ACCT 212 Week 5 Faith Integration Project Example

Forgetting What Lies Behind: A Group Faith Integration Project on Sunk Costs, Capital Decisions and Counting the Cost

Introduction

Our group chose a decision that many companies face. A manufacturer has spent $1.2 million building a new production line, but a competitor has introduced a better product and demand has fallen. Finishing the line will cost another $800,000, and updated forecasts show it will generate future cash inflows with a present value of only $650,000. Several managers argue that the company must finish the project because it has already invested so much. Others worry that stopping will look like failure to the board and to employees who worked on the line. The decision is a common one, and it shows how easily past spending can cloud judgment about the future. Managerial accounting and Scripture both say they are wrong, and this essay explains why.

Sunk Costs and Leaving the Past Behind

A sunk cost is a cost that has already been incurred and cannot be recovered by any future decision. Managerial accounting teaches that sunk costs are irrelevant to choosing among alternatives, because they are the same whichever option is chosen. Only future costs and benefits that differ between alternatives matter. In our example, the $1.2 million already spent is gone whether the company finishes the line or abandons it. The relevant comparison is the additional $800,000 against the $650,000 present value of future inflows. Finishing the line would make the company $150,000 worse off than stopping now, even though stopping feels like admitting that $1.2 million was wasted.

People find this rule surprisingly hard to follow. Arkes and Blumer (1985) conducted a series of experiments on the sunk cost effect. In one, theater patrons who paid full price for season tickets attended more performances in the first half of the season than those who received discounts, even though the money was already spent either way. Staw (1976) found that business students who had personally chosen a course of action that later went badly committed more additional money to the same course of action than students who had not made the original choice. The money already spent cannot be saved by spending more; it can only be honored by making the next decision well.

Paul writes, "But one thing I do: forgetting what lies behind and straining forward to what lies ahead, I press on toward the goal" (English Standard Version Bible, 2001/2016, Philippians 3:13-14). Paul is speaking of his spiritual life, not of investments, yet the principle of not being ruled by what lies behind applies well to sunk costs. A Christian manager can acknowledge a past mistake honestly, learn from it and then make the next decision based on what lies ahead, rather than spending more to avoid admitting the loss.

Counting the Cost Before Building

The opposite error is starting a project without careful planning. Jesus pictures someone planning a tower who first sits down to estimate the expense and check whether the funds will stretch to the finish (English Standard Version Bible, 2001/2016, Luke 14:28). The warning is that a builder who lays a foundation and cannot finish will be mocked. In context, Jesus is teaching about the cost of discipleship, but his illustration assumes that wise people estimate costs before they begin. Capital budgeting is the modern discipline of counting the cost: estimating future cash outflows and inflows, discounting them for the time value of money and comparing the result to the investment. Graham and Harvey (2001) asked hundreds of finance chiefs how they choose projects and found that discounting future cash flows, through net present value or a project's internal return, was the approach most of them used routinely, which shows how widely these tools are relied on. Had our manufacturer counted the cost more carefully, including the risk that a competitor might change the market, it might have built a smaller line or delayed the project. Counting the cost also means revisiting estimates as conditions change, which is exactly what makes the sunk cost decision possible.

Pride, Fear and Faithful Decisions

Why do managers escalate commitment to failing projects? Staw (1976) suggests that personal responsibility for the original decision is a powerful driver, and pride and fear of embarrassment likely play a part. Proverbs warns that pride goes before destruction (English Standard Version Bible, 2001/2016, Proverbs 16:18). A culture that punishes honest admission of mistakes encourages managers to throw good money after bad. Our group recommends three practices. First, separate the review of a troubled project from the people who proposed it, so that the decision is judged on future cash flows. Second, set checkpoints in advance at which projects will be re-evaluated against updated estimates. Third, reward managers who recommend stopping a failing project, because their honesty saves resources that can be used well elsewhere. These practices create room for humility, which allows people to admit errors without fear and redirect resources toward better uses.

Applying the Principles to Budgets and Variances

The same habits apply beyond capital projects. When a department overspends its budget, the money already spent is sunk; the useful question is what spending in the remaining months will produce the best results, not how to recover the past through cuts that harm future performance. Variance analysis, which compares actual results with the budget, is most valuable when it looks forward, asking whether the original assumptions still hold and what should change. Counting the cost applies here too: a realistic budget built on honest estimates makes later variances meaningful, while a padded or wishful budget makes every variance hard to interpret. In both cases, the Christian manager's task is to tell the truth about where the organization stands and then act wisely from that point.

Conclusion

Managerial accounting and Scripture agree that wise decisions look forward. Counting the cost before beginning and refusing to be ruled by costs already spent are both expressions of stewardship over resources that ultimately belong to God. For our manufacturer, that means stopping the production line, learning from the forecast that went wrong and using the $800,000 it would have spent on an opportunity with better prospects. That choice may feel like failure, but in accounting terms and in biblical terms it is the faithful one, and it frees the company to move forward.

References

Arkes, H. R., & Blumer, C. (1985). The psychology of sunk cost. Organizational Behavior and Human Decision Processes, 35(1), 124-140. https://doi.org/10.1016/0749-5978(85)90049-4

English Standard Version Bible. (2016). Crossway. (Original work published 2001)

Graham, J. R., & Harvey, C. R. (2001). The theory and practice of corporate finance: Evidence from the field. Journal of Financial Economics, 60(2-3), 187-243. https://doi.org/10.1016/S0304-405X(01)00044-7

Staw, B. M. (1976). Knee-deep in the big muddy: A study of escalating commitment to a chosen course of action. Organizational Behavior and Human Performance, 16(1), 27-44. https://doi.org/10.1016/0030-5073(76)90005-2