Friday, January 30, 2015

Free advice to West Buechel: Ignore sunk costs

"The most important decision-making rule you learn in business school is still largely misunderstood.
"When making a choice between two options, only consider what's going to happen in the future, not which investments you've made in the past. The past investments are over, lost, gone forever. They are irrelevant to the future." Seth Godin, Ignore Sunk Costs

Right now I'm thinking about police dogs and pickup trucks, but it applies to everything. A "sunk cost" is any type of expenditure of time, effort or money that can never be recovered. A sunk cost is any elaborate chalk drawing on the sidewalk right before a rain storm that will wash it all away.

It doesn't matter now how much money the City spent to buy a police dog or the T.E.M. Building on Hikes Avenue. The question now is what's the cost of keeping and maintaining a police dog or the T.E.M. Building, and what they each are good for? How can the City put these assets to good use in the future?

What are the benefits compared to the future costs?

The same thing applies to that State surplus Ford F-150 that the City got at a bargain price a few years ago. That truck just sits there, never being used while slowly turning to worthless rust. Why? Paying a bargain price for something you do not use is not a "good deal."

I was told. "You gotta have a spare truck!"

Not really. Most people don't have backup pickups.

I'm not suggesting that the police dog, the T.E.M. Building or the F-150 are not worth having.

I'm merely suggesting that their worth to the City in the future has not been clearly established to everyone's satisfaction.

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