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 RiskThe 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.
The risk of an operational failure that drives up forecast costs. For example, a factory that has equipment failures that increases unit costs.
Input CostsThe 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.
The risk that customers and partners will fail to pay you.
Interest Rate RiskThe 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 RiskThe risk that exchange rate volatility will result in greater costs.
Legal & ComplianceThe risk of legal or compliance costs.
Taxation RiskThe risk that tax rules or interpretations will change resulting in higher taxes.
This is the complete list of articles we have written about risks.
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