What Happens When Your Project Goes Over Budget?Posted by Factor Funding Co. on August 30, 2016
No matter how many precautions you take and how carefully you make plans, unexpected things can happen. When they do, your budget plans may no longer be enough to finish the project, and you end up going over budget. In some cases, this may be unavoidable, but it is never a good thing and needs to happen as infrequently as possible.
There are ways to recover and minimize how far over budget a project goes. There is also a lot of advice available for preventing projects from ever going over budget.
Why Do Projects Go Over Budget?
Projects exceed their budgets for many reasons. Thankfully, if the project manager is paying attention, he or she can usually forecast the problem in time to compensate for it (at least partially). Generally, projects go over budget due to three problem areas.
One: No one is accountable for the budget. It doesn’t matter how detailed and well thought out the budget is if no one is paying attention to it. Sadly, many young companies make this mistake. Someone needs to be responsible for tracking expenses, updating the budget frequently, and sending the updates to others.
Two: The project drags on longer than it should. Time is money and if a project goes past its deadline, it usually goes over budget, as well. It is important to set goals within the overall project to keep your team motivated and the momentum going. If the project loses momentum or if it is put on hold, a lot of valuable time will be lost getting everyone back up to speed.
Three: The business fails to set boundaries for the scope of the project. It is natural to try to get the most out of every dollar, every project. However, if a project’s scope increases beyond the original plan, it can easily lead to going over budget and past deadline. When planning a project, make sure everyone involved understands what the project will accomplish and what it won’t.
Getting Back on Track
Once a project has gone over budget, it will be nearly impossible to compensate enough to complete it on budget. However, if the project manager foresees going over budget early enough, he or she can take steps to minimize the amount of overage.
The first step to minimizing the problem is to discover its extent. The project manager will need to identify how far from completion the project is and what percentage of the budget is left. This will allow him or her to forecast how badly over budget the project is likely to be.
Once the project manager identifies the extent of the problem, he or she can take steps to attempt to compensate. A project manager can:
- Seek additional funding: This won’t keep the project from going further over budget, but may help complete the project.
- Reduce the project’s scope: This can drastically reduce the funding necessary to complete the project. This needs to be done very carefully, however; the project must still meet its main objectives.
- Reduce costs. This is the most obvious tactic. Find any opportunity to cut costs. Reassign lower-cost resources, use cheaper materials, etc.
These methods can help mitigate the amount a project exceeds its budget, but it is important to remember that once a project goes over its original budget, there is no getting back under it.
How to Prevent Going Over Budget
The best way to prevent exceeding your budget is to learn from the mistakes of managers who have done it before you. These tactics may help.
- Make certain the project’s scope is well defined and that everyone involved understands the scope of work before it begins.
- Have contingency plans in place for problems when they arise (and they will).
- Track the project’s progress carefully, possibly with the aid of project management software.
- Ensure the project has funding options that allow some growth in scope or recovery from mistakes.
- Everyone involved in the project needs to communicate effectively; address any weak links in communication as soon as possible.
Exceeding a project’s budget isn’t the end of the world, but it is a serious problem. Project managers need to understand why this happens, how to prevent it, and how to compensate for it if it happens anyway.