Impact on Increasing Cost

Sometimes costs increase during project execution, and there may be many reasons. The most common culprit is an increase in the price

Figure 6.7 Effect of increase cost on the whole project.

of materials over what was estimated during the projects planning stages. There could have been an increase in the foreign exchange rate, hiking the price for machines that have to be imported from abroad. Another potential factor in project cost increases is any difference that arises in practice between in the quantities of inputs estimated in the drawings and design stages and what had to actually be purchased and used to execute the project. A common example arises during excavation: soil characteristics differ from the the soil report, or prob­lems are found in the soil that were not taken into account during the planning stages., requiring renewed study of the soil conditions and foundations and changing the foundations design accordingly. These are all project risks that can be expected to increase project costs.

Figure (6.7) presents the impact of increases in the project cost as seen from the owner’s standpoint. In addition to how such increases may shift the break-even point rightwards, i. e., later, in time, the total income from the project at the end of its lifetime will also be less than if the project had been executed within its original budget.