The sunk cost fallacy occurs when organisations continue investing resources into programs or approaches simply because of what they have already committed, rather than objectively evaluating whether continuing makes sense. For Nigerian non-profits, this manifests in several common scenarios. Many organisations in Nigeria have developed comprehensive programs built around specific donor funding mechanisms. When these funding streams approach their end, leaders often face difficult choices. The rational approach would be to evaluate each program component on its future viability alone. However, the sunk cost fallacy leads many organisations to desperately try preserving programs in their entirety, even components showing minimal impact, simply because of the years of effort already invested in building them.
During periods of substantial funding from international donors, organisations typically expand their operational capacity, hiring additional staff and investing in infrastructure. When funding concludes, the sunk cost mentality can drive organisations to maintain unsustainable staffing levels and operational costs, draining reserves that could otherwise fund a strategic transition. These organisations caught in the sunk cost trap often exhaust themselves chasing replacement funding that exactly matches previous funding streams, even when such funding is clearly unavailable or misaligned with current donor priorities. The resources spent pursuing unlikely funding opportunities represent their own form of sunk costs, creating a dangerous cycle.
The Emotional Dimension: Identity and Reputation
The sunk cost fallacy in organisations is not merely financial, it has profound emotional dimensions. Organisations build their identities around certain programs and approaches. Staff members develop professional identities tied to specific methodologies. Community members come to expect certain services. This emotional attachment makes objective decision-making particularly difficult when donor funding ends. Leaders fear that changing direction means admitting failure or betraying commitments to communities and staff. However, effective development work must be responsive to evidence rather than assumptions.
Non-profits can reduce dependency on international donors by developing robust local fundraising initiatives. This includes cultivating relationships with Nigerian businesses, high-net-worth individuals, and community-based giving circles. Organisations that develop diversified local funding sources are less vulnerable to the sunk cost fallacy when international funding ends, as they have alternative resources to sustain their most impactful work. Rather than pursuing large grants that mirror international donor’s funding, organisations can adopt micro funding approaches that aggregate smaller contributions from multiple sources. This might include community contribution schemes, membership models, social enterprise components, or crowdfunding campaigns. These approaches not only provide financial sustainability but also strengthen community ownership and accountability.
Breaking Free: Strategic Approaches to Funding Transitions
Nigerian non-profits can reduce dependency on international donors by developing robust local fundraising initiatives. This includes cultivating relationships with Nigerian businesses, high-net-worth individuals, and community-based giving circles. Organisations that develop diversified local funding sources are less vulnerable to the sunk cost fallacy when international funding ends, as they have alternative resources to sustain their most impactful work. Rather than pursuing large grants that mirror international donor’s funding, organisations can adopt micro funding approaches that aggregate smaller contributions from multiple sources. This might include community contribution schemes, membership models, social enterprise components, or crowdfunding campaigns. These approaches not only provide financial sustainability but also strengthen community ownership and accountability. Organisations can overcome the sunk cost fallacy through several strategic approaches;
1. Evidence-Based Program Evaluation
Before donor funding concludes, organisations should conduct rigorous, honest evaluations of all program components based on impact data. This creates an objective basis for deciding which elements truly merit continuation through alternative funding sources.
2. Knowledge Management for Preservation of Value
Even when programs must end, organisations can preserve their value through effective knowledge management by documenting lessons learned, successful methodologies, and community insights. When organisations systematically capture, analyse, and share lessons from their work, they contribute to a collective body of knowledge that improves practice across the sector.
Nigerian non-profits must also consider how the sunk cost fallacy affects their relationships with multiple stakeholders. Government partners, community members, and other civil society organisations may all have emotional and practical investments in existing program approaches. Effective organisations recognise these stakeholder dynamics and engage partners in transparent conversations about sustainability beyond donor funding. This multi-stakeholder engagement approach can help to create shared ownership of difficult transitions rather than placing the entire burden on organisations alone.
From Sunk Costs to Future Investments
The conclusion of donor funding cycles need not represent an organisational crisis for non-profits. By recognising and actively countering the sunk cost fallacy, these organisations can transform funding transitions into opportunities for strategic renewal and increased impact. The most successful organisations approach these transitions with what behavioral economists call "zero-based thinking", asking not "How can we continue what we've always done?" but rather "If we were starting fresh today, what would we choose to do given our current resources and opportunities?" This forward-looking perspective frees organisations from the psychological weight of sunk costs, allowing them to build truly sustainable organisations driven by evidence rather than inertia. In doing so, they honor their missions more authentically than any attempt to preserve unsustainable status quos ever could.