Cost overruns are one of the biggest issues project managers grapple with and one of the most common causes of project failure.
To help you keep overruns at a minimum, we go over why cost overruns happen, and some practical strategies you can implement to prevent it from disrupting your projects.
What Does Cost Overrun Mean?
A cost overrun is an unforeseen change in the project budget that causes the actual cost of a project to exceed the project’s planned cost. This can happen for many reasons, as we’ll see in the next section.
Common Causes of Cost Overrun
As mentioned, there are several causes of cost overrun. Let’s look at some of the most common ones.
Poor project estimates
28% of the projects fail due to poor project estimates. To deliver a successful project, the project manager must produce accurate time and budget estimates during the planning stage. Avoid the guesswork and instead create data-driven and precise calculations to avoid underestimation or overestimation of costs. Take advantage of all the tools at your disposal, such as historical data or a panel of experts, to help estimate your project costs.
34% of projects experience scope creep across industries. Scope creep occurs when unexpected tasks and deliverables pop up during the execution phase. While it would be every project manager’s dream only to deliver what they were initially tasked with, in reality, scope creep is often inevitable. To avoid scope creep, use a detailed project tracking system to monitor completed and pending tasks.
Lack of risk management
Risks are inevitable in any project. It’s, therefore, judicious to take risk into account during the project planning phase. Keep in mind that unforeseen issues could crop up during any project phase. By anticipating issues, you can build a risk management plan to help you manage them when they arise. Proper risk management will prevent significant delays that could lead to cost overruns.
Ineffective communication and collaboration
29% of projects fail due to poor communication. Communication gaps can occur both within the team and with project stakeholders. It’s crucial that you effectively delegate and brief your team on project tasks. It’s also essential to communicate frequently with stakeholders. Poor communication can lead to avoidable delays, consequently causing wasted effort, misdirected resources, lost time, and project cost overruns.
How to Prevent Project Cost Overrun
According to the Project Management Institute (PMI), more than one-third of projects across all industries aren’t completed within budget. Here’s how to prevent your projects from experiencing the same fate.
Plan your projects effectively
The best way to stay within or under budget is effective project planning. Create a solid project budget that accounts for everything you’ll need to complete your project. Remember to account for possible risks too. The more detailed and accurate your estimates are, the greater the chances of preventing cost overrun.
Use reliable vendors
You’ll inevitably, at some point, need assistance from outside vendors, whether to help with specific tasks or supply materials and equipment. Working with external suppliers opens your project up to cost overruns often beyond your control. This makes it critical to ensure you’re confident with whom you collaborate.
First, make sure that the vendors have the capacity to meet your project needs. Second, they must understand your business as well as you do to produce accurate and fair estimates. Third, run background checks and review similar projects they’ve completed to see if the suppliers meet deadlines. You’ll also get to see what others have to say about working with them.
Control scope creep
You don’t want your team to handle too many extra tasks, not in your initial scope statement. The more tasks you keep adding to the project, the more money you’ll need to spend.
To prevent scope creep, start by fully understanding the client’s expectations . by knowing what the client wants, you’ll be able to plan out all the necessary tasks required to deliver these expectations.
When you receive new requests during project execution, conduct a thorough review before approving them to ascertain their necessity and whether you have the budget and resources to allocate them.
Implement a clear communication channel
Proper and constant communication is key to preventing budget overruns. So always keep channels of communication open, especially when working with remote teams.
A project management tool that tracks all communication in one place is one of the best channels you can use to communicate with your team and project stakeholders. A central communication hub saves you and your team the hassle of digging out conversations from old emails or instant messaging chains. Plus, the project teams will easily access all related project information.
Utilize a project management tool
Investing in the right project management tools helps project managers to increase project efficiency and control cost overruns. Besides monitoring project resources efficiently, you can also use a project management tool to schedule tasks better and avoid resource wastage or loss.
How to Get Things Back on Track in Case of an Overrun
Despite your best efforts, you may still experience cost overrun. Don’t panic; here’s how to get back on track.
Find out the cause
Complete a retrospective review of the project to identify the specific activities that went off budget and why they did. By understanding the cause, you can put a handle on it and prevent further damage.
Manage project stakeholders
It’s crucial to inform stakeholders whenever you need additional budget to complete the project, a be honest about what happened. Explain the key reasons that lead to the cost overrun and your plan for recovering the project.
Engage with your team
After a cost overrun, you’ll need your team’s utmost collaboration to pull your project back to its tracks. Share the revised plan with your team, so they understand what they need to do. Go a notch higher and create a shared project-based incentive structure to encourage the team to work faster and more efficiently.
How Mission Control Can Help You Prevent Cost Overrun
While cost overruns are common, as we’ve seen, you can prevent them. Increase your chances of ensuring your project delivers value within its timeline and budget by utilizing project management software.
A project management tool like Mission Control gives you the tools you need to plan, monitor, and report.
Use our Gantt charts to keep an eye on the project timeline, team workload, and any slippages in real time. Monitor project progress with online Kanban boards and automate tasks to ensure on-time delivery.
Use the reports dashboard to generate and share project status reports with stakeholders quickly.
Promote effective communication and team collaboration through Chatter Feed which supports instant on-the-go communication and file sharing.
Try Mission Control out for yourself by requesting a demo today!