Exploring the causes of sunk cost fallacy in the construction industry: case of mega projects

Abstract

PurposeThis study aims to reveal the main causes of the sunk cost fallacy in construction projects. Thus, it is expected that sunk costs can be avoided, which have a big impact on construction costs.Design/methodology/approachThe construction industry is fragmented and dynamic. Therefore, it is vulnerable to several risks such as time, cost and labor-related risks. The complexity and fragmented nature of construction projects brings up the need for high financial investment funds. In some cases, this results in sunk costs that cannot be recovered. A considerable amount of sunk costs occurs due to the sunk cost fallacy meaning that construction practitioners feel responsible for completing the projects despite unsuccessful project performance indicators due to various reasons such as client pressure, restricting regulations and the need to develop a good reputation considering future projects. However, the sunk cost fallacy can sometimes result in irrecoverable losses, which can badly affect a firm's reputation regarding future projects.FindingsIn this respect, a total of 207 industry practitioners were surveyed to determine the main causes of the sunk cost fallacy. The causes were then ranked based on the order of importance, and weights were assigned for each cause determined. Concerning such ranking and weighting, the most essential causes were revealed. Moreover, the study presents a total of 4 case studies, which are mega projects that came up with sunk costs. The cases are presented to support the main causes of the sunk cost fallacy exploring from which the sunk cost fallacy stems.Originality/valueThe lack of research on sunk cost fallacy in the construction industry makes this study novel in the fact that a large sample provides data regarding the causes of sunk cost fallacy. The findings of this study can guide both industry practitioners and policymakers in terms of developing strategies to avoid sunk costs and experience higher success rates in their projects.