Over the weekend I spent time both at the Ithaca Chili Fest 2008 (Saturday, Yummy) and going to a number of Varna Volunteer Fire Company service calls (Sunday: Motor Vehicle Accident, EMS call, structure fire). Along the way the subject of "Sunk Costs" came up. From Wikipedia:
In economics and in business decision-making, sunk costs are costs that have been incurred and which cannot be recovered to any significant degree. Sunk costs are sometimes contrasted with variable costs, which are the costs that will change due to the proposed course of action. In microeconomic theory, only variable costs are relevant to a decision. Economics proposes that a rational actor does not let sunk costs influence one's decisions, because doing so would not be assessing a decision exclusively on its own merits. It is important to note that the decision-maker may make rational decisions according to their own incentives; these incentives may dictate different decisions than would be dictated by efficiency or profitability, and this is considered an incentive problem and distinct from a sunk cost problem.
For example, when one pre-orders a non-refundable movie ticket, the price of the ticket becomes a sunk cost. Even if the ticket-buyer decides that he would rather not go to the movie, there is no way to get back the money he originally paid.
The discussion turned to business and politics - with regard to figuring out when and how to measure sunk costs and how to remove those from the next decision. Most commonly I believe the thought is, "Well, We are at point Z and we've already spent X on this project. It isn't done yet, but with a little more time (Y) and or money (D) or resources (C) we can finish it."
However, that discounts and potentially removes the possibility that an entirely new option may have surfaced at that point (Z) that costs less that D or takes less time than Y or less resources that C. The X is the sunk cost, there is no way to get that value back.
Where and when should projects be evalulated? Should milestones and benchmarks be included in every plan? While it looks like it could be daunting to the ego of the decider, the best possible solution to the problem should be worked out that makes the best use of resources.
Wikipedia has more:
Sunk Cost: http://en.wikipedia.org/wiki/Sunk_cost
and related pages:
Sunk Cost Dilemma: http://en.wikipedia.org/wiki/Sunk_cost_dilemma
Irrational Escalation: http://en.wikipedia.org/wiki/Irrational_escalation
List of Cognitive Biases: http://en.wikipedia.org/wiki/List_of_cognitive_biases