Sunk Costs and Opportunity Costs
Avoid Common Decision Errors
Managers often make poor decisions by considering sunk costs. Since these costs have already been incurred, they cannot be changed and should not influence future decisions. Opportunity costs, however, represent the benefits lost by selecting one alternative instead of another.
Past costs cannot be changed; future choices can.
Tip
Never continue an unprofitable project simply because significant money has already been spent.
Summary
Ignore sunk costs and carefully evaluate opportunity costs when comparing alternatives.