The next step in the plan review is to compare actual costs to forecasted costs.

Maria and Alex are shocked to realize that they forgot to include their own
wages in their cost forecast!

The variance between the forecasted cost and the actual higher cost is called
a cost overrun. Sales variances and cost overruns are caused by one or a
combination of three factors:

‡ An imperfect forecast - This can be caused by incomplete data or lack

of research.
‡ Optimism - The business owners believe they will perform better than
their research indicates.
‡ Intentional misrepresentation - A company might lie to show a higher
forecasted profit. This could be used to mislead lenders or other
stakeholders.

Underestimating costs is a common mistake for new small businesses. The

students simply forgot to include themselves as costs. Maria and Alex must
revise their original forecast to include a fair wage for themselves.