Escalation of commitment in NPD and cost saving IT projects

Stopping non promising projects as early as possible saves resources that can be allocated to more relevant investments or be saved to improve the bottom line of an organisation. Gated processes are in use in numerous organisations to decide on proceeding or cancelling a project. This study examines the consequences of the setup of the gatekeepers, the managers deciding on the gates, in these processes. Gatekeepers deciding on two consecutive gates are, according to the escalation of commitment theory, tended to confirm their initial decisions. They hold a higher approval rate for the consecutive decision as compared to a setup where the gates are approved by different gatekeepers. In this paper we present the results of, as far as we know, the first natural experiment on the escalation of commitment using 820 new product development and cost saving IT projects over a time span of 4.5 years. We found empirical evidence that escalation of commitment, as predicted in theory, leads to a higher approval rate of the consecutive gate. Organisations can mitigate this by changing the setup of the governance by avoiding the approval of two consecutive gates by the same gatekeeper. Furthermore, the data showed that large investment projects hold a significantly larger possibility to receive approvals (after an initial approval) than small investment projects. This indicates the importance of the initial gate approval. Finally, we studied the difference between cost saving and new product development projects and found no differences in their mortality rate nor in the approval rate of the consecutive gate.