Mental Accounting

So back to those Eight Failures in Strategic Thinking… number 2 was Mental Accounting.  Mental Accounting is when you bucketize things and use the same resources with different rules when applied to the various buckets.  In your personal life, it might be something like burning through money you got from a birthday gift on things you would never spend your hard-earned salary on.  In the corporate world, it can rear its ugly head as a willingness to spend tons of money on research or new products while you starve your core, bread and butter, products that are actually making the company money.

At the end of the day, $1 is $1 and an hour of your time is an hour of your time.  It’s ok to divide things up in different buckets, just make sure that you think about the implications of the way you apply your limited resources to the things in those buckets.  At the end of the day or the fiscal year, you need to account for all the buckets.  Have you ever been bitten by the temptation to engage in Mental Accounting?