The five families of financial risk
Risk 1: works cost overrun
The most frequent risk. It can arise from an insufficient initial estimate, from discoveries during construction, contaminated ground, asbestos, under-estimated foundations, from changes of brief, from rising material prices or from uncontrolled variations.
| Recommended provision | 5 to 10 % of the works cost at developed design, 3 to 5 % at tender once the contractors have priced. |
|---|---|
| Control mechanism | Monthly financial monitoring, a variation authorisation procedure, contractual capping of buyer variations. |
Risk 2: programme extension
Every additional month generates finance costs, extends the holding charges of the project, insurance, offices, staff, and, in development, delays the receipts from sales.
| Typical cost of a month's delay | 0.3 to 0.8 % of the total cost according to the level of debt in the operation. |
|---|---|
| Control mechanism | A contractual master programme with milestones, delay damages in the works contracts, rigorous site coordination. |
Risk 3: a slow or failed market, in development
For residential development the commercial risk is major. If sales are slower than expected, the developer must extend the drawdown period of the development loan, increasing finance costs. If sales are insufficient at completion, the developer may be unable to repay the bank.
| Critical threshold | An insufficient level of pre-sales, below 40 %, before starting is the first warning signal. |
|---|---|
| Control mechanism | Calibrating the brief to demand, a prudent pricing policy, diversifying the sales channels, including a block sale to an institution in difficulty. |
Risk 4: interest rate risk
For operations financed at a variable rate, a rise in interest rates during the operation increases unprovided finance costs. The abrupt rise in the interbank rate between 2022 and 2023, from −0.5 % to +4 %, heavily eroded the return on many operations under way.
| Control mechanism | An interest rate cap limiting the rise to a defined ceiling, and stress scenarios built into the appraisal. |
|---|---|
| Recommended provision | Model the appraisal with the interbank rate one to two points above market expectations. |
Risk 5: damage, litigation and challenge
Construction incidents, collapse, flooding, fire on site, an accident at work, can generate substantial direct costs and halt progress. Litigation with contractors, neighbours or dissatisfied buyers mobilises legal resources and can tie up funds for years.
| Control mechanism | Contractors' all-risks insurance taken out by the client, structural warranty insurance, and a rigorous handover procedure with a formal pre-handover inspection. |
|---|
The early warning indicators
- The forecast out-turn: the gap between the initial budget and the projected cost at completion. To be watched at every site meeting.
- The commitment rate: the ratio of contracts signed plus variations plus forecast out-turn to the total budget available. Above 95 %, the budget is in danger.
- Programme slippage: the gap between the initial and the current programme. A delay of more than four weeks on the critical path justifies a formal alert.
- The pre-sales rate, in development: to be monitored monthly against the objectives of the funding plan.
- Available cash: anticipate the gaps between paying the contractors and receiving sales proceeds or grants.
Related articles: calculating the return on a property project · Off-plan sale: investment and guarantees
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The provisions and control mechanisms mentioned are professional practices observed in France in 2026. Every project merits its own risk analysis.
The nature of the figures quoted
The percentages and amounts quoted on this page are orders of magnitude for framing, not measurements. They illustrate mechanisms and proportions, and they substitute neither for a tender exercise nor for an estimate prepared on drawings.
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Sources: the BT construction cost indices published monthly by INSEE on its 2010 base, used to update the figures · construction cost statistics from SDES, the statistical service of the ministry responsible for construction · regulatory texts published in the Journal officiel and consolidated on Légifrance for the requirements cited.