Sunk cost in buildings
NRM3: Order of cost estimating and cost planning for building maintenance works, defines ‘sunk cost’ as:
‘… the cost of goods and services already incurred and/or irrevocably committed.’
As sunk costs have already happened, they are independent of any event that may occur in the future.
Sunk costs are often associated with buildings, as for many businesses, once built, they are in effect sunk costs.
Sunk costs can pose an important dilemma for the funders of building projects, if for example, circumstances change part way through a project. They may then need to weigh up how much they have already spent, against the potential consequences of either proceeding (and potentially throwing good money after bad) or cutting their losses and moving on.
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