Eighty percent of my understanding about economics comes from following baseball and the statistical revolution that changed the game over the last twenty years. One of the key principles about was the idea of sunk costs.
When applied to players it basically says, once the money is spent, it’s gone and trying to extract value from it is futile. If you pay a player fifteen million dollars over three years and they get hurt in the first year the cost of that player is a sunk cost. It can’t be recovered, you can’t derive value from and you might as well move on.
Unfortunately, the irrational human mind doesn’t work that way. By spending that money on a person, object or system we act differently towards it. We hold on to it, try and make it work without regards for whether there is any value to be exacted from it. Our minds have pegged the value at what was paid for it.
This principle applies to processes at work. We hold onto sunken processes even though their value has long since dissipated. Think of old platforms that you work on that no longer function or the office adage “that’s the way we’ve always done it”. Those sunken processes are held onto despite the fact that there is no value being derived from it anymore.
Here are a couple of sunken processes that I am sure you run into:
- A weekly meeting that we all have to attend but no one knows why.
- a progress report that is the same every week that everyone has access to but you have to send an email for.
- Companywide employee evaluations that have no bearing on career advancement or change in responsibilities.
- using publishing or work platforms that no longer function, or are being supported.
- keeping departments whose sole purpose is to perpetuate their own existence.
- keeping partnerships that no longer function.
What other sunk processes can you think of?