Project managers have a lot on their plates. Not only do they have to keep track of the project goals and objectives. But they also need to ensure that the team stays on track and within budget. Unfortunately, cost overruns are all too common in project management. This can lead to delays and even cancellation of the project.
What are Cost Overruns?
Cost overrun is not just a term to describe an anticipated increase in budgeted costs. But also the result of inflation-driven increases. In this case, the project cost is more than what was initially budgeted for. In other words, a lot of companies get caught off guard when they realize that their projects are going to be costing them significantly more money than they expected.
There are three main types of cost overruns;
Technical: When the scope/estimation of work is not clearly defined or how it was initially presented to stakeholders. This can be caused by unclear requirements, underestimating the work required, or poor team communication.
Psychological: When stakeholders or team members are not able to stick to the original budget, timelines, or scope due to unrealistic expectations.
Political-economic: This is most commonly seen in government or infrastructure projects, where there are a lot of stakeholders with different agendas and interests. The project can quickly become politicized, which can lead to delays, changes in scope, and inflated costs.
How can It Affect Your Business?
When your company does not have enough resources or capital available to handle cost overruns. Then it can have a huge impact on the business.
Projects lost to budget cuts Out of scope work being done by team members. Because they are under pressure from managers or executives Rebuilding products and services after realizing that the current version is not feasible Operations get shut down due to lack of funds.
This is why it is very important to be able to reduce cost overruns on your projects.
Tips to Prevent Cost Overruns:
There are a few things that project managers can do to help prevent or at least minimize the chances of cost overruns on their projects. Here are seven tips:
Tip 01: Proper Planning and Execution
One of the best ways to prevent cost overruns is by ensuring that you have a good plan and that you are able to execute it properly. This means having a clear scope of work, realistic timelines, and an accurate budget. You also need to ensure that everyone involved in the project understands what is expected of them and stays on track.
With careful planning and execution, you can avoid many of the common causes of cost overruns. This will help you to get the project back on track and recover any budget that has been blown.
Tip 02: Use an Agile Approach
One of the best ways to prevent cost overruns is by using an agile approach for your projects. This means having shorter, more frequent timelines with clear deliverables at each stage of work. This will help to keep everyone on track and avoid any costly surprises down the road.
With an agile approach, you can have more control over the budget, scope, and timeline. This will give you a better chance of being able to provide accurate estimates for stakeholders or your team members.
Tip 03: Use Appropriate Tools and Technology
Technology can be a great help when it comes to project management, especially when it comes to tracking costs. There are a number of tools available that can help you keep track of your budget as well as the progress of the team. This will help you stay on top of things and make sure that you are not going over budget.
You can also use technology to help with communication and collaboration. This will help to ensure that everyone is on the same page. And there are no misunderstandings when it comes to the work that needs to be done.
Tip 04: Know your vendor and team members
One of the best ways to prevent cost overruns is by ensuring that your vendors and project team are reputable. You also need to know what they can do and how much their services will cost you on a per-hour basis. This way, if there is any confusion or problems on the job. It will be easier for you to fix them.
By knowing your team members and vendors, you can avoid any costly surprises down the road. This will also help to build better relationships with these individuals, which can be beneficial in the future.
Tip 05: Keep a Close Eye on the Budget
It is very important to keep a close eye on the budget for your project. This means that you should have a mechanism for tracking the budget throughout the project. You can use Excel or other tools to help with this. But it is important that your team members also understand what they need to do and how their work contributes to keeping costs under control.
By having a close eye on the budget, you will be able to know if you are going over budget and be able to take appropriate action. This will make it easier for you to prevent any cost overruns on your projects, which can save time and money in the long run.
Tip 06: Keep stakeholders updated
It is important to keep stakeholders updated on the progress of the project. This means informing them of any changes in budget, scope, or timeline. It is also a good idea to provide them with regular reports so they can see how the project is progressing.
This will help to ensure that there are no surprises for stakeholders and that they are able to understand what is happening with the project. It will also help to build trust between you and your stakeholders.
Tip 07: Monitor the progress regularly
It is important that you monitor the progress of your project regularly. This will help to ensure that everyone on the team is working toward the same goals and are staying on track with the work at hand.
Regular monitoring also means being able to take action if there are any problems or changes in scope, budget, or timeline. If you do not monitor the progress, you may not be able to prevent any cost overruns and your project could go over budget.
Project management is a very complex task. But if you know how to manage your project properly and keep track of costs. There will be fewer chances for cost overruns. By following these tips, you can help to ensure that your project is a success.