The Public Accounts Committee (PAC) says London 2012 organisers should have been able to plan earlier for the number of security guards needed for the Games.
Security firm G4S announced a £50 million loss from its Olympic contract after failing to deliver enough security guards.
Estimates of the number of security guards needed more than doubled to 23,700 and the military had to be called in to help.
In the PAC's post-Games review, committee chairman Margaret Hodge says organisers could have planned earlier for the potential number of security guards that would be needed.
Ms Hodge said: "What you ended up needing in 2012 was so enormous that something went deeply wrong in your original calculations.
"If you had ever thought there was that factor of mistake possible, which you should have been able to plan, you should never have signed a contract."
Neil Wood, of London 2012, said: "It was an estimate based on the information that was available at the time and it was wrong."