For those of you who have never heard of the “Big Dig”, I learned about it in business school. I graduated before the project reached completion.
According to Wikipedia: “The Big Dig was the most expensive highway project in the U.S. and was plagued by escalating costs, scheduling overruns, leaks, design flaws, charges of poor execution and use of substandard materials, criminal arrests, and even four deaths. The project was scheduled to be completed in 1998 at an estimated cost of $2.8 billion (in 1982 dollars, US$6.0 billion adjusted for inflation as of 2006). The project was not completed, however, until December of 2007, at a cost of over $14.6 billion ($8.08 billion in 1982 dollars)as of 2006. The Boston Globe estimated that the project will ultimately cost $22 billion, including interest, and that it will not be paid off until 2038. As a result of the deaths, leaks, and other design flaws, the consortium that oversaw the project agreed to pay $407 million in restitution, and several smaller companies agreed to pay a combined sum of approximately $51 million.”
From my recollection in business school, the consensus was that at numerous times during this project it was evident that the costs involved did not outweigh the benefits. Since so many millions had been “sunk” into this project, those who were part of this project just kept on promoting it and wasting more money. Think about it, if your paycheck was coming from “big dig” funding then of course you would want the project to continue. One of the takeaways of this project is that people involved in this project should not have been the decision makers as to whether or not it should be continued. It was in THEIR best interest that the project was continued, not necessarily in the best interest of the city of Boston.
I mention this little story because I have seen so many people lose their careers to the “big dig” mentality. People invest so much time and effort in a particular career pursuit that they often fail to see that their money or time is not being well spent and in the end, they may lose everything that have invested into this project. Usually people sink money into degrees that are useless or people fail to walk away from a business pursuit when it is failing.
USELESS DEGREE SUNK COST
I was chatting with a woman who works for me and she was encouraging her boyfriend to go back to school and to get a second degree. She believed that having another degree will increase his chances of landing a job that he will find more rewarding than his current job. She thought an MBA was a good idea. I asked her what job she expected him to land with that degree. She didn’t know. This is was my point. If you do not know what you want to do, then how can you be sure that a specific degree will enable you to get that job?
In my opinion, if her boyfriend obtained an MBA without knowing what he wanted to do, it could easily evolve into a “big dig” situation. He could easily spend tens of thousands of dollars on a degree only to discover that he is either a) over qualified for positions or b) under qualified for positions and find that his degree has put him at a disadvantage for finding a job in general.
Think about it this way, say her boyfriend gets an MBA and discovers during his studies that he really likes marketing and wants to work in the field of marketing. Then, upon graduation he starts looking for a job in marketing. He will not have any experience in a marketing position since he has yet to work in the field of marketing, so it will be impossible for him to find a job, because all but entry level marketing jobs require experience. However, since he has an MBA, employers will not consider him for an entry level job…and with his student loans, he probably cannot afford to work at an entry level job.
Thus he is stuck. He is overqualified for the entry level jobs and under qualified for more senior positions. He now has a degree, more student loans, and fewer job options. So…the question is really what do you do when you want to find a more interesting job? School is not the first option. The first choice is to research, research, and more research on possible career paths. You can either take a personal inventory of yourself first to see what careers may be of greater interest to you, or you can start with learning about as many career paths as possible.
QUESTION YOURSELF THOROUGHLY
If you take a personal inventory of yourself you start to see what you like to do in comparison to what other people like to do. Simple questions include asking yourself whether you like to do the same thing every day or if you enjoy working with people. For me, one of the reasons I abandoned the career path of teaching was because I couldn’t stand the thought of doing the same thing every day. It depressed me. I needed more variety in my day. A teacher’s schedule is very rigid and the more I spent time in a class room situation obtaining my undergraduate degree, the more I realized, I just couldn’t stand the idea of teaching.
To research as many career paths as possible start asking the people you know what they do for a living. How did they find their careers? For me, I had worked in marketing for about 5 years when I started seriously contemplating making a switch to accounting. I did like marketing. However, I had seen such turmoil in my marketing department and had worked with enough advertising agencies to know firsthand that marketing was a very volatile field. It was hard to find a job in marketing.
The people who were successful finding jobs in marketing often had worked for several different advertising agencies and held smaller rolls in marketing companies. Basically every two years they looked for a new job so that they could show that they had tons of experience on their resume and could eventually land a better job in the future. I knew that I did not want to try to find a new job every two years. Thus, marketing would not be a long time career path.
I also wanted a career that would offer a bit more flexibility. Through research, I learned that tax accountants that only wanted to work part time often just worked during the tax season—January to April. Since I eventually wanted a family, I knew that accounting would offer me more flexibility and even more job security than marketing. Thus, I decided to make the switch.
FAILING TO ACCEPT A FAILING BUSINESS
In America, we definitely live in the land of opportunity. Yet, so many people equate opportunity with demand. You can build any business that you want. However, a successful business is a product of demand. People have to need or want your goods or services.
Mr. Super Frugalette has discovered the show Restaurant Impossible. The premise of this show is that chef Robert Irvine strolls into failing restaurants with 10K and his knowhow as a chef and business entrepreneur to help turn around these establishments. Time and time again, these restaurants are losing tens of thousands of dollars a month and draining family members’ life savings. The stories are so sad.
Chef Robert is able to salvage many of the establishments, but even watching the show, you know that some will not survive. The lost causes just never developed the clientele, location, or branding necessary to build a successful restaurant. Yet, the owners plow forward squandering more money and more time.
It is hard to walk away from a failing business. You cannot imagine having nothing to show for your time and financial commitment. You always believe that you just need one good client….and then it will begin to work out. Yet, all too often, this is not the case. The “client” either never emerges or does not produce enough revenue to sustain the business. Instead of accepting failure, more money and more time are spent trying to “grow” the business….
DON’T FORGET TO SELL
The biggest reason that people hold on to failing businesses for way to long is that they never planned an “exit” strategy. For an exit strategy, you must determine which predetermined events will cause you to end your venture. Factors could include money, time commitment, client base, or the departure of key talent. Setting up these predetermined boundaries, eliminates emotions such as “gut feelings” or your enthusiasm and passion will equate to your success. Moreover, sharing these boundaries with a trusted confidant will enable you to be accountable for your boundaries and in turn help you commit to walking away from your failing business.
Readers, have you ever been confronted with a “big dig” situation in your life—something you knew you had to walk away from but found it nearly impossible to abandon the cause?
Photo: St. Bernard Burying His Tennis Ball, Sam.
This is soooo true. I am not a very religious man but one day I had a stomach virus and in between visits to the American Standard Bowl (model number 2110987) I sat on the couch and watched TV. Joel Osteen came on and being that I had been praying to God for hours I thought why not watch. He was saying that it is ok to walk away from something that isn’t working after giving it your all and it doesn’t mean that you have failed. He mentioned a failing church his father had and how he had the courage to walk away from it. From there great things happened. Anyway, this article is really well written and very true. I will forward it to my people because sometimes we need to be told it is ok to walk away from something that isn’t working.
Jai
I think it takes a lot in life to learn how to walk away from things…as well as to say no. You know, I have never seen Joel Osteen. Maybe I should check him out.
It can be a pretty hard pill to swallow. Walking away from something you put so much time, money or emotion into is generally the last thing most of us want to do. It makes perfect business sense and might be a little easier in that setting, but when it comes to your personal investments it can be a lot harder.
I think the key word to what you are saying is “emotions”. Emotions can make us do crazy things, like buy a house that is too much money, stay at a job or in a relationship that is not good for us, etc.
So many people fail to sell their homes when necessary because of the emotional investment.
I feel that so many people have a hard time walking away from their homes…even when it would be a better idea to sell.
Things like the Big Dig always end up costing way more than the initial estimates. They should have factored the unknown costs in from the very beginning and that might have given a more realistic base on deciding whether or not to proceed. In the case of that project, though, no politician was going to stop the project midway through construction as that would have been political suicide, so there was really no turning back.
No politician will propose ending the project for fear of career suicide but if the project fails massively, then that can also cause career suicide. I did not follow what happened to the politicians or contractors for that matter. I wonder how this project affected the future bids of the contractors.
I’ve seen so many people sink time, money, and effort into a college degree only to find out that they don’t want to do the job their major qualifies them to do. I’ve known people that graduate from law school, then realize they don’t want to practice law and end up going to medical school. If that isn’t the “big dig” mentality, I don’t know what is.
I had a friend who figured out during her first semester at law school that she did not want to be a lawyer. She worked for 4 years to pay off her student loans and now she lives a nomadic life style
I loved reading and editing this post SP. I’ve never heard of the Big Dig concept, and I’m glad I have now. Sunk costs and holding on makes us throw good time and good money after bad.
I had a stock that I kept doubling down on to no avail. That was a painful big dig. I was way too stubborn! Just gotta stop when one is in a hole!!
Maybe you are just an optimist…thinking that things will get better. Perhaps none overly optimistic should be a final decision maker on a project….they will focus on the “what ifs” not the “what is”…
Great post SP! I’ve heard so many people going back to school to get “useless” degrees because they didn’t know what they wanted to do. Beyond that, it isn’t really the degree but the person who uses it – who will most likely be successful without a degree if they put their mind towards it.
There are some companies that require a degree if you work at a certain level. However, sometimes they do not specify the degree or major that is needed. Yet, prudently most people would concur that you do have fewer options with an art history degree than with a business or computer science degree.
Being able to master “sunk costs” is one of those life skills (and personal finance skills) that is probably hardest to master. To be able to ignore the money you’ve already put in when the situation currently tells you not to continue is hard.
This is why I love reading and sharing stuff like this. Personal finance is mostly a psychological pursuit, and taming our cognitive biases and “gut” feelings can be hard to do. Shows why what we do is so important. Great article.
Yeap, sunk cost is gone. You need to figure out how to make things work in the future. I will have a very difficult time walking away from my day job. It pays very well and we live a comfortable lifestyle. I don’t like working here anymore though and my performance is suffering. If I keep hanging out, I’ll wear out my welcome soon. It will be time to move on soon.
What happened in the past truly doesn’t matter, unless it can predict the future. Companies are valued on future cash flows, and the past only matters as it realtes to the future. It doesn’t matter how much was invested in the past in a certain decision or path, and it’s a mental hurdle that we have to get past sometimes.
Kenny Rogers had a song called the “The Gambler”. It goes something like this, “You got to know when to hold ’em, know when to fold ’em, Know when to walk away and know when to run. You never count your money when you’re sittin’ at …” It is true in business, personal and social lives and probably everywhere, if you think about it.
I agree. There are plenty of “big digs” in our personal lives and even professional relationships. Sometimes you have to cut ties to you doctor or dentist as well…
I couldn’t agree more with some of the comments on here. It is a lot like gambling, when things start going bad or not as planned, you get nervous and you don’t want to accept failure so you push harder because you let your emotions get the best of you instead of thinking logically.
I end up with the sunk cost fallacy a lot. I look at a project and say, “hey, I’ve gone this far!” and then realize that I’ve not actually successfully achieved my goals.
The exit strategy, to me, is the most important. Knowing how to get in and how to get out has saved a LOT of money in my career and my business.
Nice post SF! Having an outside advisor is key in avoiding a “Big Dig”. Impartial and objective advice from a professional will help you to recognize and hopefully correct operational problems before they get too big.
love the lingo. we all do it / have done it at some point. key lesson seems to be to recognize and cut losses asap and run….
Having an exit strategy is uber important. I know it is so easy to be excited about a new business idea and to thus throw all of the resources possible into growing this new idea. With all of the hype an excitement is easy to fall in love with the idea and forget the business; thus setting one up for a giant eventual failure. I know I have done this with a few websites before. Hopefully though, we will live and learn and eventually be able to overcome the trap of being held hostage to sunk costs.
It is very difficult to walk away from something that is dear to your heart. It takes courage and understanding that you are doing it in the name of something bigger and better. Great post! I’ve never heard about Big Dig concept. I am glad you introduced us to it. :-) Educational.
Gosh all these folks who haven’t heard of the big dig….Just another sign, in addition to my aching back, how old I’m getting!
This is also common among those who invest in stocks as Sam mentioned-we hate to admit our losses so ride them all the way down, or actually double down by buying more…
Having an exit strategy when you buy stocks is a must. Thoughtful post.
Thanks fo the education on the big dig…I also did not know about it. I completely agree with the content. I have known too many people that went to school and wasted their time and money because they did not have a defined purpose or plan as to what to do with their degree. Also, too many people believe an MBA will open up so many doors. It only does in certain careers and one has to really evaluate the benefits of obtaining one.
I’ve been on projects where the process warranties were just insane, and way larger than the long-since-gone profits. The sensible thing to do was to walk away, hand the customer a check, and thank them for the lessons learned. Reputation (or egos) dictated that we see the project to the bitter end.
Love it. It seems like some of the biggest business flops are due to one’s stubbornness. Your MBA example is spot on. Many people do not take the time to plan their finances and make sure they are putting them towards the highest dollar activity. What good is an MBA without a job that is helping you pay back those bills?
I agree with your assessment that too many people believe a degree will guarantee a job. A degree only doesn’t guarantee anything, and too many end up with unrealized aspirations and large debt.
I think you have made a very realistic assessment. Education is not everything. In fact, I think it is overrated. You can teach people skills on how to do a job but you can’t teach them how to respect, have good work ethic, or to be passionate. These things come naturally. I am much more about hiring the person compared to the papers.
Good article. It’s hard to know when you are inovled in a “big dig” when you are in the middle of it, and trying to battle your way through.
In my case, as someone who buys fixer-upper houses and turns them into rental houses, I held onto a property for too long that was way too much work with too little profit. I finally sold it, but several years after I should have cut my losses.
Too many people get graduate degrees because they don’t know what they want to do …. getting a degree feels “productive” while they “figure things out.” But that’s a poor use of time and money, in my opinion.
And that is exactly why I am not currently eager to pursue a MBA but would rather put my energies elsewhere for now. Should I see that connection between A and B I would pursue it, but right now, I don’t.
Great overview of sunk costs, too — sometimes it’s hard to walk away from something, but what’s done is done and we can only look forward for the future.