High sunk costs: should we approve more funding?

The most common false rationale

‘We have invested too much to stop now’ sounds responsible but combines two different questions. The past shows how the programme has been governed and delivered. The next approval concerns only resources, risks and benefits that can still be changed.

HM Treasury’s Green Book defines sunk costs as costs already incurred and no longer changeable. They should not count as benefit or justification for the next option. Opportunity cost can still matter when already-paid resources could be sold or used elsewhere.

Evidence the CFO needs instead

The decision needs an updated outcome case, root-cause analysis, an independently challenged cost-to-complete range, critical dependencies, explicit funding conditions and the cost of each real alternative. Historical forecast performance is evidence: five missed forecasts require more than a sixth precise-looking plan.

Warning signs

Warnings include a paper that shows only the loss on cancellation, a forecast without ranges, risks outside the financial model, unclear supplier commitments, or a benefit model still based on obsolete assumptions.

Decision implications

Continue may justify more funding where future net value and delivery path remain defensible. Reset may protect the outcome when scope, governance or architecture must change. Stop may be economically correct where avoidable future cost exceeds an orderly exit.

Questions for the funding forum

Which costs can this decision still change? Which benefits remain demonstrably achievable? Were alternatives modelled on equal terms? What is the next irreversible commitment? Which evidence must exist before it?

When independent review may help

Independent review is useful when programme, sponsor and supplier all favour continuation or when forecast and status have lost credibility. Its purpose is not to write a new business-case narrative, but to test the assumptions that change the funding decision.