Sunk-Cost Decision on a Custom Reporting Tool
You lead a six-person team building an internal reporting tool. The project is 70% complete, has spent $180,000 of a $200,000 budget, and is due in three weeks. Yesterday a vendor released a $15,000/year off-the-shelf product that covers 85% of the requirements, including the two hardest integrations. Your team estimates $40,000 and five weeks to finish the custom build. The executive sponsor says, 'We've come too far to quit.' Two engineers are already assigned to another priority in four weeks. The custom tool's remaining 15% includes a compliance report that the vendor cannot do; a workaround would cost $25,000 and take two weeks.
1. Identify the sunk costs and the relevant future costs in this decision.
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Sunk costs: The $180,000 already spent is sunk. It cannot be recovered by finishing or by stopping, so it should not drive the decision. The 70% completion is also a sunk psychological anchor-'we've come too far' is not a future cash flow.
Relevant future costs and benefits:
- Finish custom: ~$40,000 and five weeks, plus the opportunity cost of two engineers who are needed elsewhere in four weeks, plus maintenance.
- Buy vendor: $15,000/year, plus integration effort, plus the $25,000 and two weeks for the compliance workaround.
- Delay cost: The compliance report may have a deadline; missing it has a cost that must be estimated.
- Risk: Custom build may slip beyond five weeks; vendor may not cover the 15% cleanly.
Only future costs, future benefits, and risk belong in the comparison. The $180,000 is relevant for accountability conversations, not for the go/no-go math.
2. Build a simple decision rule comparing finish-custom vs buy-plus-workaround over a 24-month horizon. State assumptions.
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Assumptions: no major custom maintenance beyond engineering time; vendor fee paid annually; workaround is one-time; compliance deadline is met by both; ignore tax and discounting for simplicity.
- Finish custom: $40,000 remaining build + estimated $10,000 maintenance/opportunity cost over 24 months = ~$50,000.
- Buy plus workaround: $15,000/year × 2 = $30,000 + $25,000 workaround +
$10,000 integration = **$65,000**.
On pure 24-month cash, custom looks cheaper by about $15,000. But the rule should include time and risk: custom needs five weeks and two engineers who are committed elsewhere in four weeks; vendor plus workaround needs about two weeks and frees the engineers sooner. If the compliance deadline is within five weeks, custom may fail regardless of cost. Decision rule: choose custom only if the team can protect the two engineers for five weeks and the compliance deadline allows it; otherwise buy, even at a modest premium, because delay and key-person risk dominate the $15,000 difference.
3. How would you frame the recommendation to the sponsor to reduce defensiveness?
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Start by validating the investment, then separate the past from the future. For example: 'The $180,000 bought us a working design and proved the hard integrations are feasible. That is real value. The question now is how to protect the remaining deadline and the team's capacity.'
Then present two options side by side, not a verdict: finish custom with its time and staffing risk, versus buy plus workaround with its cost and integration risk. Use the sponsor's own priorities-compliance deadline, engineer availability, total cost-as the criteria. Acknowledge the emotional pull of 'we've come too far' without arguing with it: 'The completion percentage is why this feels close, but it does not change the five-week estimate.'
Finally, propose a reversible next step: a two-day vendor technical validation and a compliance-workaround scoping session. That gives the sponsor a decision point with evidence rather than a confrontation. If the sponsor still prefers custom, document the accepted risk and the staffing commitment in writing.