CMA Foundation · Fundamentals of Business Economics and Management · Decision-making - Types and Process
A Kolkata textile company has already spent ₹8 crore on a plant that now shows poor prospects. Though a fresh review suggests abandoning it, the directors invest a further ₹2 crore mainly to justify the earlier spending. Which decision-making barrier is shown?
The barrier is escalation of commitment to a failing course of action. The directors let the already sunk ₹8 crore influence the new choice and throw good money after bad, instead of judging the project only on its future costs and benefits.
- ASatisficing
- BEscalation of commitment to a failing course of actionCorrect
- CUse of the Delphi technique
- DProgrammed decision-making
Explanation
Directors continue investing because of past outlay, treating the sunk ₹8 crore as a reason to carry on. This is escalation of commitment. Satisficing concerns accepting a good-enough option, not defending past choices.
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