. “We tend to worry in an organization that people will think poorly of us if we cut our losses and admit defeat,” Roberto says.
Indeed, corporate America “rewards those who persist,” he adds.
So how can we recognize when it’s time to abandon an endeavor and persuade others it’s the right move?
Knowing individuals and organizations have a tendency to “stay the course” even as it’s headed toward a cliff, it helps at the onset of a project to “create some constructive tension within the team” by appointing a Devil’s advocate, Roberto says.
A peer review panel or an objective third party can also be called upon to evaluate the project’s progress and prospects.
When a project is going poorly, “Step back and erase from the slate what you have already invested in the situation,” says Tim Harford, author of “Adapt: Why Success Always Starts with Failure” (Farrar, Straus and Giroux, 2011). “Look forward. Do you really want to keep going?”
A mountain climber who only looks at the deadly storm brewing ahead and not the depleted bank account back home might wisely turn back instead of pressing on.
In business, “When you start hearing people say things like, ‘We can’t waste the effort we’ve already put in,’ that’s a red flag: You’re looking back instead of forward,” Roberto says.
Just making a decision is an investment. Be it an acquisition, a new hire, a stock option or even a blackjack table, “When we made a decision, we feel good about it, but when we see the results aren’t so good, we experience cognitive dissonance. And so we rationalize or explain away the negatives to reinforce the belief that we are a good decision maker.”
Listen up for signs of “confirmation bias,” or efforts to seek out information that supports your team’s direction while ignoring that which calls it into question, Roberto advises.
Be leery if people start “changing yardsticks,” or the metrics for evaluating success along the way. “That means you’re trying to make it easier to clear hurdles and keep going,” he says.
Calling it quits can be a tough sell. “Stay the course or cut and run. When you put it like that, quitting doesn’t sound that attractive,” Roberto admits.
Explain the downsides, risks and costs of stubbornly staying the course.
On Everest, the options are keep climbing or turn back, but in the office, there may be a range of options, such as salvaging part of the project.
“Ask yourself and others, ‘What are the opportunity costs of staying the course?’” Roberto suggests. “In other words, what are we not able to do because we keep sinking time and money trying to rescue a failing project? If we stop, what can we do with the money and time and people we free up?”
Failed initiatives impart valuable lessons. When a project crashes and burns or merely fizzles out, “Write down what you did, what you learned, what went right and wrong, and what you could have done better with hindsight,” Harford says. “Not only are you likely to salvage useful lessons, but you will also have something to say for yourself if challenged.”
Copyright © CTW Features