This blog was originally posted at http://www.valuetransform.com/risk-and-project-sunk-cost.
I have been having a running discussion with one of my colleagues regarding project and cost, specifically the cost of a project that is under consideration for termination. A project is going through a gate review. During this review we find that the objectives are not met by this phase and further action has little likelihood of subsequent success.
That seems like the end of the discussion, doesn’t it? Not necessarily. What happens when we decide to try to meet this same objective of the organization with another project? Smart organizations base their project selection criteria on items that have connections to the business case. At least that is true of “for profit” organizations and we are sure the same applies to non-profits (if not more so). What happens to our business case when we make a number of attempts to accomplish the objective?
Surely we have learned something in the previously described failed project. This expenditure has shown us what does not work. What do we include in the business case if we start another project up, with the same objective as its scope? Is this loss truly sunk cost? Or are we rationalizing away the expenditure to make the new business case seem palpable?
Remember, it was the business case that largely set the Six Sigma quality approach apart from the older, more all-embracing total quality management (TQM). If we override the business case, what are we really doing? Somehow, justification by faith alone does not seem to be a prudent business approach.