Project Management

Follow these four tips to reduce project costs

When your project plan is rejected because the cost estimate is too high, revisit the proposal and apply these tips from project management expert Tom Mochal. Here are four areas to attack when you are working to reduce costs.

Each week, project management veteran Tom Mochal provides valuable advice about how to plan and manage projects. Tom first describes a common problem scenario, based on a real-life situation. He then offers a solution, using practical project management practices and techniques.

Juan came to see me about bad news he had received from his manager concerning a draft project definition. His manager liked the overall definition and plan for deploying Windows 2000 on all the desktops but had a big problem with the cost estimate.

The dilemma
“I’m not sure what to do next,” Juan began. “I worked with a number of technical experts to prepare the estimate for this project, and then my manager says that it is too much. Unfortunately, it is going to take that much time and money.”

“Did your manager give you any insight into why she thought the estimate was too high?” I asked.

“As best I can tell, the estimate is too high because it is more than the budget that was allocated for this work,” Juan explained in frustration. “She said that if the numbers were close to budget, she would just go ahead, but our estimate is 40 percent over the initial budget.”

“Forty percent is a big number,” I said. “Did she have any advice for you?”

“Not really,” Juan replied. “She just said that she wanted me to sharpen my pencil some more and try to get the project estimate down substantially. However, I’m afraid that if I reduce the estimate, I will look like a bad project manager for not being able to deliver.”

“Hang in there,” I said encouragingly. “You shouldn’t be forced into making an estimate that you don’t believe in. Let’s look at a couple of options that might help.”

The mentor's advice
Juan is not the first person to have an estimate rejected, and he will not be the last. When faced with this problem, try to understand the motivation of the person holding the budget. Every project has a financial point-of-no-return where it does not make sense to proceed. A project with great business value at a cost of $1 million may not make business sense at a cost of $2 million. So, rather than feeling rejected or frustrated, consider these options:
  • Validate your estimate. Double-check your estimate for mistakes. If you used a spreadsheet, double-check the formulas. Check that you are using the right resource rates. Make sure your nonlabor costs are reasonably accurate.
  • Look for less costly alternatives. In this step, see if any of your initial assumptions can be changed to reduce costs. For instance, can contract resources be replaced with employees? Can you find existing hardware to use, rather than buying new machines? Can training be done in-house, rather than send people to formal off-site classes? This step allows you to reduce costs while delivering as you originally planned.
  • Look for process improvements. See if there are ways you can accomplish your objectives in a different way. For instance, can some work be done remotely rather than require office visits? Can you gather business requirements in one day through a joint design session, rather than three weeks using traditional methods? Can you outsource part of the work at a lower cost than doing it in-house? This step still allows you to deliver as planned.
  • Negotiate a reduction in scope. The last option for reducing estimated costs is to make the project smaller. For instance, are there some less important capabilities that can be eliminated or deferred? Can you reduce the number of people or organizations within scope? Can some lower-tech but less expensive technologies be deployed instead of state-of-the-art technologies?

Finding a compromise
Juan needs to go back and revisit the estimate with these points in mind. He may find that there are ways to pare down the estimate, while delivering much of what the company needs. This exercise is not meant to force him into committing to a project budget that he does not believe in.

If, at the end of this process, his estimate is still too high, he must work with his manager and other stakeholders to determine whether or how to proceed. One option that should be on the table is to shelve the project. However, when presented with an honest effort to reduce costs, management stakeholders may have other options, including requesting incremental budget dollars if they are convinced that additional money is justified.

Send Tom your questions
What project management questions do you have? Tom Mochal will answer those that affect the widest number of readers. Post a comment below or send us an e-mail.

Project management veteran Tom Mochal is director of internal development at a software company in Atlanta. Most recently, he worked for the Coca-Cola Company, where he was responsible for deploying, training, and coaching the IS division on project management and life-cycle skills. He's also worked for Eastman Kodak and Cap Gemini America and has developed a project management methodology called TenStep.
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