When the costs aren't recoverable, businesses have to make the tough decision of abandoning their investment and accepting the loss, or of continuing on their current course, probably losing even more valuable time, money or energy. While they hope their predictions are good ones, sometimes even the most promising investments can go awry.
TIME SINK COST FALLACEY SOFTWARE
For example, they might determine the benefits of implementing a new management strategy or purchasing an expensive analytics software or launching a marketing campaign. In business, most companies try to make sound decisions when evaluating their prospective costs. If a business has already incurred a cost and has no hope of recovering it in the future, the cost is 'sunk.'
The investment could be monetary, or it might be something more abstract, like an investment of time, energy or emotion.
Sunk cost is an economic term describing an irretrievable investment. In this article, we explain what sunk costs and sunk cost fallacies are, list signs you may be using a sunk cost fallacy in your decision-making, explain how those decisions can affect organizations and provide steps you can use to overcome sunk cost fallacies in your business. Learning to identify sunk costs and sunk costs fallacies can help companies mitigate risk and make logical business decisions. When evaluating the viability of a chosen action, strategy or investment, it's helpful to recognize instances of sunk costs. Successful decision-making can help companies remain innovative, encourage effective business practices and support the long-term goals of their organizations.
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