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4 Types of Cost Overrun

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A cost overrun is when the costs to complete work is greater than the amount budgeted for that work. The term can be applied to the budget of a government, organization, department, team, project, function or task. The following are the primary types of cost overrun.


Cost estimates that are too low due to factors such as optimism bias or a poor understanding of the complexity of tasks. Techniques such as reference class forecasting may be used to improve the accuracy of estimates. As future forecasts, the best of estimates can turn out to be inaccurate. As such, it is common to include cost contingency in a budget.


Risks are potential conditions that cause losses. For example, unusually bad weather can cause delays to a construction project. Risk can also include factors such as the performance of a vendor. Risk management, the process of identifying and treating risk helps to prevent cost overrun. The potential costs of risks can also be considered in cost contingency.

Scope Creep

Scope creep occurs when a project does more work than is captured by its budget and schedule. This can happen when business units think of features as the project evolves. Alternatively, it can occur when teams get creative and start adding undocumented features. Project management processes and controls are typically designed to prevent scope creep by reassessing budget and schedule with each change to scope.

Cost Escalation

Cost escalation is 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.
Overview: Cost Overrun
Actual costs that exceed budgeted costs.
Related Concepts

Financial Management

This is the complete list of articles we have written about financial management.
Budget Control
Budget Risk
Business Costs
Budget Planning
Conflict Of Interest
Cost Contingency
Cost Control
Cost Escalation
Capital Budgeting
Cost Management
Cost Overrun
Business Ethics
Contingency Budget
Financial Controls
Contract Risk
Financial Risk
Matching Principle
Operating Expenses
Refinancing Risk
Risk Management
Management Controls
Reputational Risk
More ...
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An overview of financial management with examples.

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A definition of financial controls with a few examples.

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A list of common types of business cost.

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A definition of cost management with examples.

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The common types of management control.

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The definition of capital expenditure with examples.

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A principle of financial accounting.

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A list of common types of business cost.

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A definition of cost escalation with an example.

Cost Reduction Examples

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A definition of relevant cost with examples.

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Detailed examples of how to map out the cost structure of a business.

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The definition of cost competition with examples.

Cost Goals

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