The Budget is Blown: Why There’s no Going Back

The way that cost and budget are communicated in project management is something of an art – once the numbers are posted, there’s very little, if any, opportunity to turn back.

There’s a fairly standard maxim in project delivery that it can be broken down into three ever-present base elements: Time, cost and quality. These are the levers that are at the heart of all projects, irrespective of the delivery methodology or the outcomes that are expected to be delivered. While risk may be the ‘fourth’ element, it is almost always looked at in context of how it impacts the three base elements.

So which of these three base elements is most important? It depends on the perspective of who you ask and what the ultimate pressures being brought to bear on the project are, how ‘success’ will be measured, and which of the three levers the C-Suite see as most important.

But what is less up for debate is the negative response elicited if one of these particular elements is missed. The one that is treated very differently to the other two – and invariably creates the biggest negative reaction when it goes south – is cost.

So why is going over budget treated differently to the other two and what can project managers do to better mitigate against a real or perceived cost blow out to protect against the crowd turning nasty?

Cost Always has a Seat at the Top Table

Cost has its very own C-level executive in the form of the Chief Financial Officer (CFO), who typically sits just to the side of the CEO in terms of importance to most organisations.

It’s certainly understandable given that companies are set up with the intent to be successful (i.e. to receive more money in than goes out) that the importance of how organisations are measured in statutory reporting and financial measures sits at the heart.

Typically the CFO’s role is to focus on controlling costs and so there is always a laser focus on cost overruns – not just operationally, but also within project. Costs – and cost overruns – will always be on the senior management radar from the outset.

To illustrate the point there is not often a corresponding Quality Chief Officer or Time Chief Officer to bring a similar focus to the other two levers when they are potentially being missed. Therefore, all project managers must be aware that cost, rightly or wrongly, will typically have more eyes on it than the other measures as it is always a topic of debate at the very senior levels thanks to the CFO.

Cost is the most Visible and Quantifiable

All three levers can be measured in some way, shape, or form but none more so than cost. Cost, after all, is a very linear measure and drives much of the conversation within a company, not just regards project spend.

It is this black and white approach that makes cost readily identifiable and quantifiable and thus easier for stakeholders to latch onto more so than, say, time or quality. After all cost can easily be measured: you just need to look at the bank account as costs go out to pay for project spend, to be able to assess the impact to the business.

Resist the Dreaded Number

Let’s now take a slight detour in the conversation. This is the point at which those CFOs who are still with us can go make a cup of tea.

If we can all agree on the premise that cost will face greater scrutiny than the other project measures, then this alone means cost has to be treated with greater caution and respect by project managers. If the heart of good project management is good stakeholder management, and typically the CFO will always be a significant stakeholder, then how cost is measured and, most importantly, communicated must be treated with the upmost care by the project manager.

So when it comes to posting ‘the number’, we say it must be resisted at all cost (no pun intended!) until the project manager is very clear on the accuracy and veracity of the expected project spend. Once the number is posted there is no going back and it will be seared into the memory of at least one stakeholder who wields significant influence.

It is all well and good to provide the rider of plus or minus percentage (noting that it very rarely comes in under) however from our experience this caveat is often either ignored or overshadowed by the sheer power of having posted the number.

Much like the arrow released from its bow, once that number is out in the public domain it cannot be reined back in.

So be willing to resist posting The Number until you have sufficient evidence and confidence it can be achieved. Even go so far as to initially report a range if necessary and work hard to better define the final spend through detailed analysis. It’s preferable to fight a battle up front for a number of reporting cycles rather than post a number that is full of vague or untested assumptions and then be held to account to this outcome  – no matter how unrealistic – for the remainder of the project.

Cost Will Always Attract High Scrutiny

In the perfect world, all things should be treated equally. However, in reality, this is never the case and this is no different with project cost. It will always attract greater scrutiny on a project even if it is only one measure of a project’s success.  Project managers need to be well aware of this added emphasis on this one measure and adjust their approach accordingly.

After al, if it is the rock that almost all projects perish upon, it’s up to the project manager to steer the right course so that it does not become the defining measure and only topic of conversation for a project.

As project specialists, we develop fit-for-purpose project strategy.  Contact us here to find out more about how we work with your teams or call 02 9098 6300.

We believe that quality thought leadership is worth sharing – click on any of the links below to share with your colleagues. If you’re interested in republishing our content, here’s what’s okay and not okay.

About Quay

Quay Consulting
Quay Consulting is a professional services business specialising in the project landscape, transforming strategy into fit-for-purpose delivery. Meet our team ...

Related Post

2018-11-21T14:33:12+00:00By |Project Management|