Project Management Institute

Early termination of failing projects

literature review and research framework


There exists a substantial amount of literature that deals with escalation of commitment to a failing course of action and project management. Much of the escalation research is done by psychologists, and the experiments conducted are usually narrative descriptions of a simple project at a particular point in time. Very few researchers have studied escalation in the context of the selection of projects in portfolios over the duration of a project, which may have included many other decisions about the project. In addition, the most research was conducted with participants who are not project managers or decision-makers who regularly deal with projects. Current literature shows that most of the existing research favours a particular determinant that explains escalation; in some cases, decision-making theories are even proposed as determinants.

This paper gives an overview of the existing literature, which deals with escalation of commitment as well as literature that deals with project portfolio management.

A research framework and research method is proposed, which will allow the researcher to test escalation determinants in the context of a portfolio of projects over time and to test the combined effect of multiple escalation determinants. The proposed research method will overcome the above research shortcomings and will lead to a better understanding of the reasons why many organisations do not stop projects that are just a burden to the organisation and are bound not to deliver any value.

Early Project Termination: Literature Review and Research Framework

We live in a world of projects. Nearly every person is impacted by a project at some stage of his or her life, either as a participant on the project or by the outcome of the project. Most businesses are impacted by projects either through the development of new products and services or through projects that improve the way in which they work.

The aim of any organisation is to deliver its projects successfully. It is, however, not only the successful delivery of projects that is important to businesses; selecting the best projects to spend their hard-earned money on is equally important. The practice of selecting projects in organisations is commonly known as project portfolio management.

The process of portfolio management considers both new projects that must be performed by the organisation as well as existing projects that must be put on hold or terminated. In general terms, projects that are terminated are projects that are not performing satisfactorily or that do not meet the portfolio criteria. This approach is summarised by Rad and Levin:

Portfolio management is a dynamic decision process, whereby a business's list of active new product (and development) projects is constantly updated and revised. In this process, new projects are evaluated, selected, and prioritized; existing projects may be accelerated, killed, or deprioritized; and resources are allocated and reallocated to active projects. (Rad & Levin, 2006, p. 10)

Projects that are not delivering on their promised benefits are abundant. In November 2009, the British Taxpayers' Alliance reported the following research findings of government projects:

The total net overrun on 240 projects was more than £19 billion. The figures are from an opportunity sample of Government projects with official costings available. This is equivalent to over £750 per household in Britain.

The average cost overrun of the sampled projects, including those that came in under budget, was more than 38 per cent. This is up 4 percentage points from our last survey in 2007.

32 per cent of the projects sampled overran, while 24 per cent came in under budget.

The project to overrun by the most is the NHS National Programme for IT, which is currently £10.4 billion over budget – or 450 per cent.

The worst performing department was the Ministry of Justice, with 2 projects overrunning by an average of 163 per cent. (TaxPayers' Alliance, 2009)

In December 2009, the Dutch newspaper, NRC Handelsblad, reported that the development of the Amsterdam North-South metro line was estimated to overrun by more than 100%. An investigatory committee found that the Amsterdam City Council should never have approved the project in the first place (NRC Handelsblad, 2009). Despite these findings, the project continued.

Existing literature suggests that Decision-Making Units (DMUs) will escalate the commitment of resources to a failing course of action (i.e., a failing project) for a variety of mostly psychological reasons (Brockner et al., 1986; Conlon & Garland, 1993; Garland & Conlon, 1998; Kahneman & Tversky, 1979; Moon et al., 2003; B. M. Staw, 1997; Whyte, 1986).

The term Decision-Making Unit (DMU) is used throughout this paper to refer to either an individual or a group of people who must make a specific decision. Differentiation in the text between a group and individual DMU is made by using the relevant adjective.

This paper reviews existing literature that deals with the Escalation of Commitment (EoC) to a failing course of action in the context of failing projects. It specifically looks at the factors affecting a DMU's decision to terminate a failing project before its completion in the interest of the organisation performing the project, while considering the alternative projects available to the organisation.

This paper proposes a research framework for further studying the phenomenon of EoC to failing projects.

Literature Review Approach

Early termination of failing projects draws from two diverse fields of study (i.e., project management and psychology). (Brockner, 1992; Keil, 1995; Shore, 2008; B. M. Staw, 1997) The tenets of project management are by default applicable to every project, whether the project is delivered successfully or not. Premature project termination is primarily a psychological process that deals with the DMU's ability to make rational decisions, a process referred to as decision-making under uncertainty (Norm Archer & Ghasemzadeh, 2004; Shore, 2008; Virine & Trumper, 2008).

Project management literature was reviewed to summarize the methods used by organizations to select and execute projects. Psychology literature was reviewed to summarise research of the factors or determinants that influence decision-making under uncertainty and EoC.

Peer-reviewed journal papers and academic textbooks were studied in the development of this literature review. Dissertations, unpublished working papers, conference papers, popular literature, and the Internet were used to find references to peer-reviewed journal papers. Popular literature and the Internet are not cited unless the reference is the entry point to some well-substantiated and researched argument or as an example of a specific finding.

This paper is organised under the following main headings:

  • Escalation of Commitment Literature Overview—an overview of EoC literature;
  • Project Management Literature Review—an overview of project management literature that deals with the selection and termination of projects;
  • Psychological Determinants—literature that identifies and studies determinants (or factors) that lead to EoC;
  • Decision-Making Models—theories that do not directly lead to EoC but that describe the underlying psychological behaviour that drives decision-making; and
  • Research Framework—a proposed framework to further study EoC in the context of project selection and termination

Escalation of Commitment Literature Overview

It is widely recognised that Professor Barry Staw did most of the pioneering work on EoC, and many other authors based their work on his research (Rice, 2010). This literature review used Staw's work as the basis for finding related research.

Staw's first research on the topic, Knee-Deep in the Big Muddy: A Study of Escalating Commitment to a Chosen Course of Action, was published in 1976. Following his 1976 paper, Staw authored and co-authored a number of papers on EoC (F. V. Fox & Staw, 1979; B. Staw & Ross, 1989; B. M. Staw, 1981, 1997; B. M. Staw & Hoang, 1995; B. M. Staw & Ross, 1978; B. M. Staw & Ross, 1980). Staw's summary and appraisal in 1997 collect all his ideas and findings from the previous 21 years of research. Following is a brief summary of Staw's work, most notably from his 1997 work.

When people have lost something, they are often faced with a choice to pursue some course of action to regain what has been lost or to accept the loss. Very often the decision to withdraw or to continue with a losing course of action is not obvious, and a person may find it difficult to realise or accept that he or she is pursuing a losing course of action. These conditions are called EoC situations and are defined as follows:

“Situations where losses have been suffered, where there is an opportunity to persist or withdraw, and where the consequences of these actions are uncertain.” (B. M. Staw, 1997, p. 192)

Staw summarises that humans have a psychological tendency to get caught up in EoC situations often to their own detriment, that of their organization, and sometimes even their country. The following excerpt from a memo by George Ball, U.S. Undersecretary of the State Department at the time of the Vietnam War, to President Lyndon Johnson about the probable outcome of the war vividly illustrates the consequences of EoC:

The decision you face now is crucial. Once large numbers of U.S. troops are committed to direct combat, they will begin to take heavy casualties in a war they are ill equipped to fight in a non-cooperative if not downright hostile countryside. Once we suffer large casualties, we will have started a well-nigh irreversible process. Our involvement will be so great that we cannot – without national humiliation – stop short of achieving our complete objectives. Of the two possibilities, I think humiliation would be more likely than the achievement of our objectives – even after we have paid terrible costs. (Sheenan & Kenworthy, 1971, memo dated 1 July 1965)

Johnson ignored this warning, causing huge loss of money and lives to the United States. Staw notes that EoC often involves compounding losses over time, and that people responsible for prior losses have a tendency to invest more in an escalating situation than people who have not been involved in the prior decisions. This is, however, not always the case, and Northcraft and Wolf (1984) showed that EoC is not a problem when clear-cut financial information is available to the DMU.

Staw further argues that escalation behaviour is affected by multi determination: a combination of economic and psychological behaviours. Decisions are seldom made in isolation, and the influence of the environment (structural and contextual forces) must be considered. Staw proposes a temporal model (B. Staw & Ross, 1989) for EoC, but notes that even though the temporal model conveys a very logical flow of events, there is little empirical evidence to support it; rather, it is a framework from which most real-world scenarios deviate to some extent. He proposes a simpler model that represents the aggregate effect of EoC (Figure 1).

An aggregate model of EoC (B. M. Staw, 1997, p. 209)

Figure 1: An aggregate model of EoC (B. M. Staw, 1997, p. 209).

Staw proposes a classification scheme with five determinants:

Project Determinants. Project-related factors are the most obvious causes for EoC and persistence with chosen courses of action. DMUs will consider these factors when evaluating the usefulness of further investments/actions in turning a losing situation around. These are factors that are usually directly observed and acted upon when the project is performed.

Staw proposes a number of factors that could lead to persistence on a project (i.e., temporary vs. permanent losses, the efficacy of further investments/actions in turning a losing situation around, the size of the project's goal or eventual payoff, availability of feasible alternatives to a course of action, and the salvage value or closing costs for ending a project).

Psychological Determinants. Staw's research has shown that people often do not turn away when they realise that their investment is not performing the way they expected and that it is unlikely that they will reap the anticipated benefits. Staw proposes four specific determinants (i.e., optimism and illusions of control, self-justification, framing effects, and sunk cost effects).

Social Determinants. Social determinants are external to the decision-maker, and Staw proposes two determinants (i.e., external justification and binding and leadership norms).

Organizational Determinants. Organisational determinants are macro-level variables that could play a role in EoC. These determinants relate to the way in which an organization establishes organizational policies and procedures to govern its decision-making. These factors are not specifically related to individuals in the organization but rather to the system of the organization.

Contextual Determinants. Contextual determinants are forces that are greater than the organisation itself, such as government intervention. Governments bailing out companies that are of national interest are an example of a contextual determinant that could hold an organisation to a failing course of action.

This paper specifically investigates literature that covers project management and psychological determinants.

In the next section, project management determinants are elaborated further and supplemented with additional research sources.

Project Management Literature Review

In this section, factors that are directly related to projects and the management of projects that could lead to EoC are discussed. Project-related factors include the direct attributes of a project that affect its feasibility and value to the organisation.

Projects have been performed for thousands of years. Significant projects were conducted in Europe (notably the building of churches), which were managed, to the best of our present knowledge, in a fairly informal manner (Cleland & Ireland, 2002). Formal project management is a relatively young field of study and evolved from systems management during the 1940s and 1950s. The United States Department of Defense was instrumental in the development and implementation of formal project management methods (Kerzner, 2009).

Project Management Institute (PMI) defines a project as: “A temporary endeavor undertaken to create a unique product, service, or result” (Project Management Institute, 2008a, p. 442). Projects also create temporary organisations within the organisation that performs the project (Turner & Müller, 2003); Crawford (2004) notes that project management is a key and much sought after skill in most organisations.

The study of project management and the associated standards, models, and practices are dominated by a number of large international associations; for example, PMI, International Project Management Association (IPMA), and Association for Project Management (APM). (Crawford, 2004) The largest of these organizations is PMI, with a membership in excess of 350,000 and more than 450,000 certified Project Management Professionals (PMP)®. (Project Management Institute, 2011)

A number of standards for project management have been developed. Some of the better-known standards are PMI's A Guide to the Project Management Body of Knowledge (PMBOK® Guide), APM Body of Knowledge (APM BoK), British Standard (BS) 6079, International Standards Organization (ISO) 10006, and the Office of Government Commerce's (OGC) PRINCE2. The PMBOK® Guide is probably the best known and most widely used of these standards (Crawford, 2004; Kerzner, 2009).

The world of project management can be broadly categorised into three areas: project management, programme management, and portfolio management (Project Management Institute, 2008b). PMI defines project, programme, and portfolio management respectively as (Project Management Institute, 2008a, pp 442–443):

“The application of knowledge, skills, tools, and techniques to project activities to meet the project requirements.”

“The centralized coordinated management of a program to achieve the program's strategic objectives and benefits.”

“The centralized management of one or more portfolios, which includes identifying, prioritizing, authorizing, managing, and controlling projects, programs, and other related work, to achieve specific strategic business objectives.”

Project portfolio management should, however, not be confused with investment portfolio management (P. Morris & Jamieson, 2004).

From the definitions, the similarity between projects and programmes is clear (i.e., both are concerned with the management, in the case of projects, with the activities of the project and in the case of programmes, with multiple projects). For the purposes of this review, the term projects include programmes. Where programmes are specifically differentiated, the term programme is used.

Portfolio management is of specific interest in this study because it concerns itself with the identification, prioritisation, authorisation, management, and control of projects and programmes (NP Archer & Ghasemzadeh, 1999; P. Morris & Jamieson, 2004; Turner, 1999).

It is in the management of project portfolios where the decision to escalate commitment presents itself.

Managing Portfolios of Projects

Project portfolio management takes a holistic view of the organisation; it is here where the strategy of the organisation is translated into projects; not only that, it is also here where projects that are not strategically viable or not performing well are discussed, assessed, and terminated.

The management of investment portfolios was first formally described by Markowitz (1952) in 1952. Even though portfolios of projects are different from the traditional investment portfolios, both share the attribute that organisations want to select the portfolio that will be in the best interest of the organisation, and Jonas (2010) specifically researched the role of the project portfolio manager who facilitates the collection and structuring of information to enable decision-making.

The main elements of project portfolio management are described by various authors at differing levels of detail (NP Archer & Ghasemzadeh, 1999; Filippov, Mooi, & van der Weg, 2010; Ghasemzadeh, Archer, & Iyogun, 1999; Jonas, 2010; Levine, 2005; P. Morris & Jamieson, 2004; P. W. G. Morris & Pinto, 2004; Pennypacker & Retna, 2009; Project Management Institute, 2008b; Rad & Levin, 2006; Turner, 1999). All these authors propose processes that describe the methods followed by organisations to define, evaluate, and select their portfolios of projects. Archer and Ghasemzadeh (1999) give the most graphical description of such a process and furthermore recognised the importance of decision-making processes (NP Archer & Ghasemzadeh, 1999, p. 211):

“Decision makers should be provided with interactive mechanisms for controlling and overriding portfolio selections generated by any algorithms or models, and they should also receive feedback on the consequences of such changes” and

“Project portfolio selection must be adaptable to group decision support environments.”

Figure 2 shows the main aspects of portfolio management, derived mostly from Archer and Ghasemzadeh, but also adds ideas from other authors.

Portfolio management processes

Figure 2: Portfolio management processes.

In Figure 2 the solid lines show the flow of information in the selection of projects; the dotted lines show how information is fed back from the project execution processes.

The process starts with the organisation's business strategy, which would typically include the vision, mission, and strategic objectives. The strategic objectives determine the opportunities that the organisation wants to pursue or the threats that must be avoided. Opportunities and threats can be translated into actions and managed as projects (NP Archer & Ghasemzadeh, 1999; P. Morris & Jamieson, 2004; Turner, 1999). The business objectives also feed into the management of selection criteria. Selection criteria are used to score each project. Once a potential project is identified, some analysis is done to determine its feasibility, usually in the form of a business case (Kerzner, 2009; Martinsuo & Lehtonen, 2007; Moore, 2010; Pennypacker & Retna, 2009).

Once the business case is completed, the project is scored against the selection criteria. But projects are not selected only on the basis of their score. During portfolio balancing, a number of additional factors are considered, most notably the availability of resources to perform the project. The portfolio balancing process also compares newly proposed projects to projects that are already in progress. It is during the portfolio balancing process that the organization would typically decide to terminate a project based on its performance or in favour of another project (Norm Archer & Ghasemzadeh, 2004; Pennypacker & Retna, 2009; Project Management Institute, 2008b). Project execution starts once a project is selected. Information from the project execution process is fed back into the portfolio management process. The following feedback information flows can exists: information about the performance of current projects to the portfolio balancing processes; information about the performance of the business to the business case; information about the business performance and external business factors to the opportunity/threat identification process; information about the business performance to the selection criteria process; and, information about performance of the business to the business strategy process (NP Archer & Ghasemzadeh, 1999; Project Management Institute, 2008b).

This model is idealistic at best, and very few organisations would follow it exactly as it is as presented here. The model does, however, contain all the processes relevant to decisions about projects in the organisation. It should further be noted that the steps in the process could be formal or informal, performed rigorously or ad hoc, well documented or done as a result of the experience of business owners (Norm Archer & Ghasemzadeh, 2004).

Projects versus Products

A clear distinction should be made between the project and the product that is produced by the project. Projects use resources (money, equipment, time, people, facilities, etc.) in order to build some predefined product. Projects do not make money; it is the deliverable(s) from the project that will have some benefit to the organisation (Kerzner, 2009; Project Management Institute, 2008a). The benefit does not necessarily have to be money. A project could deliver an internal administrative system that will optimise the business, or a project could avoid some eminent disaster threatening the organisation. The benefit of the project's product could start once the project is completed (e.g., a house that is being built will only become useful once it is completed). There are, however, projects that will deliver benefits before the end of the project (e.g., a project to reduce absenteeism in a manufacturing company could yield incremental benefits as the project is implemented throughout the organisation).

Project Success

The definition of project success is often a topic of much debate in organisations. Cooke-Davies (2001) defines 12 factors that affect the success of a project. In a later contribution, Cooke-Davies defines three views of project success (Cooke-Davies, 2004).

The first is the successful delivery of the project as far as its budget, schedule, and quality are concerned (i.e., was the project done right?) (Pinto & Slevin, 1988) This is typically the interest that a project manager has in the project. This definition does, however, imply that a project that holds no value for the organisation could be delivered successfully, which is sometimes the case (Shenhar, Dvir, Levy, & Maltz, 2001; Turner, 1999).

The measurement of a project's performance during its delivery is often measured using earned value techniques (Fleming & Koppelman, 2005).

Earned schedule (ES) is a more recent and similar development to earned value (EV). ES calculates project progress in terms of time, whereas EV uses cost (Lipke, Zwikael, Henderson, & Anbari, 2009).

The second view of project success is that of benefits realisation (Pinto & Slevin, 1988). This is the view that executives would typically have of a project because it supports the organisation's strategic objectives (i.e., was the right project done?). This definition does, however, imply that a project could be delivered over budget, late, and with less than the desired quality and still deliver value to the organisation.

The third view is whether the right projects were consistently done right.

Baccarini (1999) offers an alternative approach using the Logical Framework Method, but arrives at the same conclusion, which highlights the difference between project and product success. When executives consider project success, there is clearly a trade-off between the success of the project and that of the delivered product.

In the next section, the psychological determinants are discussed.

Psychological Determinants

This section discusses a number of theories that are proposed by various researchers as psychological determinants for EoC. These determinants create a psychological effect on the DMU to escalate commitment. The determinants proposed by Staw (1997) are expanded to include determinants suggested by other researchers.

The following five contributors have been directly attributed to EoC by various researchers:

  1. Sunk cost effect
  2. Optimism and illusion of control
  3. Self-justification
  4. Project completion hypothesis
  5. Entrapment

The major contributors in each area are listed in Table 1.

Table 1: Contributors to primary psychological determinants.

Contributor Primary Source(s)
Sunk cost effect Northcraft & Wolf (1984)
Hall R. Arkes & Blumer (1985)
Garland (1990)
Garland & Sandefur (1990)
B. M. Staw & Hoang (1995)
Sharp & Salter (1997)
Hal R. Arkes & Ayton (1999)
Cunha & Caldieraro (2009)
Self-justification B.M. Staw (1976)
J. Brockner, et al. (1986)
J. Brockner (1992)
Project completion hypothesis Conlon & Garland (1993)
Garland & Conlon (1998)
Jensen et al. (2011)
Optimism and illusion of control Entrapment Taylor & Brown (1988, 1994)
Rubin & Brockner (1975)
Brockner, Rubin, & Lang (1981)

Sunk Cost Effect

Sunk cost has been described by many authors as either the primary reason for EoC or as a significant contributor. Sunk cost in the context of projects is defined as: “a cost that has already been incurred and which should not be considered in making a new investment decision.” (Amos, 2007, p. A.11)

Northcraft and Wolf (1984) posit that most psychological research into sunk cost focuses on situations in which explicit information about the sunk costs and negative financial situation of the project are available, but revenue information of the project is not. What appears to be throwing good money after bad could in fact be a good investment. They further argue that sunk cost becomes important after a project has started and the point in the budget is reached at which money spent exceeds revenues realized. There is, however, an oversight in their paper, because some projects will only generate revenue after completion, at which point it would be too late to intervene with the project.

Arkes and Blumer (1985) present a number of experiments to show the propensity of subjects to favour investments with a high sunk cost (money, time, or effort) compared to investments with a lower sunk cost. This is in part due to the perception by subjects that unfavourable situations with a large sunk cost are not a lost cause. They argue that a negative consequence reinforces further commitment because people do not want to appear wasteful. The decision-making process is further complicated by the admission of failure should a subject concede that an investment was a bad decision. Arkes and Blumer conclude that sunk cost should not influence the current position of the decision-maker; however, most people would favour investing more money in an investment with a large sunk cost as opposed to an investment with a lower sunk cost.

Garland (1990) specifically addresses the willingness of a DMU to continue investing in a project with varying amounts of sunk cost and at various stages of completion of the project. When plotted, the results clearly show that the probability to authorise the remaining budget increases linearly with the increase in the sunk cost percentage.

Sharp and Salter (1997) showed that there is a difference in the way Asian and North American managers consider sunk cost, and they make a strong link to prospect theory for North American managers that is not present for Asian managers. Karevold and Teigen (2010) support these findings and also show the strong effect of framing on the outcome of decisions.


Staw (1976) investigates the effect of personal responsibility on EoC in situations in which a decision-maker had a choice between alternatives and has, at a later stage, the opportunity to make further decisions to influence the situation (i.e., the decision-maker can allocate additional resources or withhold such resources). He argues that a decision-maker may, instead of changing his or her behaviour, cognitively distort the negative consequences of a prior decision to make it appear to be a rational and favourable decision. This stems from the reluctance of the decision-maker to admit prior mistakes or in order to reaffirm a previous action.

In an extensive analysis of prior research results of EoC prior to 1992, Brockner (1992) concludes that self-justification is the primary reason for EoC. He categorises prior explanations for EoC into two broad categories. The first is prospect theory (Kahneman & Tversky, 1979), whereby decision-makers assess the probability that additional investment will lead to success and the value of achieving the defined goal. The second is self-justifying or rationalizing behaviour, whereby decision-makers are significantly influenced by their own prior decisions. They are unwilling to admit that their prior decisions to allocate resources to a course of action were flawed and therefore continue to invest. Brockner, however, suggests that self-justification takes precedence over prospect theory in EoC situations.

Project Completion Hypothesis

Conlon and Garland (1993) posit that project completion and sunk cost are cofounded and that prior research may have over emphasised the effect of sunk cost as a reason for EoC. Later research by Garland, Conlon, and Rogers (1990) shows that the opposite of sunk cost effect may occur (i.e., less is invested as the incremental cost of the project increase). On a typical project, the amount of money spent is correlated to the progression of the available time to complete the project. This relationship is not linear and graphing the incremental project cost over time typically takes the form of an S-curve (Project Management Institute, 2008a). A decision-maker would usually be aware of the time progress of the project when decisions are made and the approaching end of the project. The approaching end of the project could entrap the decision-maker and may lead to goal substitution, whereby decision-makers shift their focus from the goal the project has to achieve in terms of its deliverables to the goal of just completing the project (Kahneman & Tversky, 1979).

Boehne and Paese (2000) conducted an experiment to test three competing hypotheses: the sunk-cost hypothesis, the project completion hypothesis, and the profit motive hypothesis. The profit motive hypothesis states that the desire to complete a project is exclusively dependent on whether the anticipated sales price exceeds the marginal cost of completing the project (i.e., the more the sales price exceeds the marginal cost, the greater the desire to complete the project).

In their experiment they found very strong support for the project completion hypothesis. There was some support for the profit motive and no support whatsoever for the sunk cost effect.

Conlon and Garland (Conlon & Garland, 1993; Garland & Conlon, 1998) do not completely exclude the possibility that sunk cost plays a role in some of the decisions to escalate. This indicates that EoC could be due to multiple factors and that the self-justification, sunk cost, and project completion are just some of the factors that influence the decision to escalate. These factors may even collectively contribute, some more or less depending on the specific situation, to the decision to escalate.

Optimism and Illusion of Control

Humans have a tendency to be more optimistic when faced with negative situations. Our tendency to be overly positive when we evaluate ourselves and overstate our own ability to master or control situations appears to be part of our normal thought processes (Taylor & Brown, 1988, 1994). This behaviour can reach extreme proportions when people who have thoughts about an event before it occurs think that they caused the event, even if such influence appears magical (Pronin, Wegner, McCarthy, & Rodriguez, 2006).

The effect of this behaviour on projects is that a DMU may select a project based on an overestimation of the value that the project will add to the organisation (Bazerman & Samuelson, 1983). Once the project is selected, the DMU may feel that it can control the outcome of a failing project in a positive way, even if all the supporting evidence shows otherwise, due to the illusion of control.


Entrapment, as described by Rubin and Brockner (1975) shares many characteristics with EoC. Brockner et al. (1982) researched the effect of timing on entrapment situations. Their research suggests that economic factors have a greater influence on the behaviour of a DMU in the initial stages of a project. In contrast to this, face-saving variables have a greater influence later on in the project. In the context of the present, paper entrapment is seen as a type of EoC because the differences are mainly semantic.

In the next section, psychological theories that describe the decision-making behaviour of the DMU are discussed.

Decision-Making Models

Decision-making models are the building blocks of the theories that describe how and why EOC takes place. These models, or theories, describe the psychological decision-making process that takes place when a DMU decides to escalate commitment. Some authors pit these determinants against the more direct determinants; for example, Brockner (1992) argues for self-justification against prospect theory, and Keil (2000) considers self-justification theory, prospect theory, agency theory, and approach avoidance theory as mutually exclusive options.

The following decision-making models were identified from the studied literature:

  1. Decision Theory
  2. Expected Utility Theory
  3. Probability Theory
  4. Prospect Theory
  5. Decision Framing
  6. Agency Theory
  7. Group Decision-Making

Table 2: Contributors to decision-making models.

Contributor Source
Decision Theory Various authors, notably:
Simon (1960)
Mintzberg et al. (1976)
Jaynes, (2003)
Gilboa (2009)
Expected Utility Theory Various authors, notably:
Bernoulli, (1713)
Von Neumann & Morgenstern (1947)
Schoemaker (1982)
Mongin (1997)
Probability Theory Various authors, notably:
Ore (1960)
Jaynes (2003)
Prospect Theory and Cumulative
Prospect Theory
Kahneman & Tversky (1979; 1992)
Decision Framing Tversky & Kahneman (1981)
Sharp & Salter (1997)
Karevold & Teigen (2010)
Agency Theory Ross (1973)
Eisenhardt (1989)
Group Decision-Making Janis (1977)
Whyte (1993)
Moon (2003)

Decision Theory

Decision theory deals with the way in which decisions are made, typically under uncertainty (Gilboa, 2009). Together with probability theory and expected utility theory, decision theory is critical to our understanding of how decision-makers behave in EoC situations.

Decision theory is central to the behaviour of DMUs that are responsible for project selection and termination, and EoC situations are fraught with decisions that contain some element of uncertainty (Brockner, 1992; B. M. Staw, 1997). The decision-making process has multiple processes, which could be visited multiple times, depending on the type of decision and the factors influencing the DMU (Mintzberg, et al., 1976; Simon, 1960).

Expected Utility Theory (EUT)

EUT combines the aspects of probability theory, decision theory, and economic benefit. EUT describes the benchmark behaviour that one would expect a decision-maker to exhibit (i.e., taking decisions that give the best utility [gain]). The actual behaviour of decision-makers can be compared with EUT and deviations from it can be studied.

EUT falls within the domain of decision theory and deals with the payoff or utility that a person will get through a certain course of action (Von Neumann & Morgenstern, 1947). EUT deals with standard economic behaviour based on the best calculated outcome or maximum utility (Dutta, 1999; Schoemaker, 1982). Many authors argue that humans seldom act in an optimal economic manner when it applies to the selection of projects (Lovallo & Kahneman, 2003).

Probability Theory

Probability theory is fundamental to our understanding of the options available to DMUs and explaining the behaviour of DMUs given certain outcomes and probabilities (Ore, 1960).

The actual behaviour of a DMU can be compared with the decision options and the ideal economic behaviour. Humans implicitly consider probabilities in every decision we make, but we are not very good at accurately calculating probabilities. Our perceptions of probability are greatly influenced by factors such as stress, prior experiences, optimism, and so forth (Jaynes, 2003).

EoC problems present DMUs with at least two decisions (continue or stop) and, in some cases, multiple decisions between possible options. The likelihood of the expected outcomes of the various options can be analysed with probability theory (Jaynes, 2003).

Prospect Theory

Prospect theory explains the way in which we make decisions based on the principle that we evaluate the magnitude of the move from our current position when making decisions. In addition to this, we are also more likely to be risk averse when we stand to gain something and more risk seeking when we stand to lose something. Prospect theory argues that people do not behave in standard economic ways when in escalating situations (Kahneman & Tversky, 1979).

Kahneman and Tversky highlight four effects of decision-making applicable to prospect theory:

  • Certainty Effect: People would over weigh outcomes that are certain versus outcomes that have a probability, thus violating the axioms of EUT. This concept is supported by Conlon and Garland (1993).
  • Reflection Effect: Decision-makers tend to be risk averse when evaluating positive alternatives and risk seeking when evaluating negative alternatives according to a value function (Figure 3).
  • Probabilistic Insurance: Reducing the risk of loss from p to p/2 is less valuable than reducing the risk from p/2 to 0. The letter p indicates the probability of the risk event occurring.
  • Isolation Effect: Decision-makers disregard components shared by the alternatives under discussion and focus on distinguishing aspects, which leads to inconsistent preferences. Because a pair of prospects can be organised in different ways, the isolation effect could lead to different preferences, depending on how the problem is framed. This idea is further elaborated on by Davis et al. (1998).
Hypothetical value function (Kahneman & Tversky, 1979, p. 279)

Figure 3: Hypothetical value function (Kahneman & Tversky, 1979, p. 279).

The following value function applies to prospects that are strictly positive or strictly negative (Kahneman & Tversky, 1979, p. 276):

V(x p; y, q)=π(p)v(x)+π(q)v(y)

Where V is the overall value of the prospects, x and y are prospect outcomes, p and q are prospect probabilities, π is the decision weight of a particular probability and describes the impact of the probability on the overall value, and v is the subjective value of the outcome of a prospect. v is represented by the Value Function graph (Figure 3), which shows that the value function is convex for gains and concave for losses.

π is represented by the Weighting Function graph (Figure 4), which is the weight that a decision-maker attaches to a particular probability (i.e., to what extent does a DMU think the assigned probability holds true). The Weighting Function shows that DMUs will over weigh the low probabilities and under weigh high probabilities. Much research has been done to determine the shape of the weighting and value functions, and several methods have been proposed (Abdellaoui, 2000; Abdellaoui, Vossmann, & Weber, 2005; Camerer & Ho, 1994; Etchart-Vincent, 2004; C. R. Fox & Poldrack, 2009; Gonzalez & Wu, 1999; Stott, 2006; Tversky & Kahneman, 1992; Wu & Gonzalez, 1996)

Weighting function (Tversky & Kahneman, 1992, p. 310)

Figure 4: Weighting function (Tversky & Kahneman, 1992, p. 310).

Prospect Theory can play an important role in explaining and managing EoC situations and many other authors have described this phenomenon in studies of EoC.

Decision Framing

Projects produce a wealth of information about their progress during their implementation. The specific information presented to a decision-maker and the way in which the information is presented could influence whether an organization decides to continue with the project or to terminate it (Tversky & Kahneman, 1981).

Decisions can only be made in the presence of some information about the situation that will be affected by the decision, and the way in which information is presented to the decision-maker could influence the outcome of the decision (Karevold & Teigen, 2010).

Tversky, Slovic, and Kahneman conducted a number of experiments in which they show how the framing of a problem statement can lead decision-makers to reverse their preferences (Tversky, Slovic, & Kahneman, 1990).

Agency Theory

Agency theory could explain the way in which a decision-maker will respond when faced with a decision that could affect the organization negatively but could be to the benefit of the individual. Agency theory suggests that escalating behaviour would be reward-based, either as confirmation of an agent's on-going behaviour or as an outcome of the agent's behaviour (Abrahamson & Park, 1994).

Agency theory describes the relationship between a principal who delegates a task to an agent who is responsible for performing the task (Eisenhardt, 1989). The contract types between the principal and agent are either outcome-based or behaviour-based. Agents may under certain conditions act in their own interests as opposed to those of the principal; hence, EoC by the agent could occur, which may appear to be irrational behaviour to the principal.

Sharp and Salter (1997) posit that access to information systems gives the principal better control over the behaviour of the agent.

Group Decision-Making

A lot of research has been done on the behaviour of individual DMUs, and the previous sections described contributors that have been researched in relation to an individual DMU.

Group Decision-Making introduces a completely new dimension to EoC. Parks and Cowlin (1995) note that most organisational decisions are made by groups or are in some way affected by a group. However, groups have a tendency to escalate more frequently and to a greater extent (Whyte, 1993).

Moon et al. (2003) suggest that incremental investment behaviour is a specific form of EoC applicable to group scenarios, especially where prior individual consideration occurs by the group's members.

Little research has been done to determine which of the specific EoC attributes are applicable to group decision-making and to what extent.

Research Framework

The studied literature about EoC and project termination is incomplete in the following ways:

  • The research studied used case studies or experiments, which are related to once off events that simulate a total project outcome without considering the history of the project and the circumstances leading to prior funding decisions on projects. In some cases, the nature of projects is misinterpreted by the author (Northcraft & Wolf, 1984).
  • None of the research studied the behaviour of project or business managers who have an actual responsibility for the balancing of project portfolios.
  • None of the research studied specifically tested for the cumulative or combined effect of the identified EoC determinants. Research that does look at various determinants considers determinants in opposition to each other (e.g., sunk cost vs. self-justification, prospect theory vs. project completion hypothesis, etc.)

There are obvious gaps in EoC research as it relates to real-world projects performed by real project teams, most notably when multiple projects are compared in the form of a portfolio.

The following research framework is proposed for the further study of this subject as it pertains to projects, project management, and portfolio management.

From the studied literature, we have the following:

  • From the project and portfolio management literature we have seen that project decisions in organisations are often made in the context of a portfolio of projects.
  • Decision-making in the selection of portfolios is recognised as an important process.
  • When the performance information of the specific project is fed back to the DMU, the information is framed in a specific way, which, deliberately or coincidentally, will affect the decision of the DMU about the project.
  • The project performance feedback is assessed by the DMU. The assessment leads to a specific psychological state in the DMU about the current state of the project. This psychological state results from the psychological determinants. The DMU makes a decision about the continuation of the project based on the created psychological state.

The research framework in Figure 4 is based on Mintzberg's General Model of Strategic Decision Process (Mintzberg, et al., 1976) and is proposed as a framework for studying EoC in projects.

Research framework

Figure 5: Research framework.

The framework only highlights the important aspects of Mintzberg's model, which apply to EoC.

A project is selected in the project portfolio selection process. As the project gets under way, it starts to deteriorate and the DMU receives feedback about the project's performance. This information is framed in a particular way when presented to DMU. The DMU assesses the project's performance information and recognises that a decision must be made about the project. The DMU then diagnoses the causes for the project's bad performance. In the Development Phase, the DMU considers two options: escalate commitment or terminate the project. During the Selection Phase, the DMU uses judgment, analysis, and bargaining to decide on a course of action. It is in this process that the psychological determinants come into play. Once the DMU has determined a course of action, a decision is made that is fed back to the Portfolio Selection process.


Decision-makers who were involved in the initial decision to perform a particular project have a greater tendency to escalate (Desai & Chulkov, 2009; Keil, 1995). Information about a specific project is often under the control of the person who motivated a particular project, and the possibility exists that such a decision-maker may manipulate the information about the project to motivate its continuation (Abrahamson & Park, 1994; Brockner, et al., 1982). On projects that are close to completion, the DMU may even conceal negative information about the project (Jensen, et al., 2011).

Hypothesis 1. A decision-maker who was responsible for the initial investment decision will alter or exclude project status information in order to obtain continued support for failing a project.

Northcraft and Wolf (1984) argue that decision-makers with access to financial information about a project will be less likely to escalate. Their findings are, however, based on situations where a project starts generating revenue before all the planned money is invested in the project. For most projects this is not the case, and the absence of this information may in fact contribute to the decision-makers' persistence with a project. Therefore, one has to find an appropriate measurement instrument to measure whether a project is performing according to its plan. A well-known measurement instrument on projects is earned value analysis (Fleming & Koppelman, 2005); from this, hypothesis 2is postulated:

Hypothesis 2. Decision-makers (groups and individuals) with access to earned value information about a project are less likely to escalate commitment.

From the theory of decision framing, we believe that the way in which information is presented to decision-makers affects their decisions. Information that is presented in a positive manner will lead to decisions to continue with a course of action, and the same information presented in a negative manner will lead to decisions not to continue with a course of action.

Hypothesis 3. Project status information that is framed in a positive manner will lead to more escalation.

Decisions about the continuation of projects in a portfolio are made by groups and individuals collectively. The DMU is often a combination of individuals in the group. Groups of people who evaluate projects are less likely to escalate failing projects if the group members have had prior exposure to the project information. Project selection in organizations is often done by groups of managers who compare a portfolio of projects in order to determine which projects should be started and which should be terminated.

Hypothesis 4a. Portfolio decisions made by a group of decision-makers will lead to less escalation than individual decision-makers if the decision-makers have access to the project information before meeting in a group to discuss the portfolio of projects.

Hypothesis 4b. Portfolio decisions made by a group of decision-makers will lead to more escalation than individual decision-makers if the decision-makers do not have access to the project information before meeting in a group to select the portfolio of projects.

Prospect Theory provides a framework for decision-making under uncertainty and specifically addresses the different ways in which decisions are made when a DMU is in a position to gain or lose. The certainty of a probability that a DMU assigns to a particular decision is determined not by one, but by a combination of the psychological determinants. More formally, we have hypothesis 5:

Hypothesis 5. The psychological determinants contribute to the prospect theory weighting function, π, such that the psychological determinants collectively affect the weight the individual assigns to the probability of success of a decision that favours the decision-makers' position.

Proposed Research Method

The research method for future research in this area should include multiple scenarios involving the same DMUs, because EoC behaviour is not linked to one-time decisions but evolves over time.

The proposed research method is to set up a portfolio management game in which participants are grouped into organisations. Each group has to choose from a portfolio of projects for their organisation, and each person in the group would have a set of projects assigned to them. The outcome of the game is to achieve the best benefit for the organisation. The game has a number of iterations and with each iteration, DMUs receive random but cumulative information about the performance of their project. After a number of iterations, the portfolio of projects is evaluated by the whole team, and each individual DMU has to motivate the projects they want to keep in the portfolio.

The information about the project's performance given to the participants with each iteration can be manipulated by the researcher to introduce various combinations of psychological determinants. This will allow the researcher to study the behaviour of the participants and determine how the combined effects of determinants affect EoC over the life of the project.


There exists a substantial amount of literature that deals with EoC and project management, but very few researchers have studied EoC in the context of the selection of projects in portfolios. A number of possible EoC determinants have been identified, but there appears to be confusion about EoC determinants and decision-making theories. In addition to this, there is no research that specifically considers the combined effect of the proposed determinants.

The research framework and method proposed in this paper will allow the researcher to test all the above shortcomings and will lead to a better understanding of reasons that many organisations do not stop projects that are just a burden to the organisation and are bound not to deliver any value.

This research will contribute to our understanding of EoC in the following ways:

  • It will look at the decision-making process in a project portfolio setting;
  • It will test the decision-making process in a setting, which closely resembles the actual project environment;
  • It will investigate the cumulative effect of decisions;
  • It will test the combined effect of the known psychological determinants;
  • It targets individuals who are responsible for project decisions as part of their occupation;
  • It makes a clear distinction between the motivation for making decisions and the descriptive models for making decisions.


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