Why do most projects go over budget? May 31, 2008Posted by Tariq Ahmed in Project Management.
Whether its time, money or both, very rarely can a project meet its initial budget estimates.
Consider our latest Death Star project. It took the Emperor and myself to personally over see the construction to keep it on track. Even then we had to sacrifice 30% of it to get the main weapon on-line, much to the surprise of the rebel scum.
On Earth, the U.S. Air Force in 1986 estimated the B-2 Stealth Bomber would cost 437 million per plane. By 1994 the cost ballooned to 2.2 billion per plane.
Why do organizations have so much difficulty calculating project budgets and sticking to them?
Difficulty estimating costs: Many costs may be unknown when estimates are drawn up. Requirements may not be completed or the project involves outside vendors who give unrealistic estimates.
Requirements are never fully scoped out: Requirements are set out, but no one asks the tough questions to bring the requirements from 50% to 100%. The larger the organization, and more departments that are involved, the more difficult it becomes.
Change occurs: Unforeseen consequences/new events can drive up the costs and time frames. The most noticeable agent of change is scope creep. Scope creep can occur for many reasons including the will of individuals, incomplete requirements, new requirements or unforeseen consequences. To control scope creep, always label new requirements as “must haves” and “nice to haves”. All “nice to haves” should be pushed to a Phase 2, which may or may not occur.
All project phases aren’t included: Ending phases of the project may be considered by some to be a “separate project”, a “future project”, or “routine maintenance” and therefore is excluded from the original project estimate.
Under-budget on purpose: The costs/timelines are purposely set low in order to get a project approved, knowing full well that reality will cost more and take much longer than our estimate. Everyone wants their project to get the green light. Consciously or sub-consciously we low-ball everything. Who wants to give their management “reality”? If you did that, it would never get approved. Just lie, and we’ll make up excuses later on why it’s over-budget. Once the company has committed/spent resources on it, they can’t back out.
Of course history is full of projects that went out of control and the plug was pulled. The politics of under-budgeting on purpose is very complicated indeed.
The best measure of a future project is to look at past projects and their initial budgets and final budgets. History tends to repeat itself.
The golden rule is “take your estimate and double it”. Is that enough?