Risk Management in Government Projects: How to Avoid Cost Overruns
From capital improvements to broadband expansion and school renovations, government-led projects often involve complex timelines, tight budgets, and high public expectations. With so many moving parts—and increased federal investment through programs like the Bipartisan Infrastructure Law and Inflation Reduction Act—managing risk has never been more important.
One of the most persistent challenges in public sector project delivery? Cost overruns. Whether due to inflation, labor shortages, poor planning, or unexpected delays, going over budget can jeopardize a project’s success and erode public trust. The good news: many of these risks can be anticipated—and managed—with the right strategy in place.
Understanding the Root Causes of Cost Overruns
Every project carries some level of uncertainty. But certain factors are more likely to drive costs beyond original estimates in government projects:
- Inadequate initial planning or scope definition
- Unforeseen site conditions or regulatory hurdles
- Delays in procurement, permitting, or decision-making
- Supply chain disruptions or fluctuating material costs
- Insufficient risk contingency built into the budget
In many cases, these issues are not a matter of mismanagement—but rather, a lack of proactive risk assessment at the outset.
Proactive Strategies for Risk Management
Reducing the likelihood and impact of cost overruns begins with embedding risk management into every phase of the project lifecycle. Here are several best practices to help government leaders take a more strategic approach:
1. Start with Comprehensive Planning
Before shovels hit the ground, invest time in developing a clear, realistic scope of work. This includes identifying goals, required resources, stakeholder expectations, and constraints. Strong project planning sets the foundation for effective budgeting, scheduling, and communication.
2. Build a Contingency Budget
Budgeting for the unexpected is a core part of risk management. Contingency funds should reflect the complexity and risk level of the project—not just a flat percentage. For federally funded projects, ensure that contingency planning aligns with grantor expectations and allowable cost guidance.
3. Conduct Formal Risk Assessments
Use risk registers or matrices to identify and evaluate potential risks early on. Consider factors like financial exposure, likelihood, and impact. This process should be revisited regularly throughout the project to account for emerging issues or changing conditions.
4. Strengthen Contractor and Vendor Oversight
Contractor performance can make or break a public project. Governments should use competitive, transparent procurement processes, set clear expectations in contracts, and monitor performance against key milestones. Penalty clauses and incentive structures may also be appropriate for large-scale projects.
5. Improve Interdepartmental Communication
Miscommunication between departments can cause delays and lead to missed opportunities for cost savings. Project leads should foster regular check-ins with finance, procurement, legal, and other relevant departments to ensure alignment throughout the project.
6. Track Progress and Adjust as Needed
Successful projects are rarely static. Monitoring project data—such as timelines, costs, and risk indicators—enables teams to identify issues early and pivot when needed. Project management software and reporting dashboards can support better visibility and faster decision-making.
The Road Ahead
Cost overruns don’t have to be inevitable. With thoughtful planning, open communication, and a commitment to proactive risk management, government entities can deliver capital projects that are both cost-effective and impactful.
At Brady Martz, our team continues to support public sector leaders as they navigate the financial, regulatory, and operational complexities of government projects. By embedding sound risk practices from day one, agencies can protect public resources and deliver long-term value to their communities.
