14– 1 Do cost overruns just happen, or are they caused?

When a project exceeds the planned budget allocated to it, that is called Cost overruns.
Cost overruns happen and/or are caused due to various reasons in businesses.
However, according to Kerzner, cost overruns are caused (Kerzner, 2017). Some of the
most common reasons for cost overruns are Project scope change/increase. As the
project scope keeps changing, the timeline for the project completion gets extended
hence, the intended cost for project completion overruns. Another cause for project cost
overrun is requirement gaps and misunderstanding of customer requirements in the
planning phase. Due to a lack of clarity in the requirements, the project time estimated
for implementing the requirements is inaccurate and eventually leads to a delay in
completion, leading to cost overruns. Failure to identify the potential risks and project
complexities that could impact the project budget is another major cause of these cost
overruns. Many times the Management fails to catch contractual errors in the project
proposal at an early stage which gives rise to inconsistency between the Request for
Proposal and the actual scope of work.
Other reasons due to which cost overrun may happen are unplanned costs, unexpected
conditions like the COVID-19 pandemic, which are not in our control, hike in the project
material costs due to economical factors, etc. It is important for Project Managers to
track the project progress closely and plan for mitigations for factors that could
potentially cause cost overruns. 
14– 3 Alpha Company has implemented a plan whereby functional managers will
be held totally responsible for all cost overruns against their (the functional
managers’) original estimates. Furthermore, all cost overruns must come out of
the functional managers’ budgets, whether they be overhead or otherwise, not
the project budget. What are the advantages and disadvantages of this
approach?
The approach of holding the Functional Manager responsible for any cost overruns has
more disadvantages than advantages in my opinion. The benefit of doing so would be
getting the Functional Manager to be more careful with the project budget while
allocating and estimating during the planning phase. The Functional Managers in this
case would be extra cautious of how they use resources and would take more
accountability in terms of misplanning that would cause any budget overruns in the
process. The disadvantage would be that the Functional Managers will try to save
during the budget allocation, and hence may not invest wisely in quality resources. They
may also be more concerned about avoiding any overruns rather than improving the
quality of the project deliverables. This may also mean that they may discourage any
additional spendings required on the project for certain other activities, thus impacting
the overall work quality. Low-quality deliverables may call for rework or loss of trust from
the Client. Hence, the disadvantages seem to be more profound than the advantages of
this approach. 
References: 
Kerzner, H. (2017) Project Management: A Systems Approach to Planning, Scheduling
and Controlling 12th edition, (p. 530-535) Hoboken, New Jersey: John Wiley & Sons