To

Anyone with a decision to make

From

Daniel Okafor-Reyes

Re

Agenda item 6

Date

2026-11-09

Sunk Costs and Knowing When to Walk Away

Money and time already spent cannot be recovered by spending more. Good decisions look forward from where you stand.

Every senior manager eventually faces a project that is not working. Large sums have gone in, people are committed, and stopping feels like admitting waste. This is the moment where clear thinking pays most.

What a sunk cost is

In economics, a sunk cost is a cost that has already been incurred and cannot be recovered. Because it is the same whatever you choose next, it should not, in strict logic, affect the next choice. The question is only: from here, which option has the better future?

Why it is hard to ignore

People tend to continue an endeavour once an investment has been made, sometimes called the sunk cost fallacy. Stopping makes the loss feel final and visible. Continuing keeps alive the hope that it will all be worth it. Reputations are also tied to past decisions, which makes the leader who started a project the person least able to judge it neutrally.

A forward-looking test

Ask: "If I were arriving fresh today, with no history, would I start this?" If the answer is no, the past spending is not a reason to continue. Then compare, from today:

• The additional cost to finish or continue.
• The realistic value if it succeeds, and the probability that it does.
• What the same money and time could achieve elsewhere, the opportunity cost.

Building in exits

The easiest way to walk away is to agree in advance when you will. Set review points with clear criteria: "If we have not reached this milestone by this date, we stop or rethink." This is the risk budget applied to a project, and it takes the emotion out of the moment.

Chasing losses

The same trap appears in personal finance and gambling, where it is called chasing losses: spending more to win back what has already gone. Past losses in a game of chance do not change the odds of the next round. The money lost is sunk; the only decision is about the next stake.

On gambling. Games of chance are priced so that the operator comes out ahead over time. If you play, fix a loss limit in advance and treat it as the cost of entertainment, not as an investment. If it stops being fun or starts costing more than you planned, in the US you can call 1-800-MY-RESET.

When continuing is right

Ignoring sunk costs does not mean quitting whenever things get hard. Sometimes the forward-looking case for continuing is strong: most of the remaining risk has been removed, or the cost to finish is small compared with the value. The point is that the decision rests on the future, not on what has been spent.

What has gone is gone. Decide on what the next unit of money and time will buy.

Filed 2026-11-09