Even the most seasoned project managers (PMs) will encounter budget overrun at some point. This situation doesn't automatically signify poor project management.
There are numerous reasons why projects are at risk of going over budget. Some of the common reasons that project costs might occasionally escalate above the intended budget include:
- incorrectly identified project requirements;
- insufficient resource monitoring;
- realistic requirements but unrealistic budgets;
- increases in product or service costs;
- resourcing shortages;
- procurement bias;
- not having the right tools for the job;
- insufficient planning;
- scope changes; and
- other unforeseen factors.
SEE: Five tips for getting your project back on budget (TechRepublic)
When projects are continually over budget, this may very well signify a larger problem within the business or with a PM or his/her project management skills. In particular, this highlights the need to revisit lessons learned in previous projects, especially as they relate to resourcing, costs, skills, policies, and management.
In a situation like perpetual budget deficits, it would be a good time for the organization and PM to work closely together to analyse the root cause(s) and the strategies that were employed in the resolution. If projects were consistently over budget, then new strategies need to be devised since the old ones were not effective. This exercise should not be undertaken to lay blame but rather to find better solutions for avoiding cost overruns.
Let's take a look at two out of the many possible causes of continuous project budget overruns, and then explore how to address each one.
- Internal policy and procedural conflicts that may preclude a PM from effectively managing actual costs.
- A project management skills gap may be at the root of the issue, making it difficult for a company to execute on projects effectively.
How to handle internal policy and procedural conflicts
With internal policy and procedure issues, organizations will need to closely analyze the impact to project efforts, and determine if these policies and procedures still serve a relevant and valuable purpose. If the answer is yes, then these may need to be modified in ways that better accommodate projects and reduce the risk of cost overruns. If no, then the policies no longer serve a purpose of sufficient significance and should be replaced with ones that offer improved strategic and project value.
PMs play a role in notifying company leaders about the impact of corporate policies on project costs as soon as the issue arises, not after the project budget is fully blown. Although leadership may not seem appreciative of early feedback, they are more likely to be receptive before it's an issue rather than after.
How to handle a project management skills gap
If project management skills gaps exist, then organizations should assess what's needed to successfully achieve the goals for the specific quantity and nature of projects. It may be necessary to re-assign PMs that have the necessary skills to better align with projects and objectives. If there are skills gaps that create continual budget overruns, it would be prudent to seek additional PM leaders with the required project management experience and skills to keep within budget.
PMs who recognize they lack the experience to sufficiently control costs should voice concerns as early as possible and seek additional mentoring instead of waiting until costs are out of control. Breaking bad news about being over budget is a bitter pill to swallow for any company once it's gone too far. It's not a flaw to ask for help—it's a flaw not to.
SEE: Research: IT budget - drivers, trends and concerns in 2016 (Tech Pro Research)
The bottom line
Regardless of the cause, the key thing to keep in mind is the need to gather, analyse, and leverage business intelligence from past projects to reduce the risk of budget overruns on future projects. All past projects offer insights and trends and amazing opportunities to identify risk points and lessons learned.
PMs and organizations play a role, to different degrees, in budget overruns, and share in the benefits that come from identifying better ways to control project costs. Before charging on to the next project, don't underestimate the value of project debriefs to identify problem areas like budget deficits.
Take the time to not only pinpoint the problem, but also all the possible risk factors, and then schedule additional meetings with all relevant stakeholders to brainstorm solutions. When considering various solutions think beyond just the next project—think about how each proposed solution will meet the longer-term risk mitigation strategies as well as the overall business goals.
- Creating your project budget: Where to begin? (TechRepublic)
- The best way to scrutinize a project budget (TechRepublic)
- Special report: Tech budgets 2017, A CXO's guide (free ebook) (TechRepublic)
- How to secure funding for your next IT project (ZDNet)
Moira Alexander is the Founder of PMWorld 360 Magazine and Lead-Her-Ship Group, and a project management and digital workplace columnist for various publications. Moira has 20+ years in business (IS&T) and project management for small to large businesses in the US and Canada. To find out more about Moira, go to www.pmworld360.com and www.leadhershipgroup.com.