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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 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.|
| Type | | | Definition | The probability of cost overruns. | | Related Concepts | |
Risks
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