Monday, 6 September 2021

Escalation of Commitment

There is a fascinating theory in management called the Escalation of Commitment (Staw, 1976). This is "the voluntary continuation of investing resources into what appears to be a failing course of action whose outcome is uncertain" (Tine, 2013, p. 0), or where "decision makers can become over committed to a course of action" (Staw, 1981, p. 579) without evidence that the investment will pay off. While this theory is related to the management idea of sunk costs, escalation of commitment is a separate theory.

Think "we have started, so we will finish". 

Imagine that we are building the Sydney Opera House. It is 1957. We have held a competition. We have been presented a superb design by Danish architect, Jørn Utzon. We have the concept drawings from the architect, and they are iconic. The building will be a monument to creativity: it will 'make' our city. We think it will cost AUD$7m (back of the envelope calculations), and perhaps take ten years. But we have no detailed drawings yet about how it should go together. Instead of asking how it will all work and costing the project, we push the go button on the project, and will work it out as we go (Murray, 2003).

The costs start accumulating alarmingly. By 1961, we are estimating AUD$18.6m. The detailed working drawings are costing a fortune. By 1963 costs are at AUD$29.6m. The costs continue to spiral. Moving the concept to reality is proving a nightmare. Things do not work as anticipated. There is political scandal. Controversy is international. By 1965 the cost is out to AUD$49.4m. We 'accept' the architect's resignation because some local architects and builders have told us they can put it together for less. By 1967 the costs are at AUD$85m (Murray, 2003; Pitt, 2018). 

Then at last it is complete - only 16 years from concept to reality! The grand opening by Queen Elizabeth II takes place in October of 1973. And the final bill comes in at AUD$102m (Murray, 2003). Ouch.

The Sydney Opera House is one of the most iconic buildings of the 20th Century. Almost anyone on the planet who sees an image will recognise what it is, and where it is. The architect won the Pritzker prize - the Nobel-equivalent for architecture - with the commendation "There is no doubt that the Sydney Opera House is [Utzon's] masterpiece. It is one of the great iconic buildings of the twentieth century, an image of great beauty which has become known throughout the world—a symbol for not only a city, but a whole country and continent" (Murray, 2003, p. xii).

But the cost was a perfect example of an escalation of commitment: we have started, so we will finish. While costs, after nearly 50 years, appear negligible - especially for something so unique - from a management point of view, the project was a disaster. The costs were uncontrolled/uncontrollable. The project was poorly planned, poorly conceived, over-ran on time, over materials, over budget, over reputations, and over personnel.

Why? Well, planning should have been key, but it was not. The project was too 'out there' to cost accurately. The design was too difficult to translate into reality: it was a concept. Working drawings were much harder to translate than was anticipated, and everything stemmed from there.

However, in my mind, the Sydney Opera House is a piece of art, and I for one am grateful to the artist, Jørn Utzon. He created a thing of beauty that is not so much a building as an expression of voyage, saga, and an inspirational human story of creation. 


Sam

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