Drowning In Sunk Costs

Should the Americans stay in Afghanistan? Twenty years, a trillion dollars, thousands of deaths, and tens of thousands of injuries. The job is not done. We should stay until it is.

Independent of the consequences for the Afghanis, the argument seems to make some sense. Nothing for something seems a bad trade. In truth it does not. The argument in favour of staying is based on “sunk costs.”

Sunk costs

A sunk cost is a resource expenditure made in the past. It was intended to accomplish some goal and it has not. It is not recoverable and it does not accomplish your goal. Sunk costs, particularly those with ongoing maintenance expenditures are insidious. You should avoid that way of thinking. They mislead you into thinking you are actually doing something useful.

Sound management assesses relevant costs, being those that affect the future. Sunk costs are the past.

How to address the possibility of sunk costs

There are two questions you must answer:

  1. If I was not doing the act, would I start? If no, then I should stop. Independent of what has been expended so far. Things change. We all make mistakes. Wise people stop doing dumb things sooner.
  2. If the answer to 1) is “yes” then I must ask, “Would I do it this way?”

The two question approach involves two aspects of planning.

The strategic question

Should I do it is a strategic question. It involves intents and principals. Many strategic questions are difficult to answer because they involve ideas of ethics, duty, and other higher values. Generally these higher values hold sway, and the idea of limits, and alternative problems to solve, are ignored. We see the discussion in every aspect of politics.

Some strategic problems mask the idea that there are some worthy things we should not do. Often cannot do.

Thoughtful answers to these should come first. Improperly decided strategy presents more problems than it potentially solves.

The tactical question

Assuming we should address a problem, how should we do it?

The answer to that is non-trivial. Complex problems do not lend themselves to simple solutions. The majority of complex problems are, when assessed, not a single problem. They are a collections of interconnected problems under a single banner. A solution aimed at the banner problem does not address sub-problems. Quite often, makes them worse. For example, placing foreign troops in a country may provide security, but the passionately patriotic of the people will view it as an unwelcome intrusion into their culture.

Sub-problem conflicts have the potential to destroy every mission.

The Afghan War summary.

The image comes from a story in the New York Times. It was part of a 2010 briefing for then commander General Stanley McChrystal. It provides an overview of the parts of the problem. After studying it and further noticing that each element within it likely has a similar slide of its own complexity, you lose faith in the one answer solution.

General McChrystal commented “When we understand that slide, we’ll have won the war” Eleven years later, the Americans have decided they do not and maybe cannot understand the slide. More probably, they have decided there is no way to implement action to change the situation to their satisfaction.

Questions for you

How many things in your life are holding you back because you will not recognize sunk costs?

Is the problem misdirected strategy or weak tactics?

Is the problem not just one, but a bag of problems?

I help people have more retirement income and larger, more liquid estates.

Call in Canada 705-927-4770, or email don@moneyfyi.com

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