Standing atop Mount Everest is an extraordinarily rare feat. Since the first reported ascent in 1953, only 5,000 people have reached the mountain’s 29,029-foot peak. Over the same span of time, nearly 300 have died attempting to do so. And while making it to the top of Everest is tough, having the fortitude to turn back when the summit is within reach can be even more difficult.
The costs of climbing Everest are significant. In addition to spending roughly $100,000 for a single attempt, the time climbers put into planning and training for the venture is typically measured in years. Given these investments of time, energy, and money, many climbers not surprisingly push on in the face of extreme weather, oxygen depletion, and increasingly bleak odds. Unfortunately, the drive to make the investment “pay off” costs some their lives.
In a season 1 episode of the podcast Choiceology with Dan Heath, Michael Roberto of the Harvard Business School refers to this phenomenon as a sunk cost trap. In a sunk cost trap, Roberto explains that the human mind obscures rational thought because of emotional attachments already ‘sunk’ into achieving a goal. We all experience sunk cost traps in our daily lives: holding on too long to a bad investment, staying in a bad relationship, or refusing to walk out of a bad movie on your first night out in months.
IT projects are one of the more common sunk cost traps in business. And while human lives are not usually at stake with these projects, team efficiency, financial resources, and personal reputations most certainly are. When circumstances call for doing so, those in positions to make the right call must fight against the sunk cost trap and make tough decisions based on the best interests of the organization. As Roberto writes in the HBS Review article High-Stakes Decision Making: The Lessons of Mount Everest, ignoring emotional attachment and putting aside reputational considerations when making these types of decisions is an essential characteristic of a successful leader.
The RMIS sunk cost trap
Consolidation in the RMIS industry presents a challenge for the clients of acquired vendors. Until risk managers know the full details about what acquisition means for legacy system users and the levels of support they’ll receive, they must be wary of the RMIS sunk cost trap.
Rather than pushing on and hoping for the best only to have terms dictated by a vendor, risk managers can develop an alternative plan that puts them in control. Drawing from the Choiceology podcast, the following suggestions can help avoid the RMIS sunk cost trap:
#1 – Have a conversation with stakeholders about potential conditions that might lead you to make a RMIS change.
While not every worst-case scenario is likely to come to pass, asking a number of questions and deciding on those that would constitute the “turn back” point can help to avoid surprises and rushed decisions.
For example, if you’re required to convert from your current system to one from the acquiring vendor, will your project be given the unique attention it warrants? Will the conversion give you an opportunity to look for optimizations, new workflows, and enhancements to best practices? Or will your data be shoehorned into the new system using a template-based model that allows issues to be addressed only after the conversion is complete? Will the influx of hundreds of new clients provide a servicing challenge for the new ownership?
#2 – Consider the opportunity costs: What solutions are we forgoing by continuing on this path?
As the risks organizations face continue to grow in complexity, RMIS technology designed to help those responsible for managing risk is constantly evolving. Part of a smart approach to risk management should be a periodic evaluation of the tools used to prevent losses, control claim costs, inform decisions, and improve renewals—one that includes an honest assessment of whether your RMIS is keeping up with changes in risk management programs and requirements.
For users of a legacy RMIS from an acquired vendor, this is especially true. Existing system shortcomings will only grow over time, even if enhancements or new features were put on a product roadmap in the past. Following an acquisition, effort and energy will almost certainly be directed to new product offerings, not into shoring up outdated legacy solutions out of a sense of loyalty to a relationship that no longer exists.
#3 – Step outside and look in for the answers.
The Choiceology podcast tells the story about a question CEO Andy Grove asked his COO when wrestling with a difficult decision: “If they fired us, what would the new guys do?” The answer, which had eluded Grove for some time, became immediately apparent. By hypothetically removing himself from the scenario, the way forward was clear.
Unfortunately, answers to questions about the future viability of your organization’s RMIS technology and support may not strike like a bolt of lightning. One solution that can prove helpful is using a devil’s advocate process that involves a consultant, broker, or colleague who will listen, learn, ask difficult questions, and push for answers.
“The devil’s advocate helps bring to the surface issues that might otherwise be ignored,” writes Forbes contributor Chunka Mui in 3 Key Design Factors For An Effective Devil’s Advocate. “It ensures that issues, once raised, are addressed and not just glossed over as a project gains momentum.”
You can even find a devil’s advocate in representatives of other RMIS vendors. Coming from a RMIS vendor, the suggestion is likely to be viewed with suspicion or perhaps a chuckle, and rightfully so. By taking this path, your devil’s advocate is guaranteed to come with an attempt to sell you a new RMIS. At the same time, the information gained—the costs and capabilities of other RMIS platforms—can be a currency that provides an incredible amount of leverage in future negotiations with your current vendor.
“Cutting your losses” is never as easy as it sounds
For those who take on the challenge of climbing Everest, having contingency plans in place is essential. However, setting out from base camp with an understanding that turning back may be called for is by no means a guarantee that a climber will make the decision to do so.
“The ability to ‘cut your losses’ remains a difficult challenge as well as a hallmark of courageous leadership,” writes Roberto in High-Stakes Decision Making: The Lessons of Mount Everest. “Simple awareness of the sunk cost trap will not prevent flawed decisions.” Those in positions to make the right call must fight against the sunk cost trap and make tough decisions based on the best interests of their organization.
“Cutting your losses” is easier said than done. But for risk managers with questions about what a change in the ownership their RMIS provider means for the long-term viability of their system and support, developing an alternative plan can help avoid rushed decisions and the RMIS sunk cost trap.
Feeling uneasy about the recent changes in the RMIS market? Or maybe you’re considering sitting tight with your current RMIS because the thought of going through another implementation makes you nervous? This eBook will help you get the answers you need.