Plain definition
A sunk cost has already been incurred and cannot be changed by the decision now being made. It may remain visible in the accounts and matter when reviewing how the original decision was made. But it does not make a weak future investment attractive. The question is what each available option will cost and deliver from this point forward.
Illustrative example
Monetary examples use Saudi riyals (SAR). The same principles apply in other currencies.
Suppose a company has paid to build a customer portal. Completing it now requires another . The best supported estimate is that completion would produce of additional cash benefits over the next year, with no later benefit. Cancellation brings no refund, penalty, or other cash effect. Ignore discounting for this short comparison.
Completing the portal would leave the company worse off than stopping. The earlier is gone under either choice. Spending another does not recover it; only future benefits can justify the additional commitment.
| Future cash benefits | |
|---|---|
| Remaining completion cost | |
| Net effect versus stopping |
A recoverable deposit or saleable asset has a value that can change between options. Do not label every amount already paid as irrelevant.
Why it matters
Teams often continue because they do not want earlier work to have been wasted. This can turn a disappointing project into a larger loss and consume people who could work on something useful.
Practical consequence
Separate the review of the past decision from approval of the next payment. Compare remaining costs, credible future benefits, cancellation obligations, and other uses of the team. Ask what you would choose if you inherited the project today. Investigate the earlier failure without making continuation the price of avoiding blame.