What to Do if Your Project Runs Over-Budget, and How to Prevent It


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Going over budget in project management is a dreaded situation for project managers and business owners alike. However, a 2020 study by Wellingtone showed that only 27% of projects go over budget; 43% of them mostly or always accomplish projects within the budget.

As the numbers prove, cost overruns are completely preventable as long as you’re mindful of their causes, diligent in their prevention, and proactive if they happen despite your preparations.

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Top Causes of Cost Projects Going Over Budget

Inaccurate estimates

Projects go over budget when the actual spending exceeds the estimated amount. While this can be due to many other factors, one leading cause could be inaccurate estimates.

When bidding for a project, project teams can be tempted to rush estimates to win the contract. This can lead to estimates that don’t reflect real work durations. This leads to unanticipated delays and budget problems.

Scope creep

Additional requests that are not part of the initial agreement are called scope creep. These are added in by clients due to a change of mind or by sheer miscommunication.

For example, a client may want to add a new page to the agreed website layout. Or, the client got the impression that the web development project team’s quote already includes the plug-ins they need for development when it wasn’t.

A triangle with cost, scope, and time on the outside and quality on the inside.

As in the triple constraints of project management, the scope affects time and cost. More scope either means more staff is needed or an extended project schedule. Either way, changes to the project schedule and budget will equate to cost.

Poor resource planning

Resource management is identifying, coordinating, and managing the resources your team needs to achieve project milestones and complete deliverables. It involves making sure everyone has the tools, time, and information they need to achieve progress without going over the intended project budget.

Poor resource planning can result in project needs that were unaccounted for in the original project budget. This will inevitably lead to cost overruns.

Economic effects

Projects that take place for a long time can be subject to economic effects. For example, if a project team purchases its materials from a different country, they will be subject to fluctuations in the exchange rate. Other economic factors that can affect material cost are inflation and wage regulations.

How to Prevent a Project From Going Over Budget

Collaborate when doing estimates

To avoid having inaccurate estimates, take the time to collaborate with your team and with relevant external stakeholders, including experts and resource people. When possible, get the team who will work on the potential project to be the ones to estimate themselves. This will increase their accountability to the timeline and lessen the likelihood of discrepancies.

Clarify scope

A statement of work (SoW) is a document that describes your project scope. It clearly maps out what is and what is not included within the project scope.

Documenting your team’s commitments can help you field additional requests from your client. Simply go back to the scope statement and go over it with your client to see if the request is accounted for.

Track costs and expenses

Constantly tracking your costs and expenses is a vital part of project budget management because it can help you anticipate upcoming issues. This can be difficult without sound project management or resource management software, but it can be immensely beneficial if you manage to set it up.

Providing visibility on your project costs can also encourage relevant stakeholders to be mindful of their output and requests.

What to Do When Projects Go Over Budget

Prepare a contingency plan

Before you begin your project, try to envision every possible scenario that can lead to being over budget. Along with this, prepare a standard operating procedure (SOP) for your team on how you want to go about it.

If you can, it’s also good to notify your clients and stakeholders. This way, they can also prepare for these situations and assist when needed.

A contingency plan will not only help you deal with a crisis; it can also help boost your team’s morale because they will know you’re ready for whatever comes your way.

Investigate the cause and adjust key areas

Going over the project budget can induce panic to the unprepared. However, don’t let emotions get the best of you. Before you start making big decisions, take the time to huddle with your team and get to the root cause.

Is the project over budget due to a schedule delay? Additional client requests? Unforeseen operational issues? Once you find out what it is, adjust as necessary.

Identifying the root cause will put you at a better position to make adjustments and share your findings to key stakeholders.

Communicate with relevant stakeholders

After thorough evaluation and decision-making, the last step is to communicate the situation with your clients and stakeholders who may need to be involved in implementing changes.

Communicating a budget overrun may not be easy. Many clients would react negatively to this because it’s their company resource. If your project is on a fixed contract, then your company’s upper management may be who you’ll need to deal with.

Learning to communicate negative situations is an important skill for a project manager. There’s no one way to do this. But, it’s usually good practice to explain the cause of the budget overrun and the team’s best recommendation.

Also, help your stakeholders recall the overall impact of the project to refresh them on the relevance of the end goal despite the setback.

Preparing for Budget Overrun

While there are many factors that can contribute to a budget overrun. The most important thing is that you understand how they work, so you can avoid them in the future. Preparing for them before they occur can help you address them when they happen and secure preventive measures to reduce the likelihood of them happening to you.

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