Why the NHS should Beware the Sunk Cost Trap

The Public Accounts Committee has reported on the NHS National Programme for IT (NPfIT) and, as expected, their report is scathing.

This follows an equally damning report from the National Audit Office (NAO) earlier this year.  (By the way, when you click on the link to my earlier blog, you’ll get a quick guide to the acronym spaghetti that comes when you mix IT projects with Government departments!).

The Report’s Conclusions

Not to put too fine a point on it, The Public Accounts Committee said that the problems with the electronic Detailed Care Records system are making the £7bn project “unworkable”.  £2.7bn has already been spent on what one member of the committee, Richard Bacon, described as a “pipedream”.

The Chair of the Committee, Margaret Hodge, said: “Trying to create a one-size-fits-all system in the NHS was a massive risk and has proven to be unworkable. It should now urgently review whether it is worth continuing with the remaining elements of the care records system.”

BBCBackground article from the BBC

Interviews with Richard Bacon on BBC TV News and
the Radio 4 Today Programme

The Sunk Cost Trap

It is far too easy to look at the committed £2.7bn and see that as a reason to keep going – to avoid the financial, psychological and political pain of having to write it off.  This is our psychological instinct.

It is called the “sunk cost trap” – paying too much attention to the committed investment.  Any decision making must be in reference to the future options: if we do this, the costs and benefits will be these.  No future action will recoup the past investment.  It is gone.

So the analysis must look at what actions will give the best results in spending the remaining budget, some £4.3bn.  The unspent £4.3bn could be re-allocated, to buy other, proven systems, and this achieve good value for money… or maybe spent directly on patient care.

This is provided the Government can extract itself from a complex web of massive contracts with global IT companies, who would, no doubt, want to fight tooth and nail to protect their investments.  This cost and risk must be factored into any calculation upon which a decision is based.

One Advantage

The current situation offers one big advantage over many failing Government projects.  The present Government did not commission the project and, indeed, opposed it.  This means that there is no sunk “political cost” and it is easy to see Ministers distancing themselves further from it.  Indeed, we are already seeing this from current Health Secretary, Andrew Lansley, seen here in a BBC interview.

The “so what?”

Currently, Government is talking about getting the best from its contracts.  This may be the best option, but it must evaluate all of its options before making a decision, without thought of the £2.7bn already spent.

We will see: The Department of Health has confirmed that it will announce plans for the future of ICT in the NHS this autumn.

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