A cost overrun
, also known as a cost increase
or budget overrun
, is an unexpected cost
incurred in excess of a budgeted amount due to an under-estimation of the actual cost during budgeting. Cost overrun should be distinguished from cost escalation
, which is used to express an anticipated
growth in a budgeted cost due to factors such as inflation.
Cost overrun is common in infrastructure
, and technology
projects. A comprehensive study of cost overrun published in the Journal of the American Planning Association in 2002 found that 9 out of ten construction projects
had underestimated costs. Overruns of 50 to one hundred percent were common. Cost underestimation was found in each of 20 nations and five continents covered by the study, and cost underestimation had not decreased in the 70 years for which data were available.For IT projects
, an industry study by the Standish Group found that the average cost overrun was 43 percent; 71 percent of projects were over budget, exceeded time estimates, and had estimated too narrow a scope
; and total waste was estimated at $55 billion per year in the US alone.
Many major construction projects have incurred cost overruns. The Suez Canal
cost 20 times as much as the earliest estimates; even the cost estimate produced the year before construction began underestimated the project's actual costs by a factor of three.<ref... Read More