Definition:
The increase in project costs over time due to inflation, material price changes, labor rate adjustments, and other unforeseen factors.
Key Components:
- Material Price Increases: Costs of key construction materials rising over time.
- Labor Rate Adjustments: Changes in wages due to market conditions or union agreements.
- Regulatory Changes: New policies that add compliance costs.
Use Cases/Industries:
- Energy Projects: Increased costs for steel and concrete in power plant construction.
- Infrastructure Development: Rising costs for highways and bridges due to supply chain disruptions.
- Manufacturing: Price fluctuations in raw materials impacting production expenses.
Advantages:
- Encourages Financial Planning: Helps companies factor escalation into estimates.
- Promotes Risk Mitigation: Encourages contracts that hedge against cost increases.
Challenges:
- Difficult to Predict: Future cost trends can be uncertain.
- Project Delays: Higher costs can lead to funding shortfalls and slow execution.
Related Terms:
Inflation Risk, Budget Planning, Procurement Strategy
Example:
A natural gas pipeline project saw a 15% cost escalation due to rising steel prices and increased labor wages.
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Synonyms:
Budget Overruns, Price Inflation, Cost Growth
