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The fallacy of “sunk cost”
22 April 2016, by , in Executive, 2 comments

As we all know, a sunk cost is a cost that has already been incurred and cannot be recovered. A good example of a sunk cost is the purchase of a new AMS to replace an old system. Once you’ve purchased a new AMS, there’s no going back. The money is spent. The cost is sunk.

The sunk cost fallacy is the belief that once the money is spent, there is no going back; one must continue down the road you’re on, because after all, if you change directions now, all that money would be wasted.

And while it may be true that the money already spent cannot be recovered, it’s also quite possibly true that maintaining the status quo (in this case keeping the new AMS) will be MORE expensive long-term than moving to a different system.

I’ve seen this happen more than once in my career. But I’ve also been fortunate enough to have clients who wisely came to me after making a poor choice of systems (without my help!) and realizing they needed to make another change quickly. They could see that keeping the new system would be more expensive in the long-run than cutting their losses now and moving systems again.

Yes, that sounds painful (and expensive!). And it is. But sunk costs are just that; sunk. You won’t recover them with a system that isn’t a good fit.

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  • Excellent point, Wes……you should include the corollary:

    “Why throw good money after bad?”

    As far as change-out timing for a replacement system, many clients use the timing of a version upgrade as the “off ramp” for switching AMS platforms.

    • Wes Trochlil

      Great point, Dave. Thanks for sharing.

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“Wes was able to come in and offer tangible, relevant advice that made us more productive immediately. I value his understanding of databases but more so, his understanding of how nonprofits work. There was no lost time educating him about how membership organizations are “different.” Wes recommended changes in processes as well as tips and tricks that were easy to implement made an immediate positive impact.”

Mary Pat Paris, Executive Director
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“We came to Wes because we were very frustrated with our existing AMS and we wanted to improve our capabilities as soon as practicable. Wes very quickly helped us through a process of identifying our needs, identifying potential vendors, and selecting a new system that we’ll be able to move into very quickly. I especially appreciated Wes’s candor about our processes as well as the systems we were looking at. He was a great resource to have in a period of high anxiety for our organization. I would highly recommend Wes for any similar project.”

Jack Chiasson, CMP Executive Director
National Association of Life Brokerage Agencies

“Wes was able to come in and offer tangible, relevant advice that made us more productive immediately. I value his understanding of databases but more so, his understanding of how nonprofits work. There was no lost time educating him about how membership organizations are “different.” Wes recommended changes in processes as well as tips and tricks that were easy to implement made an immediate positive impact.”

Mary Pat Paris, Executive Director
International Registration Plan

Mary Pat Paris
International Registration Plan

“This is the second database implementation we’ve done since I have been at Western Arts Alliance (WAA). The first I did on my own. This time we engaged Wes Trochlil as our database planning consultant. Let me tell you, this process is a whole lot easier having Wes on your team! For a small association like WAA, it’s tempting for board and EDs to question the justification and expense of a database planning consultant. But it’s the small associations that need Effective Database Management the most. Wes strengthened our planning process, clarified our needs requirements, helped us steer around solutions that couldn’t meet our objectives, and saved us money in the long haul.”

Tim Wilson, Executive Director
Western Arts Alliance

Tim Wilson
Western Arts Alliance
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