What is Cost Overrun?

What is Cost Overrun?

What is Cost Overrun? Jonathan Poland

A cost overrun occurs when the actual cost of completing a task or project exceeds the budget that was allocated for that work. This can happen at the level of a government, organization, department, team, project, function, or task. There are several primary types of cost overrun:

  1. Direct cost overrun: This occurs when the direct costs of a project, such as materials and labor, exceed the budgeted amount.
  2. Indirect cost overrun: This occurs when the indirect costs of a project, such as overhead and administrative expenses, exceed the budgeted amount.
  3. Contingency cost overrun: This occurs when the contingency reserve allocated for a project is not sufficient to cover unexpected costs that arise.
  4. Scope creep cost overrun: This occurs when the scope of a project expands beyond the originally agreed upon boundaries, resulting in additional costs.
  5. Schedule overrun: This occurs when a project takes longer to complete than the originally planned timeline, resulting in additional costs.
  6. Change order cost overrun: This occurs when changes are made to a project after it has been initiated, resulting in additional costs.
  7. Cost Escalation: This occurs when an increase in the price of a particular item that occurs over time. For example, the price of materials such as steel can rapidly rise and fall over a short period of time.

When a cost overrun occurs in a business, it can have significant consequences. Some possible impacts of a cost overrun include:

  1. Reduced profitability: If the cost of a project exceeds the budgeted amount, it can reduce the profitability of the project.
  2. Reduced cash flow: A cost overrun can impact an organization’s cash flow, as it may need to allocate additional funds to the project.
  3. Reduced competitiveness: If a cost overrun results in a project being more expensive than expected, it may impact the organization’s competitiveness in the market.
  4. Reduced customer satisfaction: If a cost overrun results in a project being delivered late or not meeting the customer’s expectations, it can impact customer satisfaction.
  5. Strained relationships with stakeholders: A cost overrun can strain relationships with stakeholders, such as investors or shareholders, who may be concerned about the impact on the organization’s financial performance.
  6. Damage to reputation: If a cost overrun becomes public knowledge, it may damage the organization’s reputation and impact its ability to do business.
Learn More
Sales Pipeline Jonathan Poland

Sales Pipeline

A sales pipeline is a visual representation of the sales process, from the initial contact with a potential customer to…

Building Trust Jonathan Poland

Building Trust

To build trust, it is necessary to engage in ongoing behavior that helps people trust you. In general, people tend…

Innovation Principles Jonathan Poland

Innovation Principles

Innovation principles are guidelines that an organization adopts as a basis for innovation activities. They are typically considered foundational policy…

Value Pricing Jonathan Poland

Value Pricing

Value pricing is a pricing strategy in which a company sets its prices based on the perceived value that its…

Reverse Distribution Jonathan Poland

Reverse Distribution

Reserve distribution is the process of distributing a reserve, which is a reserve amount of money or other resources that…

Types of Infrastructure Jonathan Poland

Types of Infrastructure

In an industrial economy, the production of tangible goods and infrastructure plays a central role. This type of economy has…

What is a Cash Cow? Jonathan Poland

What is a Cash Cow?

A cash cow is a business or product that generates a steady stream of income or profits for a company.…

Supply Chain 101 Jonathan Poland

Supply Chain 101

A supply chain is the network of organizations, people, activities, information, and resources involved in the production, handling, and distribution…

Settlement Risk Jonathan Poland

Settlement Risk

Settlement risk is the risk that a trading counterparty will not deliver a security or asset as agreed upon in…

Content Database

Go-To-Market Strategy Jonathan Poland

Go-To-Market Strategy

A go-to-market strategy is a plan that outlines how a business will introduce its products or services to the market…

Situational Awareness Jonathan Poland

Situational Awareness

Situational awareness (SA) is the ability to understand and effectively respond to a situation by being aware of what is…

Buenaventura Jonathan Poland

Buenaventura

Compañía de Minas Buenaventura S.A.A. (BVN) is involved in the exploration, mining development, processing, and trading of precious and base…

What is a Self-Replicating Machine? Jonathan Poland

What is a Self-Replicating Machine?

Self-replicating machines are robots or nanobots that are capable of producing copies of themselves, using scavenged materials and energy to…

Team Leadership Jonathan Poland

Team Leadership

Team leadership involves guiding and representing a team, using influence rather than authority. In many cases, a team leader is…

Collective Intelligence Jonathan Poland

Collective Intelligence

Collective intelligence refers to the ability of a group to solve problems, make decisions, and generate new ideas more effectively…

Consumer Goods Jonathan Poland

Consumer Goods

Consumer goods are goods that are produced and purchased for personal or household use. These goods are typically consumed or…

Razor and Blades Jonathan Poland

Razor and Blades

The razor and blades model, also known as the bait and hook model, is a business strategy that involves selling…

Project Proposal Jonathan Poland

Project Proposal

A project proposal is a document that outlines a proposed project and presents it to potential sponsors or stakeholders for…