We deliberate whether a cost is worthwhile and required; this is what we do. Why spend money unnecessarily?
Opportunity cost is the loss in revenue or additional cost we subsequently incur because of an alternative decision we made.
Sunken cost relates to the expenditure incurred that cannot be recovered. The stock price has dropped forty percent from what you paid, and while the market is recovering, the stock you hold will likely not at the same pace. Your value is the current market price.
When is spending necessary? The critical designer required a raise to meet industry levels, and your laptop has been playing up for months; the system is rife with minor glitches. We hold off the spending since we do not know deem it is necessary. Until we lose it. The person leaves, and there goes our development, the laptop crashes, and you lose two months of data that you cannot recover easily, and the system glitch results in fifteen percent lost revenue.
We slash training, infrastructure, development, and other core day-to-day budgets, at times with little consideration of the longer-term issues. Our critical thinking should include a set of questions that we answer to assess the associated cost of doing something compared to not doing it. This is a fundamental cost.
