Escalate When Cost Tolerance Exceeded: Exception Report in PRINCE2
A project is forecast to exceed its cost tolerance. What should the Project Manager do?
Quick Answer
The answer is to raise an Exception Report to the Project Board and await their direction. This is correct because in PRINCE2, the Project Manager operates within defined tolerances set by the Project Board; when a forecast shows that cost tolerance will be exceeded, the manager has no authority to adjust the budget or tolerance levels themselves. Instead, they must escalate the issue formally through an Exception Report, which triggers the Project Board to assess the situation and decide on corrective actions, such as revising the plan or stopping the project. On the PRINCE2 Foundation exam, this question tests your understanding of the management by exception principle and the escalation process when cost tolerance is exceeded—a common trap is assuming the Project Manager can simply request more budget or adjust the plan independently. A useful memory tip is to think of the Exception Report as a "red flag" that forces the Board to steer the project, not the manager.
⚠ Common exam trap
PeopleCert often tests the misconception that the Project Manager can adjust budgets or plans within their own authority, but PRINCE2 strictly requires escalation to the Project Board when tolerances are forecast to be exceeded, not after the fact or via routine reports.
Answer choices
Why each option matters
Answer the question above first, then reveal the full breakdown to understand why each option is right or wrong.
Correct answer & explanation
✓
Raise an Exception Report to the Project Board and await their direction
In PRINCE2, when a project forecasts exceeding its cost tolerance, the Project Manager must escalate the issue to the Project Board via an Exception Report. This is a formal mechanism to request a decision on corrective action, as the Project Manager does not have authority to change tolerances or budgets. The Project Board then evaluates the situation and provides direction, ensuring governance and control over the project's viability.
Answer analysis
Option-by-option breakdown
For each option: why learners choose it and why it is or isn't the right answer here.
- ✓
Raise an Exception Report to the Project Board and await their direction
Why this is correct
This is the correct escalation procedure per PRINCE2's management by exception principle.
- ✗
Increase the project budget and continue with the current plan
Why it's wrong here
The Project Manager cannot unilaterally increase the budget; that requires Project Board approval.
- ✗
Continue with the current plan and report the overrun in the next Highlight Report
Why it's wrong here
Continuing without escalation violates management by exception.
- ✗
Close the project immediately as the Business Case is no longer viable
Why it's wrong here
Closing the project immediately is premature because exceeding cost tolerance does not automatically invalidate the Business Case; the Project Manager must first assess whether the forecast overspend can be recovered through an exception plan or if the Business Case remains viable after re-evaluation. This option is tempting because it mirrors the correct action when the Business Case is formally deemed no longer viable, such as after a full cost-benefit reassessment confirms the project no longer justifies continued investment.
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Same concept, more angles
8 more ways this is tested on PRINCE2F
These questions test the same concept from different angles. Work through them to make sure you can recognise it however the exam phrases it.
Variation 1. A project is forecast to exceed its cost tolerance. What should the Project Manager do?
hard- A.Continue and report the overrun in the next Highlight Report
- B.Increase the budget and continue with the current plan
- C.Close the project as the Business Case is no longer viable
- ✓ D.Raise an Exception Report to the Project Board
Why D: When a tolerance is forecast to be exceeded, the Project Manager must escalate to the Project Board via an Exception Report. This is the principle of management by exception.
Variation 2. A project is forecast to exceed its cost tolerance. What should the Project Manager do?
medium- A.Close the project immediately
- ✓ B.Raise an Exception Report to the Project Board
- C.Increase the budget and continue with the current plan
- D.Report the overrun in the next Highlight Report
Why B: When a tolerance is forecast to be exceeded, the Project Manager must escalate to the Project Board via an Exception Report. This is management by exception.
Variation 3. A project is forecast to exceed its cost tolerance. What should the Project Manager do?
medium- A.Close the project immediately as the Business Case is no longer viable
- B.Continue and report the cost overrun in the next Highlight Report
- ✓ C.Raise an Exception Report to the Project Board and await their direction
- D.Increase the project budget to absorb the additional cost
Why C: In PRINCE2, when a project is forecast to exceed its cost tolerance, the Project Manager must escalate the issue to the Project Board via an Exception Report. This is because the Project Manager does not have authority to exceed tolerances; the Project Board must decide whether to approve a revised Business Case, adjust tolerances, or terminate the project. Option C correctly follows the PRINCE2 principle of management by exception.
Variation 4. A project is forecast to exceed its stage cost tolerance. What should the Project Manager do?
medium- A.Continue and report in the next Highlight Report
- B.Close the project as the Business Case is no longer viable
- ✓ C.Raise an Exception Report to the Project Board
- D.Increase the stage budget to absorb the overrun
Why C: In PRINCE2, when a project manager forecasts that a stage will exceed its cost tolerance, they must escalate the issue to the Project Board by raising an Exception Report. This report details the deviation, its impact on the Business Case, and proposes options for corrective action. The Project Board then decides whether to approve a revised plan, issue a stage boundary, or close the project. Option C is correct because it follows the PRINCE2 principle of management by exception, ensuring the board retains control over tolerance breaches.
Variation 5. A project is forecast to exceed its stage cost tolerance. What should the Project Manager do?
medium- A.Report the overrun in the next Highlight Report
- ✓ B.Raise an Exception Report to the Project Board
- C.Close the project as the Business Case is no longer viable
- D.Increase the stage budget and continue
Why B: In PRINCE2, when a project manager forecasts that a stage will exceed its cost tolerance, they must escalate the issue to the Project Board by raising an Exception Report. This is because tolerances are delegated limits, and exceeding them requires board-level decision-making, not just reporting or self-authorization. The Exception Report triggers an Exception Plan to recover or adjust the project.
Variation 6. A project is forecast to exceed its stage cost tolerance. What should the Project Manager do?
medium- A.Increase the stage budget using contingency reserves
- ✓ B.Raise an Exception Report to the Project Board
- C.Close the project as the Business Case is no longer viable
- D.Continue with the current plan and report the overrun in the next Highlight Report
Why B: According to PRINCE2's management by exception, if a tolerance is forecast to be exceeded, the Project Manager must escalate to the Project Board via an Exception Report.
Variation 7. A project is forecast to exceed its stage cost tolerance. What should the Project Manager do?
medium- A.Increase the project budget to absorb the additional cost
- B.Continue and report in the next Highlight Report
- ✓ C.Raise an Exception Report to the Project Board
- D.Close the project immediately
Why C: When a tolerance is forecast to be exceeded, the Project Manager must escalate to the Project Board via an Exception Report, following management by exception.
Variation 8. A project is forecast to exceed its stage cost tolerance. What should the Project Manager do?
medium- ✓ A.Raise an Exception Report to the Project Board
- B.Increase the budget and continue
- C.Close the project immediately
- D.Continue and report in the next Highlight Report
Why A: Escalation via Exception Report is required when a tolerance is forecast to be exceeded.
JA
Written by Johnson Ajibi, MSc IT Security
Senior Network & Security Engineer · founder of Courseiva
This PRINCE2F practice question is part of Courseiva's free PeopleCert certification practice question bank. Courseiva provides original exam-style practice questions with explanations, topic-based practice, mock exams, readiness tracking, and study analytics to help learners prepare for the PRINCE2F exam.