Businesses and individuals tend to consider past costs when making decisions so to them why are sunk costs important?
It’s a psychological thing.
A sunk cost is any cost that has already been made or committed to in a way that cannot be cancelled.
You hear all the time: “We can’t go back now, we’ve too much invested in this”. “I can’t change career, I’ve invested too many years and too much money to become a ………..” The point is though, that investment is in the past. It was either good or bad. Either way – it’s over.
When deciding what to do next then what has been committed in the past is irrelevant. The question has to be “what do we need to do to move forward?” “How much will that cost and can we afford it?”
You may have a big investment in offices or equipment but that should not influence your future decisions. Take it from me, you may have a huge investment in equipment and training staff to make CD’s but if you argue we have too much invested to stop now you will not do well.
Sunk costs are the enemy of change.
Changing direction in the current environment is not a sign of past failure, it is a sign of future strength.
What sunk costs are stopping you taking decisions to become more effective?
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