What are the barriers to exiting a process?
Early in my career, a financial manager told me, “Once we buy the first piece of equipment for a process new to us, the make/buy decision will always be to make it.” Nothing I’ve seen since then tells me otherwise, even when the initial decision was clearly in error. Why? There are three primary reasons: • Fixed assets are considered sunk costs and therefore become givens in any return-on-investment (ROI) calculation. • Depreciation increases the burden rates and increases pressure for burden absorption. • Mistakes made on fixed assets are perhaps the most difficult to admit. Economics 101 teaches that all costs are fixed in the short term and variable in the long term. The notion of sunk costs has no place in long-term strategic thinking. The need for short-term profits cannot be ignored, but this should not alter what is right for the long term. If an objective assessment is made, then good leaders and managers must think through the fundamental changes. At this point, exit strategie
