What is a Cost Overrun?

A cost overrun is the amount by which actual expenditures exceed the planned amount. The concept can be applied to many areas, such as a project, a product design process, or a marketing campaign. Cost overruns are most common in large-scale projects, such as infrastructure and information technology projects.

The Causes of a Cost Overrun

There are many reasons why a cost overrun can occur. Consider the following possibilities:

The scope of a project was expanded during the project without a sufficient increase in its planned cost.
The initial cost estimation was flawed.
The original planned cost was too low.
The project management team was inexperienced.
The business did not adequately oversee actual expenditures.
The project team had a low level of productivity.

How to Prevent a Cost Overrun

There are several ways to eliminate cost overruns, or at least mitigate their size. It can be essential to address these issues when the size of potential cost overruns might shut down a project entirely. Here are several activities worth pursuing:

Option 1. Understand the Key Outcomes

When embarking on a new project, it is critical to understand the key outcomes that are desired from it. By understanding what is important and what is not, you can elevate the completion of certain items while downgrading others. This is much better than being forced to complete all aspects of a project at the same time. To ensure that you understand the key outcomes, be sure to block out sufficient time to investigate this matter. Delaying a project to complete this step should be considered acceptable, since it may pay off later in a more knowledgeable control of the project.

Option 2. Monitor Change Orders

Once you understand what the key outcomes are for a project, you can decide which change orders to implement and which ones to avoid. Change orders are unexpected requests for alterations to a project, and so can involve large expenditures that can also impose significant delays on a project. The unchecked issuance of change orders can obliterate a project budget and massively prolong its duration, so they must be monitored closely to ensure that only the most necessary ones are allowed.