On most projects, actual expenditures are tracked and reconciled on a monthly basis, since most companies only provide accounting reports monthly. Let's say you've been doing that, but you've just realized that you're trending over budget. It may not be time to panic, but you don't want to ignore the situation either. Here are some proactive steps you can take to get back on budget as quickly as possible.
Note: These tips are based on an entry in our IT Leadership blog.
1: Swap people
If cost containment is more important than the deadline, you may be willing for the work to take a longer time if it ultimately can be completed successfully at a reduced cost. This technique could also be used to replace a contract resource with an employee resource, if the employee would end up costing less for your project.
2: Eliminate or reduce non-labor costs
Just as with people, it may be possible to utilize less costly materials, supplies, or services than you originally budgeted for. For instance, you might:
- Ask project travelers to stay at a discount hotel chain instead of more upscale accommodations.
- See whether team members can utilize existing upgraded hardware instead of new machines.
- Substitute less expensive computer-based training or team mentoring for formal training classes.
3: Implement "zero tolerance" scope change
You must ensure that no unplanned work is added to your project unless formal scope change management is invoked. This doesn't mean you won't do the extra work. It means that you need to receive incremental budget for all new work you add to the project.
4: Renegotiate external contracts
It may be possible to renegotiate license and contract terms. If you use contract labor, you might be able to negotiate a reduced fee. Perhaps your software vendor will take less money for its product. In many cases, the vendor will be willing to trade off one benefit for another. For instance, a contract resource might reduce his rate in exchange for additional work hours. Perhaps a vendor will take less money in exchange for getting paid earlier. If you're over budget, especially on a large project, all the vendors should be reviewed for potential cost savings.
5: Scope back the work
If all else fails and you can't get additional budget relief, you may need to negotiate with the client to remove some of the work from the project. There may be options to complete this project on-budget with less that 100% functionality and then to execute a follow-up project to complete the remaining requirements. This isn't the place to start getting back on budget, but it may be your final option if all other techniques fail or are not available.
- 10 ways to effectively estimate and control project costs
- 10 ways to get a slipping project back on track
- Nontraditional cures for keeping a project on schedule and on budget