All projects are at risk of cost overruns. We’ve all read about the mega projects that go wrong like the channel tunnel and the ongoing saga of Berlin’s new airport. But in reality these are the exceptions. Most big projects quietly get on and deliver.
However, in the day to day world of business small and medium sized projects often suffer disproportionate cost over runs. Why is that?
A typical reason, especially with small projects is we apply less rigour to the project. It’s only small so we don’t need to follow standard practices. We take less time and trouble over our estimates. We are not as rigorous about defining the requirements. As a result, what is delivered does quite meet expectations so change requests come thick and fast.
A classic example is the typical house extension. You rely on an optimistic builder who’s trying to win your business and as you get to fitting out the true cost of quality fittings comes to light. And they are never just 5% more! it’s always 50% more.
Linked to rigour is the failure to engage widely enough. It’s a smallish project so can’t impact that many people, can it? As you progress, more and more stakeholders come out of the woodwork placing more demands on your time and increasing the requirements.
Time delays have a disproportionate impact
One of the biggest costs for your project is the project team. Time delays mean you have to keep the team together longer. If you are lucky, team members can be temporarily redeployed. But even then, there is a cost implication as it takes them time to reacquaint themselves with the project on their return. You lose the synergistic effect of an effective team. Also, they may not be able to return just when you want them back so causing more delays. They may not come back at all, leading to an even bigger training or assimilation exercise.
Then there is the management overhead. Running the team costs money and if you have to run for longer, there is a cost impact. One of the key drivers for early on a recent project I have been involved in was just that. But don’t make the mistake of cutting corners to speed things up. That can lead to bigger problems. It is better to do it right than do it twice!
Finally on the time front is the cost of finance. If you are in the construction business, funding the project cost is a major cost in itself. A time delay can add disproportionately to the overall costs.
Estimates are always just that
Unless it is a task you have undertaken many times and there are no unusual factors, the chances are your estimates are wrong! That’s why they are called ‘estimates’. Why do these have a bigger impact on small and medium projects? Mostly because of the factors already discussed – less rigour, time delays etc.
People are the root cause of many project problems. They change their minds. They work to their own agendas. They disagree with each other. For small to medium sized projects, it is often the inexperience of the project manager. New project managers cut their teeth on small projects (well you wouldn’t want a newbie building a skyscraper, would you!). And that inexperience means they are likely to make mistakes or get the estimates wrong by a higher margin. So they should get more support. But it’s a small project and we have lots of them and we need to focus our support on the big, critical projects….. You get the picture.
People also take holidays and get sick. In a smaller project you have less capacity to absorb such things and might need to hire in more expensive temporary staff. The alternative is delays which as we’ve already seen can have their own cost implications.
Requirements & regulations
We’ve already talked about user requirements being less well defined because of a lack of rigour. But there are often a huge set of regulatory requirements that have to be met. Health and safety in construction and engineering can be a huge overhead and the same rules apply no matter the project size. The same goes for planning requirements.
What can we do to prevent excessive cost overruns for small to medium sized projects?
- Apply an appropriate level of rigour. Don’t cut corners just because of size. Cut out the unnecessary because you know you don’t need it not because you think you don’t need it.
- make sure you identify and engage ALL your stakeholders.
- identify key person dependencies and plan mitigation strategies.
- challenge and validate your estimates.
- make sure the quality of deliverables is clearly documented.
- ensure appropriate contingency is included for uncertainties.
- ensure inexperienced project managers are properly supported. If you are that inexperienced project manager, seek out that support. Don’t wait for it to be offered, it could be too late by then.