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Why Budgets Come Unstuck

Why do budgets sometimes come unstuck and prove to be profoundly wrong?

 

Budgets that fail to deliver

 Project Budgets are notorious

·         They can fail to deliver their promise and come unstuck

·         Especially those prepared within the performing organization

·         Often because the estimates they are based on

·         Are badly flawed

    There can be a variety of reasons

·         For project budget/estimate failure

·         As described in the following pages

    Of course, they are also reasons why projects fail!

 

Good advice

    Starting with a budget and then figuring out how to spend it is a poor way to manage a project!

   A better way is to

·         Establish and document the project's goals

·         Crystallize the deliverables, and resource requirements

·         Establish the costs to deliver

·         If the costs exceed budget expectation

·         Increase the budget because the project is worth it

·         Or modify the goals and adapt deliverables to fit

·         If it still doesn't work, scrap it before wasting any more time and resources

·         It will fail anyway!

 

More good advice

Don't use "Bottom Line" contingency

·         As a "slush fund"

·         Called the "Big Pot" approach

·         The contents never last

·         It masks any ability to estimate and control individual work packages

·         And obscures what is really going on!

·         It is also a happy hunting ground for auditors!

 

Often the biggest reason for failure

The scope of the project is not clear

·         Objectives are unclear, or undefined objectives exist

·         And consequent scope is incomplete

·         Management is unwilling to invest sufficient time to do an adequate job of estimating

·         The required information is not developed

·         Subsequent scope changes are excessive

·         And disrupt the work

·         There is a lack of historic data

·         And the estimate is naive

Size and complexity

The size and complexity of the project are ignored due to

·         Unprecedented size or new technology

·         Increasing uncertainty beyond previous experience

·         Or the previous experience on which the estimate is based is not relevant

·         And the project management team is not up to the task

 

Lack of trust and candor

Managers play games with budgets

·         To get their favorite projects approved

·         Such attitudes may be endemic in the organization

·         Or the budget gets inflated

·         To offset an inevitable reduction in funding at time of approval

·         Either way the project manager is the scapegoat

·         A case of premeditated stupidity!

 

Communication failure

      The assumptions behind the estimate

·         Have not been adequately communicated

·         In the conversion-to-project-budget process

·         Or to those working on the project

·         Or actual work packages bear little relationship to estimator-planned work packages

·         Or activities start out-of-sequence

    Management reporting policies

·         Are inadequate for control

·         Until it is too late

·         Or the project cost reporting system is unresponsive

·         Or non-existent

 

Economic or corporate climate

The economic or corporate climate changes due to

·         Mergers and acquisitions

·         Changes in top management personnel

·         Changes in the organization's priorities

·         Inflation and/or labor demands or unrest

·         Shift in market demand for product

·         Or the launching of a competing project

·         The arrival of new opportunities

 

Wrong focus

The underlying estimate focuses on the wrong items

·         Easy-to-estimate items get close attention

·         Hard-to-estimate items get glossed over

·         Leading to a "fatal flaw"!

·         With the highest uncertainty and risk

·         The estimate is not aligned with the project objectives

·         And realistic conversion to a viable budget is not possible

The environment

The environment changes, such as

·         Changes in user or public opinion of the needs or requirements

·         Opposition to the technology

·         Safety requirements increase

·         Change in cultural attitudes

·         Change in regulatory requirements

·         A competing product emerges

 

The project team

The project team gets decimated

·         A key person leaves

·         Due to sickness, transfer or promotion

·         Or for a better opportunity with another employer

·         He or she is replaced with a higher-priced person

·         Or a lower-priced person

·         With less experience, competence or skill

·         Who then takes a lot longer to get up to speed

·         A competing project's manager raids the team for its expertise

·         Or a part-time person's availability is reduced

 

Other reasons for failure

The learning curve is overlooked

·         Or the expected degree of repetition is not realized

·         Because the work is planned differently

Outside supplier or service costs increase

·         Because they have not been frozen by an agreement

Waste and spoilage are not factored in

·         Perhaps because of unanticipated rework

The estimate has been taken "as-is"

·         Without conversion to a project budget

·         As described in Issacon #1336