{"id":8701,"date":"2022-10-20T15:54:00","date_gmt":"2022-10-20T13:54:00","guid":{"rendered":"https:\/\/escp.eu\/thechoice\/?p=8701"},"modified":"2023-02-17T16:49:35","modified_gmt":"2023-02-17T14:49:35","slug":"the-maximum-acceptable-loss-a-way-of-making-sure-things-dont-degenerate","status":"publish","type":"post","link":"https:\/\/escp.eu\/thechoice\/tl-dr\/the-maximum-acceptable-loss-a-way-of-making-sure-things-dont-degenerate\/","title":{"rendered":"A way for decision-makers to ensure things don\u2019t escalate: The maximum \u2018acceptable loss\u2019"},"content":{"rendered":"\n

You have probably already witnessed this particularly tricky situation: your company has launched a costly project amid a flurry of sweeping announcements, it has officially made it part of the strategy and invested considerable resources and energy but unfortunately, after a while, it becomes clear that the project is a failure. The expected results are not achieved and the operation\u2019s financial equation is turning dangerously negative. The rational thing to do would be to abandon the project<\/strong>, salvage what can still be used elsewhere, and change plans accordingly.<\/p>\n\n\n\n

However, all too often decision-makers are reluctant to change course:<\/mark> the project must be given time to prove its worth, it would be premature to kill it off before it has had a chance to really take off, and above all, if we stop now, everything we have invested will have been wasted, whereas pressing on is the only hope we have of proving that we were right. To try to turn things around, some companies will invest even more! The result is that the company continues the project not because it has succeeded, but because it has failed\u2026<\/p>\n\n\n\n

\u201cFew things are more damaging to a decision-maker\u2019s reputation than publicly reneging on a decision.\u201d<\/p><\/blockquote>\n\n\n\n

Conceptualised by University of California, Berkeley Professor Barry Staw, this dangerous phenomenon called <\/strong>escalation of commitment<\/em><\/strong><\/a> can wreak havoc in many organisations.<\/strong><\/p>\n\n\n\n

Few things are more damaging to a decision-maker\u2019s reputation than publicly reneging on a decision. Furthermore, keeping people onside when you change your mind is often riskier than standing your ground.<\/strong> Psychologically, it is more rewarding to keep running towards a wall, telling yourself that you will eventually break through it, than to be seen as an inconsistent and potentially untrustworthy weathervane.<\/p>\n\n\n\n

Some of the most famous examples of escalation of commitment include the Shoreham nuclear power plant in New York state, which operated for less than four years after 11 years of construction, or movie Cleopatra – which ended up costing 22 times its original $2 million budget.
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