Please read the attached article:The Sunk Cost Dilemma.

THE BUSINESS of Projects THE SUNK-COST ROAD DILEMMA ENDS Forget the past. The decision to kill a project should be based on the future. BY GARY R. HEERKENS, MBA, CAM, PMP. CONTRIBUTING EDITOR 7 You might think that "sunk-cost dilemma" is a term that I dreamt up to draw you in. In fact, it is an actual term and concept that has huge implications to the business of projects. The sunk-cost dilemma means choosing between continuing a project that already has considerable sunk costs, or discontinuing the project altogether. Sunk costs are monies that have already been spent or are irrevoca- bly committed to be spent. Gone. Unrecov- erable. Can't get those costs back. I purposely overemphasize the term be- cause in order to make appropriate decisions when sunk costs are involved, you must fully appreciate that nothing can be done to change the past. WRONGFUL TERMINATION Sunk costs lie at the heart of one of the biggest issues in today's project busi- overrun its original budget, for whatever reason. ness environment: the improper termination of projects, When deciding whether to terminate a project, In the current business environment, it has become somewhat fashionable, the cause really doesn't matter-that's the beauty if not noble, to terminate certain projects. This is particularly true of projects of sunk costs. that aren't performing well from a cost perspective. The phrase I often hear is, As a project sponsor making the decision, We don't want to throw good money after bad." remember what I said: Nothing can be done to No one wants his or her project to suffer cost overruns, but the notion of change the past. That simple fact can help you throwing good money after bad" is flawed thinking-sometimes to the point avoid some of the reasons projects may be termi- of being fiscally irresponsible. That's when sunk costs don't come into play. nated-like anger, dissatisfaction, perhaps even For example, imagine that you are the sponsor for a project that has embarrassment. Shutting down a project for those PM NETWORK JANUARY 2013 WWW.PMLORGNANYANG TECHNOLOGICAL UNIVERSITY School of Mechanical & Aerospace Engineering Lecturer / Senior Lectureship Appointments in reasons, rather than through the application Systems Engineering / Project Management of a proper financial analysis, is likely to be Nanyang Technological University (NTU) is a research-intensive university with globally wasteful in many cases. acknowledged strengths in science and engineering. Ranked 47th globally In the 2012 Qs World University Rankings of the world's best universities and placed 4th among young universities From a financial perspective-which should under 50 years old. NTU remains well within the upper echelona of the world's best science and be a sponsor's primary motive-the proper way technological universities. to treat sunk costs is easy: Ignore them. Focus The School of Mechanical and Aerospace Engineering (MAE) in NTU has an active and vibrant research environment with excellent R&D infrastructure and opportunities for research funding. all of your attention on the future. We are one of the largest mechanical and aerospace engineering schools in the world, and ranked 18th in the field of Mechanical Engineer QS World University Rankings. The school has an enrolment of over 2400 undergraduate students with over 130 faculty members and 140 full-time FORWARD THINKING research staff working in well-equipped state-of-the art laboratories, A growing research student population of over 400 is also actively engaged in strategic research and development work. An analysis of a project's profitability (net The School of MAE invites qualified candidates in the areas of Systems Engineering / Project present value), effective yield (internal rate of Management to join its dynamic team of faculty as Lecturer/Senior Lecturers. return) or any other measurement of financial Applicants Profile: . For Lecturer, at least a Masters qualification with relevant teaching experience. strength can be performed at any time during For Senior Lecturer, a post-graduate qualification, preferably a PhD degree, with a strong track record the project's life cycle. No matter when the of relevant teaching experience, as well as evidence of research, scholarship and leadership in curriculum development work. analysis is done, the general approach is the Successful candidates are expected to teach at both undergraduate and graduate levels, supervise same. It consists of weighing the project's future graduate students and undergraduate projects, and provide administrative service to the University. costs against its anticipated future benefits. We Provider Given that this is the proper treatment An active and vibrant teaching and research environment .Excellent R&D infrastructure and opportunities for research funding of sunk costs, an important rule of thumb . Well-equipped state-of-the-art laboratories . Attractive research start-up grants and PhD student scholarships emerges. For most projects that are more than A very competitive remuneration package and attractive benefits 50 or 70 percent along in their life cycle, an Information about the School can be obtained al http://www.ntu.edu.sg/mae unimaginably bad set of circumstances-or To Apply: a sudden and profound shift in the project Please logon to http://www.ntu.edu.sg/ohr/Career/SubmitApplications/Pages/ Faculty.aspx for full details on faculty application guidelines. environment-would be needed to make ter- Please send your detailed GV and completed Personal Particulars Form to the email address: maefacultysearch@intu.edu.sg, stating clearly the position and area applying for mination the most appropriate choice. When considering the benefits in the analysis Enquiries: . Please email your enquiries to: described above, don't use the value that was HEAD, Division of Systems & Engineering Management estimated at the beginning of the project. The School of Mechanical & Aerospace Engineering NANYANG TECHNOLOGICAL UNIVERSITY estimated financial benefits that a project 50 Nanyang Avenue, Singapore 639798 E-mall: maefacultysearch@intu.edu.sg can yield may be quite dynamic, and benefits www.ntu.edu.s should be re-estimated as often as project costs. Although sunk costs should be temporarily ignored for the purpose of calculating a proj- ect's financial strength, the reasons behind cost TAKE ADVANTAGE OF overruns should always be analyzed. This will likely yield lessons to help you avoid the same PM NETWORK'S problems in the future. PM PASS-ALONG VALUE! Gary R. Heerkens, MBA, CBM. PMP, president of Have you found an article in PM Network" you'd like to use as a presentation Management Solutions Group, Inc., is a consul- tool? Would you like to distribute a project management article as part of a tant, trainer, speaker and author with 25 years of project management experience. His latest newsletter? Contact the Project Management Institute (PMI) for information book is The Business-Savvy Project Manager. on reprinting articles (pmipub@pmi.org) and permission to distribute them (permissions@pmi.org)