Tuesday, March 27, 2012

Trying To Avoid The Fallacy Of Sunk Costs

In making decisions for my weaving business, I try to avoid a common fallacy, summarized like this, "I've already spent X to get started. I will lose that money if I don't follow through."

The truth is that I've already lost that money. Once it's spent, it's spent. In every moment begins life anew. This is my opinion, at least, but there are some idioms in English that back me up: "throwing good money after bad", "in for a dime, in for a dollar".

This is also referred to as escalating commitment. I know we've all experienced it when we keep pouring money or energy into a project just so that we don't lose the money or time we've put in already.

I'm reminding myself of this concept because of a series of decisions that made me VERY busy over the last few days. If you look at my strange operation to save the thread that was overwound onto the latest batch of cloth, you might think that I was trying to capture sunk costs in time or materials. Here's what I was actually considering...

1. I have a remote apprentice sort of flitting about in the wings. If he follows through with getting trained, it would be helpful to have the spare loom prepared for him to learn on without affecting the main production machines. If he doesn't, I can use that loom to experiment with new weave structures for new products.
2. If I look at the time that it would take to set this project up afresh, it would very likely be more than the time I'm spending saving the thread from a previous project.
3. Fixing the tension problems on the main beam before beginning to weave will SAVE me time. If I just plow ahead, I will need to stop and adjust fiddly little tension-fixing devices every few minutes. These devices will also just waste the thread a few inches at a time as I weave.
4. On the main project, I actually don't have the spare thread to rewind even the bad sections. I'm really skating on the edge of how little yarn I can have in stock and still get a project done. My investment in black thread for the next project has wiped out my thread budget anyhow.
5. There's a time constraint that keeps me from ordering more yarn for this project. I've got a show in about two weeks and really want blue cloth for that show. That means moving the studio, tying on the new cloth, weaving the sample and producing a couple batches of garments all in one week so that there's time to sew the garments before I leave. Having this cloth in the booth will increase sales and pay for the extra work that it's taking to get it there. Notice that, even if I had the money, there's no time to get the new blue thread in time for this tight deadline.

With all of that said, here is how I would make the decision differently now that I've gone through the process...

Basically, I would not do what I did at all. By plowing through the winding of the beam and pushing off my decision-making until later, I bound myself into the strange work that I just did. Next time, I would not overwind subsequent sections. I would wind them to the diameter that will make for decent tension overall and unwind the few initial sections that were technically correct but ultimately too long.

I also completely underestimated the amount of time that it would take to sley and (UGH!) unsley, 600 threads in a 20-dent reed. This is the one place where I sort of succumbed to escalating commitment. After starting the operation, I would rather put in an extra four hours' work than just throw it all away.

But it's done now, and the packing up of the studio is well under way.


teresaruch@hotmail.com said...

even if you do not get the garments sewn take the fabric for orders. That might take some of the pressure off.

Blossom Merz said...

Thanks, Teresa! Yeah, I've done that before. It works fairly well, but sales are definitely higher and don't require me to cover the cost of shipping if I have the garments in the booth at the time that the customers want them.