The fallacy of "sunk cost"

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.

About Wes Trochlil

For a quarter century, Wes has worked in and with dozens of associations and membership organizations throughout the US, ranging in size from zero staff (all-volunteer) to over 700. In that time Wes has provided a range of consulting services, from general consulting on data management issues to full-scale, association-wide selection and implementation of association management systems.

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