What to do When a Project Starts to Run Over Budget

Author: Categories: Control, Professional Services, Project Management

We’ve spent a lot of time on this blog discussing how professional services automation (PSA) software can help run a more successful services firm. From delivering projects more efficiently to increasing the utilization of your resources, PSA software provides a slew of tools that services firms can use to avoid project overruns and consistently deliver within budget. It is an unavoidable fact, however, that even the best professional services organization will sink a project every once and a while.

So if somewhere along the way your project lost its way, here are a few strategies that you can use to try and get things back on track. Remember, an over-budget project doesn’t necessarily mean it’s failed, yet. There may still be time to right its course.

Identifying the Problem

Arguably the hardest part of project management is identifying problem areas in projects before they become unrepairable. The longer a problem project festers, the harder it becomes to fix. Identifying project issues requires a commanding grasp of where a project stands today, and how much effort is left. Typically these two factors are referred to as a project’s actuals-to-date and its estimate-to-complete. Add them together and you’ll get the project’s estimate-at-completion, or the value that you should be tracking against your budget.

Acting like an early warning indicator, tracking a project’s estimate-at-completion against its budget will alert project managers when a specific aspect of a project may have taken more effort than intended. To be effective, however, project managers need to maintain accurate resource projections and understand the status of the project in real-time. Most PSA tools facilitate this process by promoting accurate time recording, allowing for efficient schedule adjustments, and adding it all together with real-time reporting and alerts.

Finding the Source – Ask why, not who

Once you notice something has gone wrong the next step is to determine what happened. A project manager’s initial reaction (or anyone’s for that matter) is often to ask who screwed up. Instead of wasting crucial time playing the blame game, ask why a problem occurred in the first place. And don’t just ask why once; ask it a few times to try and illuminate the root cause of the issue. An effective way to shed light on an issue is to use the 5 Whys technique to peel back each layer of a problem. Not only will this technique help you prevent the same problem from happening again on a future project, but it could also provide a path towards ultimately righting the project currently in trouble. If at first glance it appeared you were simply walking in the wrong direction, but after asking why a few times you learn you were using the wrong map all together, you’ll be able to address the root of the issue before it gets worse.

Making Adjustments

Hope springs eternal, but it doesn’t fix a failing project. The biggest mistake a project manager can make when something goes wrong is to hope that it will work out in the end. It may sound like a no brainer, but it happens all of the time. The thought being a small mistake her or there will “wash out” in the end. More often than not, instead of “washing out” they add up. When a task takes a little more effort than expected it is easy to not think much of it, but it is the project manager’s job to adjust for these discrepancies as the project moves along.

Much like an intricate game of chess, project managers can shift around priorities to accommodate for discrepancies in the project’s plan. If you know that a client is more budget- than time-sensitive, you may be able to trim the team (to reduce communication overhead and work transfer inefficiencies) to stick to the budget, but at the expense of time to market. If scope or quality are factors that can be adjusted, you may be able to make small reductions that don’t jeopardize the ultimate goal of the project.

Righting the Course

If shifting around priorities isn’t enough to save the ship, it’s time to talk with your client. It’s important to start the conversation openly to work towards a mutually beneficial resolution. The last thing you want to do is go straight to the defensive. Bring your root cause analysis and priority adjustments to the table so they know you’re not simply throwing in the towel. If the goal of the conversation is to renegotiate the scope or budget of the project, help the client see why it’s in everyone’s interest to provide some wiggle room. After all, adhering to a tight or unreasonable budget often results in corner cutting and lower quality work. If the client is looking for a creative solution, thought leadership, or demonstrable value, rather than just outsourced labor, then it is in their best interest to be flexible.

One approach that is worth exploring is a revisit of the project’s A’s and D’s, or the assumptions and dependencies that were agreed upon as the basis for the project’s budget. A project’s A’s and D’s are often crafted by a more senior-level team member during the scoping process or as the statement of work is written. If the client steers the delivery PM away from these A’s and D’s during the course of the project it can quickly lead to problems. If your root cause analysis highlights problems in this area it can be a good opportunity to renegotiate the project’s budget with your client and get things back on track.

Regardless of which approach you take when chatting with your client there is one important rule to follow—renegotiate once, and only once. Working with your client to adjust the budget or scope of a project is more than an unpleasant experience. It erodes trust and jeopardizes the long-term relationship. Yes, sometimes it is an essential step that must be taken, but if you think doing it once is bad, try doing it twice on the same project. Make sure you have fully uncovered the reason your project went over budget, understand what will be needed to get it back on track, and negotiate your correction once.

Learning from our Mistakes

Sooner or later every project manager will find themselves at the helm of a struggling project. Being able to correct that project is a valuable skill and a teachable moment. Regardless of the approach you take to save the project, it’s important to digest what went wrong, what you did to fix it, and what you will do to prevent it from happening again. Project managers that have good visibility into their portfolio are the most successful when it comes to spotting, correcting, and learning from troubled projects. If every project you run feels like a heroic quest, rather than a well-planned journey, it’s probably time to review your processes to see where you can inject more visibility and gain more control.

Have you played the role of project hero before? Share the steps you took to right your project’s course in the comments section below.

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