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.Summary
The following are common types of cost risk:
Overview
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 | ||
Type | ||
Definition | The probability of cost overruns. | |
Related Concepts | ||
