Why do people spend money to save money?

It's quite common to see people spending money with the objective of saving money. Unfortunately most of the times they end up spending the double of what they wanted to save. Usually the cycle repeats itself for several interactions until the person, or organization, has a cash flow problem or decides that it suffered enough and stops the bleeding.

Typically the thing goes like this: let's invest €75K which will enable us to save €25K a year for the next five years. This would have a five year ROI of 67%, which seems reasonably good. Problems usually happen due to three factors. First, the estimated costs and savings assumptions were wrong. Second, no proper cost and risk analysis was done. Third, poor project management planning and implementing the initiative. In this example the company can easily end up discovering that the real costs were €120K and that the saving turned out to be €20K, the five year ROI suddenly became -17%. They would done better to keep that money in a order account and gain the standard interest of 0.00000012%.

There's also another reason why many of these budget burning projects happen, no analysis at all was made. Someone just got enthusiastic about something and the organization failed to have controls in place to detect, stop or correct projects that are slippering or that should have been stopped before starting.