A blog that looks at all aspects of project and program finances from budgets, estimating and accounting to getting a pay rise and managing contracts.
Written by Elizabeth Harrin from RebelsGuideToPM.com.
In this video I explain what sunk costs are and why they are so emotive on projects, especially when projects are challenged or no longer viable.
I try to give you some background on sunk costs so that when you’re faced with execs who are looking at sunk costs as a reason to continue with a project, you’re armed and ready to at least debate with them about why that isn’t a good idea!
Very interesting. Indeed, agree from financial management perspective with your point that sunk costs should not be considered for project decisions, as they are irrelevant.
The only challenge is when this sunk cost is huge, then organizations tend to continue with the project trying to justify the investment. Writing off such cost is a major decision making process that requires time and approvals from multiple stakeholders involved which can be cumbersome.
While we are taking a purely financial management approach when discussing sunk costs, the other side of this worth exploring are avenues for getting benefit from the sunk costs mostly intangible assets like lessons learned from such projects, any re-usable code of the project that can be harnessed, technical or functional knowledge gained by resources working on such projects may become useful when projects of similar nature gets executed and these resources can be roped in for their expertise.
