Comments on: Strategies and their problems in practice – the sunk cost dilemma http://www.eddielogic.com/2006/12/10/strategies-and-their-problems-in-practice-%e2%80%93-the-sunk-cost-dilemma/ - The Blog on Strategy and Management Wed, 04 Jan 2012 02:10:26 +0000 hourly 1 http://wordpress.org/?v=3.2.1 By: Sticky factors | Eddielogic http://www.eddielogic.com/2006/12/10/strategies-and-their-problems-in-practice-%e2%80%93-the-sunk-cost-dilemma/comment-page-1/#comment-8592 Sticky factors | Eddielogic Tue, 09 Sep 2008 20:55:44 +0000 http://www.eddielogic.com/?p=45#comment-8592 [...] Competitive advantages exist when an organization has a specific resource structure in comparison to other firms. Such a differentiation in terms of resource structure can be achieved and protected by investment activities (e.g. by R&D activities; establishing a new plant with a very efficient production line that creates a cost advantage). Due to incomplete information and a future perspective investment activities are always linked with uncertainty. No matter how good your analysis and forecasting have been, you always deal with the future and hence there is no guarantee that you receive your expected returns. But this uncertainty is not the only critical issue. Another attribute for an investment activity is its irreversibility. This irreversibility occurs due to the impossibility to reverse an investment without consequences. Typical consequences are sunk costs (see this old post concerning sunk cost dilemma). Could one reverse investment activities without cost, every investment activity could be made without any kind of risks. [...] [...] Competitive advantages exist when an organization has a specific resource structure in comparison to other firms. Such a differentiation in terms of resource structure can be achieved and protected by investment activities (e.g. by R&D activities; establishing a new plant with a very efficient production line that creates a cost advantage). Due to incomplete information and a future perspective investment activities are always linked with uncertainty. No matter how good your analysis and forecasting have been, you always deal with the future and hence there is no guarantee that you receive your expected returns. But this uncertainty is not the only critical issue. Another attribute for an investment activity is its irreversibility. This irreversibility occurs due to the impossibility to reverse an investment without consequences. Typical consequences are sunk costs (see this old post concerning sunk cost dilemma). Could one reverse investment activities without cost, every investment activity could be made without any kind of risks. [...]

]]> By: Extrem0phile http://www.eddielogic.com/2006/12/10/strategies-and-their-problems-in-practice-%e2%80%93-the-sunk-cost-dilemma/comment-page-1/#comment-64 Extrem0phile Tue, 02 Jan 2007 15:22:08 +0000 http://www.eddielogic.com/?p=45#comment-64 Oliver I did some research and had disussions with others on the Sunk cost dilemma. I think it is sometimes confused with the Sunk cost fallacy. The SC fallacy describes a situation where people make bad decisions because of a misconception of the meaning of sunk costs. They do "not want to loose their investment", whatever that may mean. The SC dilemma describes a situation with a sequence of good decisions. nevertheless the result is a loss. I believe, a strategy avoiding the SC dilemma should focus on risk awareness, avoiding beautification and political cost estimates, and having good communications on the progress of an investment. Kind regards Frances Oliver

I did some research and had disussions with others on the Sunk cost dilemma. I think it is sometimes confused with the Sunk cost fallacy.

The SC fallacy describes a situation where people make bad decisions because of a misconception of the meaning of sunk costs. They do “not want to loose their investment”, whatever that may mean.

The SC dilemma describes a situation with a sequence of good decisions. nevertheless the result is a loss.

I believe, a strategy avoiding the SC dilemma should focus on risk awareness, avoiding beautification and political cost estimates, and having good communications on the progress of an investment.

Kind regards

Frances

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