Escalation in Information Technology Projects: A Discounting Theory Perspective

Escalation in Information Technology Projects: A Discounting Theory Perspective

Hilde Mobekk (Department of Behavioural Science, Oslo and Akershus University College of Applied Sciences, Norway) and Asle Fagerstrøm (Department of Behavioural Science, Oslo and Akershus University College of Applied Sciences, Norway)
DOI: 10.4018/IJITPM.2015100101
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Abstract

According to the information systems literature, many information technology (IT) projects go wildly over budget, drag on long past their originally scheduled completion date, and do not deliver according to initial specification. Theories that have been used to understand the escalation phenomenon in general are the self-justification theory, the prospect theory, the agency theory, and the approach avoidance theory. These theories have contributed to a considerable insight in the phenomenon of escalation, but divergence among them indicates that there are still some unanswered questions. Discounting describes how the subjective value of an outcome is altered because its outcome is either uncertain and/or delayed. Since a key factor in IT project is the uncertainty and/or delay associated with cost, schedules and functionality of the IT solutions that are made, the authors decided to introduce the concept of discounting to expand understanding of escalation behavior in IT projects.
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Escalation In Decision-Making

Decision-making, according to Rachlin (1989), can be understood as a choice between two or more alternatives. Much of psychologists’ work on individual decision-making has focused on how we deviate from strictly rational processes. Rationality in this sense is often defined as choosing the option that has the highest expected value among those potentially open to us (Arnold, 2005). Moreover, classic economic theory assumes that human beings always make rational decisions but behavioral studies indicate otherwise (e.g., Drummond & Hodgson, 2011; Hantula & Crowell, 1994; Wilkinson & Klaes, 2012). Green and Myerson (2004) state that “Choice is relatively predictable when the alternatives differ on only one dimension” (p. 1). The problem arises when choice options differ on more than one dimension (i.e., magnitude of the outcome, delay, and probability). For instance, when an individual must choose between a smaller outcome available sooner and a larger outcome available later or between a smaller more certain outcome than a larger less certain outcome (Green & Myerson, 2004). For instance, investing more money than budgeted in a project today to include a new feature that will increase the probability of sale, or being on budget but without the critical feature.

Over the last two decades, there has been an increasing interest in escalation situations in general. Escalation has captured the attention of researchers in several disciplines (e.g., psychology, cognitive science, economics, behavioral economics, behavior analysis, management). One reason for that may be that escalation is not in accordance with classic economic theory and normative decision rules. Escalation, in common language, is synonymous with expressions like “throwing good money after bad”, and “too much invested to quit”.

Brockner (1992) describes escalation as a tendency for decision-makers to persist with failing courses of action, and elaborates this further by arguing that escalation situations involves continued commitment regardless of negative feedback in the likelihood of goal or goals attainment. More precisely, according to Drummond and Hodgson (2011), “escalation means persistence with a course of action beyond a rationally defensible point” (p. 14). The tendency to maintain these pursuits are studied under the categories of escalation of commitment (e.g., Brockner, 1992; Staw, 1976; Staw, 1981), escalation of conflict (e.g., Logevall, 2001; Teger, 1980), entrapment (e.g., Brockner, Rubin, & Lang, 1981; Brockner & Rubin, 1985), and sunk costs (e.g., Arkes & Blumer, 1985; Keil, Truex, & Mixon, 1995).

Most research within escalation in decision-making has focused on identifying the factors that cause escalation behavior, and previous research indicates that escalation is a complex phenomenon that may be influenced by many different aspects (e.g., Hantula & DeNicolis Bragger, 1999). Hantula and Crowell (1994) suggest that escalation can be understood as a contextually determined and dynamic phenomenon. This implies that the probability of engaging in escalation can be a result of past experience, history of reinforcement, and ongoing environmental events. Behavior is multi-determined, and does not occur in an environmental void or a vacuum, but within an environmental context (Cooper, Heron, & Heward, 2007). This implies that decision-making is complex, and that multiple forces simultaneously exert their influences on our behavior.

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