Influence of Cost Overruns on Risk Perception

Cost overruns are a common problem in project management and can significantly impact project outcomes. While previous research has focused on accurately estimating project risks, less attention has been paid to understanding the relationship between cost overruns and risk perception. This study aims to improve risk management practices by modeling the dynamic relationship between cost overruns and risk perception. Specifically, a project system is represented as a causal loop diagram that incorporates short- and long-term cost variances, work performed, and risk perception. The model shows that unmitigated short-term cost overruns can lead to long-term cost overruns and demonstrates how responses in the project monitoring system can mitigate this effect. By providing a basis for simulating the impact of responses to cost overruns, this study offers insights into how to improve risk management practices. The findings contribute to a better understanding of how risk perception influences decision-making in response to cost overruns and highlight the importance of proactive risk management strategies in project management.