Exceeding the budget
During the planning phase of the project, the manager has to set a specific budget for the project. The project manager can sometimes fail to account for risks and contingencies which results in the budget being way off than what's estimated. How can the project manager resolve this predicament? Does anyone have any previous experience with this?
I have not been the manager of any projects, but my boss and I communicate a lot about the projects that he manages. The quick and easy response to this is that it is almost impossible to predict all of the risks and contingencies that will affect a project. Most of the projects my boss has managed have almost always come in over budget because of pitfalls that come up during the project. While most of upper management is not happy about being over budget, the best thing to do is be up front about it and have a good reasoning behind what the extra money is needed for. Usually they are understanding about the situation and will approve the increase in budget to get the project done. A good manager will always account for certain failures and delays in the project that will increase the budget, but there are always surprise factors that impact the plan as a whole. Experience would probably be the best way to account for some of the errors, but like a said before, things happen and a lot of the time they cannot be controlled.
@mrela13 In my experience working in on within early phases of product development, I've noticed that my project manager always shoots to keep under budget. During our weekly team meetings, the first 10 minutes are always dedicated to going over a large excel sheet that is our action tracker and cost tracker to make sure we are hitting our deadlines and meeting our costs. Despite having an incredibly large budget for the project, I've noticed that the project manager (and even the tech lead) trying to cut costs whenever possible. This is likely to the contingency costs that will pop up when least expected. I have limited experience working in cooperate projects, but I think this could be a particular project manager leadership style, prioritizing meeting cost deadlines.
One way to eliminate risks and contingencies that result in the budget being way off from what is expected is to communicate with all the stakeholders from the start and continuously throughout the project life cycle. During a stakeholder kickoff meeting, the project manager can receive input from all the different stakeholders and functions and account for everything in the budget. This would help eliminate chances of items being miscounted for. Additionally, it is also important to get an accurate financial forecast at the start of the project. If the budget has already been exceeded, meeting with stakeholders can help to reassign resources to a lower cost resource. Another way to solve this predicament is to seek more funding. In academia, if it is not too late the professor could potentially apply for another grant or more funding. If it is not possible to apply for more funding, an option is to reduce the project scope. Likewise another option is to reduce the project complexity. In my experience, I have not been on a team where the initial budget was exceeded. However I am very interested in hearing from others if they have experienced this and what the project manager did to overcome it.
While I have not yet worked on a large scale project in industry, I did have experience in dealing with expenditures as I was the designated person to keep track of the budget in my capstone group. While my team and I had never gone over budget (thanks to the very generous budget our advisor provided), we did run into a lot of unforeseen circumstances where we did have to purchase more items than originally estimated.
I completely agree with the point made earlier with constantly keeping your managers updated and communicating with them. Our constant communication allowed us to keep our advisor informed of any design changes or failures which avoided the feeling of being caught off guard when the time came to repurchase an item or purchase something that wasn't apart of the plan.
I imagine that working on a larger scale project for an industry is completely different on the other hand. I'm not entirely familiar with this but if I were a project manager I would try to either try to find where costs could be cut to compensate for an unforeseen purchase. For example eliminating or substituting any costly items or supplies while still making sure the quality of the product is maintained.
The biggest lifeline of a project is its access to money and keeping track of expenses wherever necessary is a big task to make sure the project is well funded and unforeseen circumstances are taken in to account whenever they appear. To preface, I have only been in the industry for less than a year, but in that time, I have seen a few ways project mangers have attempted to cut costs and make sure whatever projects are being done are all within budget. The one way I have seen, which has been mentioned above is to cut costs wherever and whenever, to use the least amount of money possible for all the processes. This way when there is a certain need for an influx of cash, the amount is available from the savings made before hand. Additionally if the part of the process requires extra money and goes over budget, the best way is to see if there is a way to reduce cost in more downstream processes. For example, trying to find an appropriate substitute for a necessary part to recuperate and offset some of that cost that was made before hand.
One way the project manager resolve this predicament is by reviewing the budget and cost of past projects. Since there is a history of failing to account for risks and contingencies, he should review the receipts and transcripts and see what problems arose. He can also look and rearrange the budget by allocating money to different aspects of the project.
During the planning stage of I believe project manager should always budget for time when we may go over budget.As I have had the privilege to shadow many manager and one thing that separate them are there budgeting skill.I have seen some manger not budget overages which took the project in the negatives.budgeting is key in any project.
It is true that you cannot eliminate all risks from your project, but prioritizing tasks and making sure your team is prepared for potential obstacles will prevent problems from happening in the first place. Communicating effectively is crucial for successful project management. It is your responsibility as a project manager to ensure that everyone on the team can use the technology you have selected to make sure everything runs smoothly. Ensure everyone knows what the expected response times are. In order to avoid going over your budget, you will want to do your research carefully and wait to present your final project budget until your plan and schedule are complete. Furthermore, it is important to identify the vendor's capacity and if they are able to meet your needs. Verifying that the vendor quotes are accurate and checking a vendor's previous work to see if they meet deadlines and are professional. Hopefully one day I will get the experience to work on a huge project with my company.
Since I've worked in project management before, I can declare with certainty that this is a possible scenario and that there are steps project managers can take to prevent it from happening in the future. I've always utilized an activity-based risk plan to reduce project-related risks. The risk event is identified as the first step in the risk plan. I would create risk response plans after the risk was determined. Contingencies and avoidance were among them. The budget I produced and the network design I created accounted for the duration and expenses associated with these operations. My team and I might have allocated money for addressing risks and time into the timetable by including separate actions in the plan. Additionally, it becomes a budget allotted, managed by management, and designated for the actions listed in the risk plan. This structure, in my opinion, might be helpful for this specific circumstance and other project managers.
@mayasaunders you are absolutely correct in saying that it's hard to eliminate risks but it takes a strong project manager to know how to handle unfortunate situations when they occur. That takes years of experience and training to be able to have that type of knowledge. Having solid communication skills is one of the most important attributes that a PM can have. Without this, the project can not go to completion. As you stated, being able to discuss timelines and strategies with vendors and holding them accountable are also important in communication.
It is the opinion of the writer that the project manager can resolve this matter by forming a budgeting committee for the sake of ensuring that any potential occurrences that may result in unexpected expenses are handled appropriately. For example, there may be unforeseen events that cause companies to go over their expected budget. When and if this occurs, the company should be prepared to pay for those unexpected expenses. Another reason why it may be appropriate to gather a budgeting committee is to also aid in defining what may be deemed as necessary as to why the company needs to go over the budget. If the company has run into unexpected events that have the potential to lead to something harmful, then the budgeting committee should aid in working out ways to handle the budget; however, if the company is launching a brand new product and they simply want the most expensive tools and equipment, which could result in sending the budget way out of the suggested range, this would not necessarily be deemed as necessary for allowing the company to spend more money than necessary.
@justinmb, you brought up a great point about proper planning. Risk management is a part of the planning. Anything can blow a budget, from not hitting dates to obtaining material. It is my experience also in project management, you have to be prepared for the unexpected. A contingency plan helps when the unexpected happens and aids in the project's success.
While I have not had any personal experience in a project management role, I am employed in a start-up laboratory that has faced the issue of exceeding the budget. The best practice in this case would be to re-establish the baseline given both the historical data of the company by making adjustments based on both the present risks, as well as the perceived risks. In this event it would be essential to take into account the trajectory of the company given its current financial objective and potentially pivot to either a safer or more lucrative end goal for the longevity of the company. In other words, given that the planning phase presented inaccuracies in the grand scheme, making educated adjustments could potentially sidestep a hazardous result given a heightened understanding of the project's associated risks.
I have no experience with project budgets but I know when the budget has gone over, then something may need to be cut. That is usually how it is resolve. If it is too far gone then you may have to beg for more money and hope your manager can get for you. You can also try to allocate money elsewhere. A budget deficit can definitely be resolved.