Sunday, May 27, 2012

Cost Creep! How Budgets Balloon. - Overruns And Missed Deadlines

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A budget is a matrix of objectives in terms of cost, tasks, certain quality parameters and time frames. It is not a best-case, worst-case or most probably case scenario, a forecast to wow investors or a means at winning a contract. A budget is a rule book. Any deviation from budget (i.e., a negative variance) is something that emerges from any of the following sources of error. And these errors lead to missed deadlines, cost overruns, and quality control deficiencies if:

1) A budget is created as selling tool or as a means of winning financing or a contract;

2) A budget does not provide sufficient margin for contingencies and other critical path issues, interruptions and deviations from trajectory;

3) A budget is put together with the thought in mind that once the project is sufficiently underway, the client, investor or manager will be sufficiently emotionally invested that he or she will not regard the project as a failure, and that additional resources (such as time and funds) will be made available;

4) A budget is put together without adequate input from the end-user (or client), and from the project team responsible to produce it within budget and on time;

5) Exogenous forces and unforeseen circumstances (natural disasters, supply shortages, labor disputes, commodity price fluctuations, and the like) intervene beyond the scope of the project team's control;

6) The outcome or target is too generally defined so results cannot meet expectations -- a classic expectation management failure;

7) The project becomes infested with scope creep and becomes ambiguous or nebulous, rendering the initial budget irrelevant;

8) The actual costs, time and quality are not monitored at frequent enough intervals to intervene in the earliest stages of error;

9) Management fuels the fire of inefficiency by becoming overly accommodating or obsessed with making the product either different then or better than that which has been specified in the budget;

10) The is a lack of clear project leadership and accountability.

The conditions cited above, any one alone or several in combination, are a recipe for falling short of a quantitative, quantitative or temporal goal. Poor budget formulation, or improper adherence to a defined budget will cause something, or someone to suffer. Whether it's the use of cheaper components, inadequate quality standards, failure to timely deliver at deadline or failure to complete.

Some additional topics worthy or exploring, or revisiting are zero-based budgeting and cost-plus budgeting; interestingly, the first is a powerful concept that offers every business or project manager a periodic, fresh insight into cost elements and ROI, while the second is often the beginning of a free-floating venture into the unknown. The idea is to avoid ballooning and missed deadlines by identifying and limiting as many "uncertain variables' or wild cards as possible.

On a closing note, sometimes cost-plus budgeting is analogous to hitching a ride with a stranger - and if you've you've watched enough late-night television, you'll understand the insinuation.

As for major government agency awards and contracts, perhaps a picture is worth several billion words...

Hey, Fellas. We CAN'T stop now! We're Theeeeese Close...

The Business And Project Planning And Management Blog

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