Governments worldwide spend vast amounts of money on capital projects such as road and rail infrastructure, schools, hospitals, community projects and even defense. While the vast majority of these projects are well planned, have detailed objectives and are usually well costed, from time to time, some projects are abandoned before completion. This creates substantial sunk costs for government departments, as portrayed in the two following examples. In the US, the Department of Homeland Security spent \($1 billion\) between 2005 and 2010 to develop a networked suite of electronic sensors along its northern and southern borders. The project was frozen in March 2010, after only 53 of 6000 miles were complete.

In Spring 2009, the Irish government disposed of electronic voting machines which had been purchased at a cost of €51m several years earlier. The machines were only used once on a trial basis and the cost mentioned did not include the costs of storage for more than two years.

Questions 

1 Why are each of the above considered sunk costs?

2 How could such costs be avoided?