Kubed Solutions The Sunk Cost Fallacy

Technology – The Sunk Cost Fallacy

You’ve investigated your options, you’ve reviewed all the proposals, and you’ve chosen a technology stack that fits your company’s needs today.

Fast forward five years and tens — or hundreds — of thousands of dollars. Technology, as it’s wont to do, has seen massive growth and the direction of your company has drastically changed over that time.

You soon come to the realization that this technology stack is no longer as fitting or efficient for your needs but, having already sunk so much capital into it, you feel you need to continue down the same path you chose five years ago.

This is the sunk cost fallacy that commonly relates to technology within a business.

What is it?

The catch to sunk cost is that it exposes biases towards remaining in a poor situation strictly because you’ve already invested in it.

A simple example of this is ordering a meal: you know you’re full and shouldn’t eat any more but continue doing so because you’ve spent $10 on it.

We’ve all been there and yet companies become virtually paralyzed with indecision because their technology is antiquated and fragile, yet they’re resistant to change because of the massive investment they’ve made over the years.

What’s the catch?

The Ponemon report highlights the needs for an organization, along with its IT support team, to perform regular and/or ongoing audits on its systems and third-party service providers.

For many, these biases result in poor decision-making and impact the future growth of the company, employee morale, or income potential.

Where logic dictates that you move in a new direction, you remain steadfast in your decision because your emotions – or wallet – are telling you to protect your investment at all costs.

Stop, it’s a trap!

So, why do we let ourselves get trapped in this manner?

There are a variety of reasons, most of which are based on an emotional connection with our past decision that you “made the right choice”. You know what? You probably did at the time, but technology is an ever-changing landscape and a business needs to keep an eye on the future to prevent stagnation.

There are decisions or commitments we may not feel like making today but know that, deep down, they’re the right choice for the wellbeing of the company.

Sometimes it’s best just to walk away…

Kenny Roger sums it up nice in his song “The Gambler” : You’ve got to know when to hold ’emKnow wen to fold em’Know when to walk away

Ignoring the technical baggage from a decision-making process will make room for increased efficiency and growth.

The most important thing that you, as a business owner, can do is face the fact that previous investments you’ve made in technology should not be part of the decision-making process. One should be open to realizing a loss, if necessary, and make decisions based on the benefits of change.

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