Sunk costs · printable packet

A half-finished project's two futures compared on what each still costs and still brings, with the money already spent left out of both.

Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.

1. What you will learn

You will set a half-finished project's two futures side by side — finish or stop — count only what each still costs and still brings in, leave the money already spent out of both, and say which is better and by how much, even when the whole project loses money counted from the start. You will also separate the part of a past cost that could still come back from the part that cannot.

2. What you already have

You compare options on the costs that differ between them, and you strike money already spent. This lesson is about why that strike is right even when the sum is large and the owner would very much like it back. The arithmetic is two subtractions. The difficulty is entirely in the owner's head: money spent on a project feels like a claim on the future, and every instinct says it must not be wasted. The lesson shows why that instinct, followed, usually wastes more.

3. Words this lesson uses

4. Two futures, and the past in neither

Long Row Gardens has spent 2000 dollars on a strawberry tunnel, half built. Finishing it would cost 900 more, and the finished tunnel would bring in 1500 of strawberries. Stopping now, the plants could be sold to another grower for 400.

The 2000 is gone. It is gone if Tomasz finishes and gone if he stops. So it is in neither future, and the choice is between them:

Finishing is better, by 200. Counted from the start, the whole project loses 1400 — and that figure, however true, is about the past. It cannot be made smaller by any choice left.

$$\text{finish from here} = \text{value} - \text{still to spend}, \quad \text{against} \quad \text{what stopping brings in}$$

Term	What it means
Sunk cost	Money already spent that cannot come back under any choice still open.
Forward comparison	Counting only what each choice still costs and still brings.
Result from here	What a choice still brings in less what it still costs.
Salvage value	What stopping recovers: equipment or materials sold, space rented out.
Refundable deposit	Money paid that can still come back; not sunk until the refund window closes.

	Finish	Stop now
Still to spend	900	0
Still to bring in	1500	400
From here	600	400

The sunk cost pulls both ways, which is what makes it dangerous. Sometimes it says carry on, or it was all wasted when stopping is better. Sometimes it says the whole thing loses money, stop when finishing adds more than stopping brings. Both are the past giving orders to the future.

Another way: steps

Set the money already spent aside, once, for good.
For finishing: what it still costs, and what it brings.
For stopping: what it still brings, if anything.
Take each future's result from here.
Choose the larger, and say by how much.

5. The method, step by step, and how to check it

Find what is truly gone. Money paid that cannot come back under any choice still open: a non-refundable fee, work already done, materials cut to size. A deposit still inside its refund window is not gone, and nor is equipment that could be sold.

Cost finishing from here. What remains to be spent, and what the finished thing will bring in — sales, savings, contribution — over the period that matters.

Cost stopping from here. What stopping brings in: equipment or stock sold, a space rented out, a refund still due. And what stopping still costs, if anything: a cancellation charge, the cost of clearing up.

Check the comparison by adding the sunk cost back to both sides. Both results fall by the same amount, and the gap between them does not change. If adding it back seems to change the answer, it has been added to one side only — which is exactly the mistake the lesson is about. Then check the figures for finishing: an owner who has already put a lot into a project tends to overestimate what it will bring and underestimate what it still needs.

6. Why the past pulls so hard

People dislike admitting that money has been wasted, and a project stopped halfway looks like a waste made visible. So the sunk cost is used as a reason: we have come too far to stop. The trouble is that the money was wasted — if it was — when it was spent, not when the project is stopped. Carrying on does not unspend it; it only adds more spending on top.

The pull works the other way too. An owner who looks at a whole project that loses money counted from the start may want to stop it to limit the damage, even when finishing would add more than stopping brings in from here. Stopping then turns a smaller loss into a larger one.

Both mistakes have the same cure: write down the two futures, from today, with the past left out. It helps to ask the question as if a stranger had just taken over the business: knowing only what I know now, which future would I choose? A stranger has not spent the money and does not feel it.

7. Sunk costs that are not quite sunk

Several costs look sunk and are not, and treating them as sunk is a mistake in the other direction.

Equipment that can be sold. A cleaner bought for 2,500 is not a 2,500 sunk cost if it would sell for 800 today; the 800 is what stopping brings in, and only the other 1,700 is gone.

Deposits and prepayments with a refund window. Until the window closes, the money can still come back, so it belongs in the choice.

Stock that can be used elsewhere. Timber bought for decking that will not be finished may be used on another job, saving what that job would otherwise have spent.

Time already spent learning. A skill learned for one project is gone as a cost but may still be worth something on the next. That value belongs in the future that uses it.

The test is the same in every case: would this money, or this thing, be different depending on what is decided now? If yes, it is part of the choice. If no, it is sunk.

8. Deciding in advance when to look again

The easiest time to be clear-headed about a project is before any money has gone into it. An owner who starts a project with a few review points written down, and a rule for each, is far less likely to be pulled along by money already spent.

Set review points. After the first 2,000 dollars; when the decking is laid; at the end of the first month of trading. At each, the forward comparison is made afresh: what finishing still costs and brings, against what stopping brings.

Write the stopping rule before starting. If by the end of the first month the terrace averages fewer than twelve covers an evening, we close it for the season. A rule written before the money was spent is not bent by it.

Update the estimates, not only the spending. The most important thing a review does is replace hopes with facts: what the finishing work is now quoted at, what customers have actually done. A project whose remaining cost has doubled since it started is a different project, whatever has already gone into it.

Record the decision and the reason. A short note — continued, because finishing adds 600 from here against 400 from stopping — makes it easy at the next review to see whether the reason still holds.

None of this makes stopping easy. It makes it a decision taken on the figures that can still change, at a time chosen in advance, rather than one put off month after month because of figures that never will.

9. In the world: a restaurant's half-built terrace

A restaurant owner has spent 18,000 dollars on a roof terrace: the structural work is done, but the decking, lighting, heaters and furniture are not. Her builder says finishing will cost another 14,000. Then the city tells her the terrace can only open from May to September, not all year as she had assumed.

Her first reaction is that she must finish, or the 18,000 is wasted. Her accountant asks her to write the two futures down instead. Finished, the terrace would seat 30 more covers on about 90 evenings a year, and at an average contribution of 12 dollars a cover and two-thirds occupancy that is 30 × 90 × 12 × 2/3 = 21,600 a year. Over the three years she expects to stay in the building, finishing brings about 64,800 against 14,000 still to spend: +50,800 from here.

Stopping, the structure could be used as a covered storage and staff area, which would save about 3,000 a year of off-site storage: 9,000 over three years, and nothing still to spend.

Finishing is better by about 41,800 from here. The 18,000 already spent appears in neither future. Had the city's ruling cut the season to two months, the same method would have given a different answer, and the 18,000 would still have played no part in it. She finishes the terrace, and asks the builder for the price in writing before he starts.

10. In the world: large projects and the sunk-cost trap

Governments and large firms have kept expensive projects going long after the forward case for them had disappeared, because stopping would mean admitting that earlier spending was lost. The standard advice from those who study such projects is the same as this lesson's: at each review, compare only the costs and benefits still ahead, as though starting afresh from where the project now stands.

11. Where this goes wrong

A sunk cost must be recovered before changing course. It cannot be recovered by any choice left; only future money can still be won or lost.

Stopping wastes what was spent. The money was spent either way. Stopping only gives up what finishing would still add.

A project that loses money overall should be stopped. Only if stopping brings in more from here than finishing does.

Paid means sunk. A refundable deposit has been paid and can still come back, so it is still part of the choice until the refund window closes.

Equipment bought is sunk. Only the part that cannot be sold again. What it would fetch today is what stopping brings in.

The estimates made at the start still hold. A review should replace them with what is known now; a project whose remaining cost has doubled is a different choice.

Ignoring sunk costs means ignoring the past. The past is where the lessons are, and what it taught about costs and customers belongs in every estimate for the future. It is only its money that has no vote.

12. Corner Bean's ordering app

13. Long Row Gardens' strawberry tunnel

14. Fixit Mobile's cleaner, not quite sunk

15. Your turn: 3000 spent; 600 more to finish; worth 1500 finished; stopping recovers 800

16. Guided practice

Corner Bean has spent $900$ dollars on the app-based ordering system, and that money cannot come back. Finishing would cost another $600$ and the finished project would bring in $500$. Stopping now would bring in $0$ (nothing, since the half-built app has no other use). Fill in both futures, in dollars, writing a result below zero with a minus sign.

17. Guided practice

Complete the worked solution: a shop has spent $3300$ dollars on a half-built display that cannot be sold. Finishing would cost $500$ more and bring in $3100$ of sales. Stopping would bring in $700$ from selling the fittings. Which is better, and by how much?

18. Guided practice

Corner Bean is half-way through building outdoor seating. Sort each amount by whether the decision to finish can still change it.

19. Practice

Dan's notes on whether to keep Fixit Mobile's water-damage repair line going. Mark every sentence that reasons from money already spent.

20. Practice

A landscaper has paid a non-refundable $700$-dollar fee for a stand at a garden show. A client then offers a job on the same day that would contribute $2200$ dollars. The landscaper expects the show to bring in work contributing about $900$ dollars. On these figures, how many dollars better off is the landscaper by taking the job instead of going to the show?

21. Practice

A florist spent $2400$ dollars on repairs to her old van last year. It now needs a $1100$-dollar repair and would cost about $2200$ to run for the coming year. A new van would cost $9900$, the old one would sell for $3000$, and the new one would cost $1600$ to run for the year. Over the coming year, by how many dollars is keeping the old van the cheaper choice?

22. Somewhere new

A hair salon has spent $8000$ dollars on a half-finished refit of its back room as a treatment room, and cannot get it back. Finishing would cost $1600$ more, and the treatments would contribute about $2900$ over the next year. Stopping now, the owner could rent the half-finished room to a nail technician for $1100$ over the year. Fill in the comparison, in dollars.

23. Lesson test

Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.

24. Test question

Fixit Mobile has already spent $3000$ dollars on the refurbished-phones counter, and cannot get it back. Finishing would cost $500$ more and bring in $1400$; stopping now would bring in $1000$. By how many dollars is the better of the two choices ahead of the other?

25. What you can do now

You can compare finishing and stopping from here and name the sunk cost you left out. Tell someone why 'we've spent too much to stop now' is not a reason, and why 'it loses money overall' is not one either. Next: spreading shared costs across products, and what that spreading can and cannot tell you.

Working for the steps left to you

	Finish, dollars	Stop now, dollars
Already spent, cannot come back	900	900
Still to spend	600
Still to bring in	500
Result from here

	Amount
Finishing, from here
Stopping, from here
Gap between the two futures
The whole project from the start

15. Your turn: 3000 spent; 600 more to finish; worth 1500 finished; stopping recovers 800, step 3

$900 - 800 = 100$

Finish, by 100; the 3000 plays no part.

	Sunk: gone whatever is decided	Still changes with the decision
The $3739$ dollars already paid to the carpenter
The permit fee, paid and not refundable
What it would cost to finish the decking
The extra takings the seating would bring each month
What the stacked timber could be sold for if she stops
A $722$-dollar parasol deposit, refundable until Friday