Sunk cost fallacy in change
The meeting that should have ended six months ago.
Why do organisations keep funding the wrong thing – and what it costs to finally stop.
There's a meeting that happens in most organisations going through change. It usually appears in month four or five. The project is behind. The original assumptions haven't held. Two of the senior stakeholders have quietly disengaged. Everyone in the room knows it.
And yet the meeting concludes with 'Let's push through.'
This is the sunk cost fallacy doing what it does best — making intelligent people defend a path they would never choose if they were standing at the start of it.
What the bias actually is
The sunk cost fallacy is the tendency to continue investing in something because of what's already been spent, rather than what's still recoverable. The money is gone. The hours are gone. The political capital is gone. None of it comes back if you stop — but none of it comes back if you continue, either.
The only question that matters is 'What's the best use of resources from this point forward?' And almost no one is asking it.
What makes the fallacy so durable in organisational settings is that it doesn't feel like a bias. It feels like commitment. Discipline. Seeing things through.
The language we use to dignify it:
'We've come too far to stop now.'
'We owe it to the team.'
'We need to honour the investment.'
These are the things change-resistant cultures say to themselves when they can't admit they're stuck.
Where it shows up in change programmes
A few patterns I see repeatedly:
The strategy was set in a different context. The world has shifted. The assumptions no longer hold. But the strategy keeps going because 'we just finished the roadshow'.
A vendor was selected, contracts signed, and integrations begun. Six months in, the tool is wrong for the use case. Renegotiating would cost reputation and budget. So the team builds workarounds and pretends.
A leader championed the change. They've staked their credibility on it. The data now says the approach isn't working. They double down, because backing off would mean admitting they were wrong, and the political cost of that feels heavier than the operational cost of continuing.
In each case, the original investment is doing the thinking. Not the present situation. Not the future opportunity. The past.
Why it's particularly costly in change
In normal operations, sunk cost decisions cause incremental waste. In change programmes, they cause something more corrosive — they teach the organisation that decisions, once made, cannot be revisited. People stop raising concerns because raising them is treated as disloyalty. The reality on the ground stops travelling upward. By the time the project is formally killed, everyone has known for months that it should have been.
The cost isn't just the wasted resource. It's the erosion of organisational honesty.
What to do instead
The discipline that interrupts sunk cost thinking is what behavioural economists call 'reference class forecasting' – but in plain language, it's the practice of asking one question at every major checkpoint: If I were arriving here today, with no history, would I start this?
If the answer is no, the next question is not, 'How do we save it?'
But 'What's the most graceful exit, and what do we actually need to keep from the work so far? '
Because there's almost always something — relationships, insight, capability built — that travels forward even if the programme itself ends.
The leaders who can ask that question well are rare, because asking it requires being able to separate one's identity from one's decisions. I made a call. The call hasn't worked. That doesn't make me wrong as a leader — it makes me someone responsive to evidence.
Most people can't hold that. So the project rolls on.
The harder truth
The sunk cost fallacy isn't really about the cost. It's about the story we'd have to tell ourselves — and our boards, and our teams — if we stopped. The story of 'we got it wrong' is one most organisations are catastrophically unequipped to tell.
So they keep paying for the alternative.
If you're inside a programme that you know in your gut or your data is no longer the right path, the question worth sitting with isn't, 'Can we make this work?' It's: What would it cost me, personally, to say out loud what everyone already knows?'
The answer to that question is usually where the real work starts.
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Diane Gatto
Stories, insights and practical resources exploring the human side of working life — the assumptions, unwritten rules and difficult conversations that shape what happens.
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