Top Reasons Why Your Project Costs More Than Originally Planned
As a project manager, it can be all too easy to run over the original cost of a project. Even when the original budget is created properly, improper planning and disorganization can lead to going over budget. This can wreak havoc on your business’s financials and bottom line.
Today, we’ll talk about some of the cost overrun factors in projects. Knowledge is power, so if you’re aware of the mistakes that lead to unintended project cost increases, you’ll be in a better position to avoid going over budget.
8 Reasons Why Projects Go Over Budget
We’ll begin by talking about the common reasons why cost overruns occur in projects.
1. Inaccurate Project Estimates
If you embark on big projects with inaccurate figures in mind, it’s going to be nearly impossible to avoid budget overruns. For example, if you’ve miscalculated that it will cost $20,000 to replace the company roof when the actual cost is $30,000 for the total square footage, you’ve put yourself in an unwinnable position. Avoid this by being as precise as possible in your project cost estimation and planning. Doing so may make all the difference.
2. Grave Project Design Errors
If a project is rushed or not thoroughly planned out, it can lead to the finished product being designed poorly. This may mean that you’ll spend more than you had intended (especially over the long term). In many cases, design errors are preventable with strong project team communication, well-organized processes, and a detailed or specific workflow. Always be as thorough as possible to prevent the sort of ambiguity that leads to frequent design changes or errors.
3. Project Scope Creep
Be aware of the possibility of scope creep as you are planning a project. Scope creep occurs when key stakeholders disagree over certain details during project planning, or when project requirements change suddenly once the project is already underway. This is a major cause of project cost overrun since scope creep can mean a drastic pivot in project direction or processes. Another type of scope creep occurs when a project is underestimated in scale at the beginning. The project may require extra work, installations, or repairs that were not anticipated or factored into the initial budget.
4. Miscommunication and Lack of Coordination
Similar to the points made for preventing project design errors, strong team communication and coordination generally leads to better deliverables, as well as expenses that have been planned accurately. When communication or coordination is not strong among those working on a project, it can lead to confusion, misunderstandings, or even a totally unsatisfactory finished product. Team members should be encouraged to connect often about their progress and express any issues they have been experiencing to minimize the possibility of cost overruns.
5. Lack of Project Management Experience
Sometimes, even a project manager with the best of intentions can lack the necessary experience to carry out a successful project. If it is only the first or second time a person overseeing a major project has been in that position, it is much more likely that the overall budget for a project is underestimated. This could easily result in extra money being spent as the project is underway to ensure it is completed as planned.
6. Project Changes and Delays
A bit similar to scope creep, project changes may arise as work is already being done, requiring backtracking or major alterations. Such project delays can be costly, and can certainly increase the initial projected cost of the project.
7. Poor Tendering or Bidding
If you weren’t sure, tendering refers to an invitation to bid for a project. The term usually pertains to construction projects, or when banks or financial institutions invite bids for significant projects with a set deadline. An example of poor tendering might look like a very low-cost bid extended by a vendor, which is accepted… only for your business to discover that a change requiring extra parts is necessary. The vendor might well accept this, but charge double the cost for supply and installation.
8. Factors Beyond Your Control
A construction crew discovering mold growing beneath your business’s old carpet, unexpected tech failures, copyright issues just before launching a new product — all of these scenarios are unwelcome surprises in project management. While you can’t know what you don’t know prior to the start of a project, you can plan for the unexpected by giving the project budget a cushion for any unpleasant surprises that crop up. Doing so may mean the difference between running well over and staying within budget.
Read more: Best Construction Scheduling Software 2021
How Can Project Managers Better Manage Their Budgets?
Now, let’s look at a few of the ways project managers can stay within budget.
- Conduct detailed planning: Attention to detail is key when planning out a big project. It’s always a good idea to factor in even seemingly small things into a project charter or proposal. Being thorough, even though it may initially feel tedious, can make all the difference in setting and sticking to a reasonable project budget.
- Engage stakeholders: Stakeholders need to be kept abreast of project developments at all times, especially those that have the potential to throw the project off-course. Misaligned expectations among stakeholders can result in costly debates and subsequent action taken to rectify issues that were not clearly communicated from the start.
- Due diligence with vendors: Vendor Due Diligence (VDD) entails ensuring a potential vendor is credible and reputable for completing a project. Before hiring a vendor to work on a project for the business, project managers should meet with representatives from the company and do some research to make sure that everything checks out. This step can help project managers avoid hiring vendors that are unethical, irresponsible, or not financially stable.
- Manage scope creep: To manage (and reduce) scope creep, try to avoid adding any unnecessary steps, installations, or updates to a project that has already been well-planned. Schedule meetings with stakeholders regularly to keep everyone informed and aligned on the progress of the project. This is a great way to prevent misunderstandings down the line that could lead to additional project expenses.
- Bring in a project management tool: Project management software can be a great way to track all of the steps pertaining to a specific project, from start to finish. Project management tools log the ongoing progress and completion of individual projects. A good tool will promote the kind of organization that keeps your spending in check.