What it is
The sunk cost fallacy occurs when prior investment - money already spent, time already committed, effort already expended - is treated as a reason to continue investing rather than as a cost that is gone regardless of the decision made now. Sunk costs are economically irrelevant to forward-looking decisions, but psychologically they create obligation. Teams continue down a path because of what they have put in, rather than because of what they expect to get out.
Where it shows up
In custom build decisions, the sunk cost fallacy is frequently decisive. A team that has spent 18 months and significant budget building a bespoke platform will resist moving to a SaaS alternative even when the forward analysis clearly favours it - because the prior investment would be "wasted". The 18 months are already spent whether the build continues or not. The only question is whether continuing generates better forward returns than switching, and sunk cost thinking blocks that analysis from being conducted cleanly.
What Rubicon Probity does
When Rubicon Probity detects language in a decision record at the Decide or Execute stage that references prior investment as justification for continuation - phrases like "given what we have already spent" or "we can't walk away now" - it raises a CAUTION flag and requires a clean forward-only analysis before the record is approved. The sunk cost must be excluded from the continuation business case.
Detection questions
- If you were making this decision from scratch today with no prior investment, and the same forward costs and benefits applied, would you still choose to continue?
- Has the business case for continuation been built on forward-looking cashflows only, excluding the prior investment?
- What are the explicit exit criteria that would cause you to stop - and have those criteria been documented before this decision is made?