What is Sunk cost?
Sunk cost: Money already spent that can't be recovered; it shouldn't drive future choices.
Where Sunk cost fits
Sunk cost is part of Strategy & Decisions in Management. Strategy is choosing where to compete and what to ignore. SWOT, KPIs and stakeholder maps guide decisions; opportunity cost says every yes is a no; sunk costs should not drive choices.
Practical tip
Decide on future value and track it with clear KPIs.
Related terms
- SWOT analysis
- Reviews strengths, weaknesses, opportunities and threats.
- KPI
- A key number used to track progress toward goals.
- Stakeholder
- Anyone affected by a company's decisions.
- Opportunity cost
- The value of the best alternative you give up.
- Vision statement
- A picture of what a company wants to become in the future.
- Scenario planning
- Preparing for several possible futures instead of betting on one.
- Competitive advantage
- Something that lets a company outperform rivals.
- Balanced scorecard
- Tracking performance from several perspectives.
Formulas you will use with it
Test yourself
Which term means: “Money already spent that can't be recovered; it shouldn't drive future choices.”?
Competitive advantage · Sunk cost · KPI
Answer: Sunk cost
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