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Definition
A sunk cost is an expense that has been incurred and cannot be recovered. In sound decision-making it is irrelevant: only future costs and benefits should count.
In plain terms
"We have already spent so much, we cannot stop now" is the sunk-cost fallacy. Past spending should not force good money after bad.
Why it matters for your company
Recognising sunk costs stops you pouring resources into failing projects to justify earlier spend. Judge investments on their forward return. See cost base.
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