Cost Overrun

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 underestimation 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, building, 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 also 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. The Sydney Opera House cost 15 times more than was originally projected, and the Concorde supersonic aeroplane cost 12 times more than predicted. When Boston's "Big Dig" tunnel construction project was completed, the project was 275 percent ($11 billion) over budget. The Channel Tunnel between the UK and France had a construction cost overrun of 80 percent, and a 140-percent financing cost overrun.