Question

When evaluating the progress of capital projects, managers should investigate both cost over runs and cost under runs. Why is it important that both are investigated?

Answer 1

Capital projects are large projects which involves huge investments and time taken for completion of such projects is also very long.
Evaluation of such projects by their managers also become necessary as first the budget of projects is required to be made and then there is a lot of price variation in material costs, labour costs, etc due to long time period and there are a lot of cost overruns and cost underruns.

Managers should investigate both cost overruns and cost underruns as first of all cost overruns are such course which are increased from budgeted costs, such increase can be an expected increase and cost underruns are decrease in costs from the budgeted costs.

For manager it becomes important that both (overruns and underruns) costs are investigated as such investigation would help the manager to find out the current position of their capital projects.
It would also help in determining the steps to be taken to reduce the overrun costs and how to maintain underrun costs.
As overrun costs are not beneficial costs whereas underrun costs are beneficial costs.