Sunk-Cost Fallacy in Product Management

sunk costA sunk cost is a past cost that you can’t recover. The sunk cost fallacy is convincing yourself that you can’t give up because of all the time and money you’ve already spent.

We’re dealing with sunk costs every day in our life, every time we start something new and spend a bit of time on it we’re dealing with sunk costs. Usually time and effort invested are much more valuable to us than money. That’s why it’s probably very difficult to give up on something you spent significant amount of time dealing with.

An example, your boss is spent 1.5 years of everyone’s time developing a new platform which was supposed to be a rainmaker for the company, instead it become a soul crushing resource hog. But because so much time and effort are already invested we’re dealing with sunk costs which are very difficult to give up. Instead of cutting the loose ends and closing the project down, your boss still finding the reasons to give it another try, 6 more months. Sigh!

The danger of sunk costs is in being blind to what’s going on currently, difficulty to give up and move on, that’ why not only many projects but many companies fail. As soon as you recognize you’re trapped in sync cost fallacy it’s time to do something about it. And the best way is to discontinue/abandon the project and move on.