Delivery Overrun

A delivery overrun is the condition where a project consumes more hours, budget, or calendar time than was contracted, without a corresponding change order to recover the difference. On fixed-fee engagements, every overrun hour is an unpaid hour that compresses margin.

The two types of overrun

Budget overrun: the project consumes more hours than budgeted. On a fixed-fee engagement, the firm absorbs the cost. On a time-and-materials engagement, the client may owe more if the contract allows it and the client approves.

Schedule overrun: the project delivers later than contracted. This may or may not involve a budget overrun. A project can slip on timeline without going over budget if delivery was slow but hours stayed within scope, or it can breach both simultaneously.

Why overruns happen

1. Underestimation: the proposal scoped fewer hours than the work actually requires
2. Scope creep: client requests are absorbed without a change order
3. Resource mismatch: under-skilled resources working slower than the budget assumed
4. Poor project controls: no weekly budget check, so the overrun is only discovered at invoice time
5. Client delays: review cycles, approvals, and data deliveries take longer than planned, extending the team’s time without a schedule adjustment

The margin impact

A project scoped at $200,000 with a 30% target margin carries $60,000 in expected profit. A 20% budget overrun adds $40,000 in unrecovered cost and cuts the margin to $20,000, a 67% reduction in expected profit. At scale, a firm with multiple overrunning projects has a margin problem that top-line revenue masks.

Unmanaged overruns flow to the income statement as write-offs. They also reduce the firm’s realization rate, which is the clearest portfolio-level signal that delivery is running over budget.

Early warning signals

• Budget burndown tracking shows hours burning faster than progress
• The project plan has slipped but no change order has been issued
• Team members are logging hours to the project that were not in the staffing plan
• Client scope requests are being discussed without a formal change control process

Time entry discipline is a prerequisite for early detection: overruns that are only discovered when time entries are finally logged cannot be acted on in time to prevent margin loss.