Are you wasting your precious resources on wrong people?

Money being wasted. Are you wasting your precious resources on wrong people?One of my clients, Mr. Alok Gupta who owns a car parts manufacturing company, was very frustrated last week when I met him. His frustration stemmed from one of his employees, Mr. Shinde.

Mr. Shinde was one of Mr. Gupta’s first set of employees and was associated with his business for more than a decade. He was never a great performer but was kept (tolerated) on the job just because of his long association. Over the years, Mr. Gupta had invested considerable time, money and effort to improve Mr. Shinde. When Mr. Shinde messed up a big order last year due to a repeat mistake, Mr Gupta finally fired him.

A couple of months back, Mr Shinde came back pleading that he would improve his ways and that he was a changed person. In spite of knowing Mr. Shinde’s nature for more than a decade, Mr. Gupta believed that he would improve and against opinions of the rest of the managers decided to take him back.

Since he was re-hired, Mr Shinde went back to his old ways and Mr Gupta had started spending a lot of time managing problems caused by Mr. Shinde.

During our meeting, I had to ask unpleasant questions to Mr. Gupta. “Since you had taken the decision to remove Shinde in first instance, why did you bring him back?” “Even though you know he is not a right kind of employee, why are wasting your resources on him? “ Mr. Gupta had no answers to my questions.

Mr. Gupta was a victim of sunk cost bias.

In financial terms, a sunk cost is a cost that has already been incurred and cannot be recovered. It’s best to stop any investment into sunk costs once the investment avenue is determined be bad.

Mr. Gupta’s optimism about Mr. Shinde was based on the fact that since he and his company had invested so much time, money & effort to improve Mr Shinde over the years, somehow spending a little more time and effort might finally change Mr Shinde.

Mr. Gupta is not alone. All of us are victims of sunk cost bias. How many of you have done the following?

  • Consumed excess food that you ordered in a restaurant to ‘save the food’ from going waste (even though you were full).
  • Continued to watch a terrible movie because you spent money on the tickets.
  • Helped or tried to improve performance of a ‘proven & tested’ under-performing employee.

Note: sunk costs can be time, effort or health; not just money.

How do you overcome sunk cost bias?

The main remedy of making poor decisions based on sunk costs is to be aware of this logical fallacy.

Sunk cost bias is easier to overcome where money is involved but it gets a bit trickier when resources being invested are time, effort or health. And, it’s especially tricky when it comes to investing in people. Somehow, we are wired to believe that all the people will somehow change for the better.

How do you keep sunk cost in check while dealing with your people?

I have found following ways to be useful.

1. Be conscious that you should continually invest most of your time in your best people. 

2. Identify the people you should be investing in. This is the most important step. Ask questions to yourself such as “Who are the people who should be getting the bulk of your resources?” and “Who are the ones who represent the future?”

3. Plan. Before allocating your resources, decide the time frame, amount of resources required and possible outcomes that will determine further investments.

4. End unproductive or unhealthy relationships. Start saying no. You can transition to saying an explicit ‘No’ by initially setting a boundary to unproductive relationships (Example: “This time I am going to help you but not in future.”)

I see a lot of people waste time, money and other resources on wrong people because of sunk cost bias. This needs to change.

As they say, “Wasting time with the wrong person is just time wasted.”

I am looking forward to read about your experiences with sunk cost bias and your opinion about this article. Please comment below.

 

Note 1:
The article, Are you wasting your precious resources on wrong people?, is written based on my professional experience at Pinnacle and other companies.
Pinnacle specializes in working with the management of family-owned companies to craft & implement HR Strategies to accomplish their business vision & goals.

Note 2: 
Name of the person & business type mentioned in the starting part of the article are fictitious. Original names have been withheld for privacy.

References & Credits:
  • The hidden traps in decision making- JS Hammond, RL Keeney, H Raiffa - Harvard Business Review, 1998
  • Photo taken from Google under Creative Commons License. Source photo location: http://www.corruptcollege.com/

Comments

  • I agree. We continue to spend time on the people even though we know that it is difficult to change them. often we think about their past contribution coupled with humeniterian ground.

    Sanjay RautJanuary 2, 2014
  • A very thought provoking article. People will start thinking of sunk costs and whether they should further incur cost to continue with dead woods.

    C.V.SubramanianJanuary 2, 2014
  • Dear Deepakji

    Milky Morning

    I am always going through each and every article written by you
    All the articles are mind blowing.

    please keep it up

    Suresh m shahJanuary 6, 2014
  • Dear DP babu,

    Very nicely put up, I appreciate it.

    S K SinghalJanuary 7, 2014
  • Dear Deepakji,

    I completely agree with this article and have faced same situation in company as well life…
    time is too precious and would not like to waste.

    thanks for eye opener and Love all your articles.
    Thanks for keeping me in your mailing list.

    Alkesh ShahJanuary 9, 2014

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