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8 Examples of Cost Risk

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Cost risk, not be be confused with risk cost, is the probability of cost overruns. This can be contrasted with other types of risk such as revenue risk and health & safety risk. Cost risk is a type of financial risk that has several common variations:

Project Risk

The risk that a program, project or initiative will run overbudget or fail to deliver anything of value with a fixed budget. Due to the sunk costs of a project it is tempting to continue pouring money into a project that has failed to deliver. As such, it is possible for a project to have cost overruns an order of magnitude higher than the original budget.

Operations Risk

The risk of an operational failure that drives up forecast costs. For example, a factory that has equipment failures that increases unit costs.

Input Costs

The risk that input costs will rise due to inflation or problems with suppliers or supply chains. For example, a trade dispute that increases the cost and availability of a material you require to manufacture a product.

Credit Risk

The risk that customers and partners will fail to pay you.

Interest Rate Risk

The potential for your cost of capital to increase due to rising interest rates. For example, a home builder with large floating rate loans may be heavily exposed to interest rate risks.

Exchange Rate Risk

The risk that exchange rate volatility will result in greater costs.

Legal & Compliance

The risk of legal or compliance costs.

Taxation Risk

The risk that tax rules or interpretations will change resulting in higher taxes.


The following are common types of cost risk:


Cost risk is the potential for cost overruns or unexpected costs. This is related to all other types of risk because risks always have a cost.
Definition: Cost Risk
The probability of cost overruns.
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