Project Management from a Behavioral Finance Perspective - A case study of SCA -

Abstract

Behavioral Finance is a growing area within the financial field, in which psychologists like Daniel Kahneman, Nobel Prize winner 2002, and Amos Tversky have joined psychological and financial theories. They have challenged the investment community to better reflect the way that investors think and behave by using Behavioral Finance theories. Most of the earlier studies within Behavioral Finance have been done in relation to individuals making private investments. That is why we find it challenging to conduct research on a relatively unexplored area where we apply the theories from Behavioral Finance into the world of corporate environments. Our aim in this thesis is to study the theory regarding Behavioral Finance focusing on project abandonment. We are doing this by researching what factors can influence the decision makers to hold on to failing projects too long in a company, in what way these factors affect the decision makers and what the consequences are. When it comes to corporate organizations performing lots of projects, it is crucial to make the right decision regarding whether a wrong going project should be abandoned or continued. Within the theoretical framework we intend to implicate factors like loss aversion, sunk cost, mental accounting and commitment to a corporate organization. To find a suitable company in which we would be able to perform this research, we set up criteria that the company should meet. The criteria were that the company should be a large organization and which preferably would be working with product development. SCA (Svenska Cellulosa Aktiebolaget) which meets our criteria and is a global consumer goods and paper company was interested in working with us. We conducted the interviews within two different units in SCA; Packaging and Personal Care. Throughout our thesis we have found how the factors which the Behavioral Finance theories indicate, influence the decision making process regarding project abandonment in SCA. In the conclusions we have highlighted a relation between these factors focusing on how much and in what way they are influencing the decision making regarding project continuation or abandonment. Moreover we could find other factors influencing the decision making process that have not been mentioned in the theories concerning individual investments.