Last edited 31 Dec 2020

Irrelevant costs in construction

An irrelevant cost is an accounting term used to refer to costs that do not relate to whether or not a particular business decision is made. Irrelevant costs will be incurred regardless of the decision.

By identifying the irrelevant costs in relation to a particular business decision, unnecessary cost information can be removed from the decision making process, leaving only costs that are relevant to the decision (i.e. 'relevant costs' that will be affected depending on which option is selected). Time and effort can be saved by distinguishing between relevant and irrelevant costs when analysing decision options.

Typically, irrelevant costs include:

  • Sunk costs: Costs that have already been incurred, and so are independent of any decision that might be made in the future.
  • Committed costs: Costs that will be incurred in the future but must be paid regardless of any business decisions.
  • Notional/non-cash costs: Depreciation, amortisation, and so on.

[edit] Related articles on Designing Buildings Wiki

Designing Buildings Anywhere

Get the Firefox add-on to access 20,000 definitions direct from any website

Find out more Accept cookies and
don't show me this again