A sunk cost is something you previously worked on that’s no longer useful. You should give up on it, even though you may still be emotionally attached to it.
Say you’ve been at the beach all day, and your parents tell you have just one more hour to keep building sandcastles.
You must decide which sandcastle to work on in this final hour. That amazing one you worked on all day, that’s now getting swamped by the rising tide? Or a totally new one higher up on the beach?
It’s tempting to just keep working on that half-underwater sandcastle, even as it gets destroyed by waves. But that one is a ‘sunk cost’ – great while it lasted, but not going to be very fun to work on now. You probably should walk away, and enjoy building a new castle somewhere else.
Here’s why sunk costs are important to understand:
– They’re everywhere in business (and in life). Often you have to decide whether to spend more time or money on something, or just let it go and focus on something new.
– You’ll always do better if you can put the past in perspective, and make unemotional decisions based on the present. But this is hard to do because most people have emotional attachments to the past.
– Recognizing a sunk cost isn’t always easy, and takes clear thinking. What do you really want right now, and can something you’ve already invested time or money in really give you that? Or it best to start over?
You won’t hear this ‘sunk cost’ concept very often, even in the business world. But I like it because it’s a useful in many different situations.