3 Reasons Your Project Will Go Over Budget

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In 2008, David Bergin, Levi Strauss’s Chief Information Officer, was forced to resign.

The problem started in 2003. Levi’s was doing well, operating in more than 110 countries and had secured one of the best-known brand names in the world. But their information technology department was woefully behind and was a mess of networks that differed between each country in which Levi’s operated.

The solution seemed clear: Levi’s hired Deloitte consultants to move their network onto a single SAP system. They set the budget at $5 million.

By the second quarter of 2008, the jeans company had spent $192.5 million on the project—3750% over the original estimated budget.

Man distressed going over numbers with calculator

The setbacks that Levi’s faced are problems project managers address every day. A major client (Walmart) demanded that Levi’s SAP system integrate with their supply change management system. Financial reporting was inefficient. During the changeover, Levi’s couldn’t fill all of its orders, and they had to close three major U.S. distribution centers for a week. The project that started so small ended up being a giant catastrophe.

The sad reality is that these stories are not uncommon.

But why do so many projects go so dramatically over budget? And what can be done to mitigate this problem?

1. You don’t have a clear scope.

Vector Project management process diagram concept

One study conducted by the Advanced Electronic Company and the Missouri University of Science and Technology found that the number one cause of failure in healthcare IT project is unclear scope.

If your company struggles with nailing down the project scope—or sticking to it—how can you expect your budget to stay on track?

The Fast Track lists out two critical steps to keep your project in scope.

First, make sure you have a clear purpose. Scope creep easily arises from misunderstanding. Take the time to ensure that you and your stakeholders have the same goals.

Then create a list of final deliverables. Take your final goals and list them from most to least important. Then use project management software to develop your budget and timeline.

2. You’re working with the wrong people.

Student Overwhelmed Asking For Help

Are you working with the right people with the right skills to get the job done?

For instance, this Boeing fiasco where a project to build new 787s landed them between $12 and $18 billion over budget. According to Forbes, “Boeing’s original leadership team for the 787 program… did not include members with expertise on supply chain risk management. Without the requisite skills to manage an unconventional supply chain, Boeing was undertaking a huge managerial risk in uncharted waters.”

Building an effective project team means looking for more than just a group of people willing to get the work done. One study done through the Project Management Institute found that finding and maintaining high-performance talent rests on “clearly defined career paths and skills requirements,” mentorship programs for top performers, regular performance reviews, and “stretch assignments” that leave opportunity for “young project leaders to expand their skills.”

3. You can’t execute.

Hand Pushing Project Execution Button On Touch Screen

Eurotunnel has $10.4 billion in debt because of failure to execute a project plan effectively. The Channel Tunnel, or “Chunnel” is a 31-mile tunnel under the English Channel which facilitates Eurostar trains between the United Kingdom and France.

According to Strategic PM,

“Construction of the tunnel started in 1988, the project took approximately 20% longer than planned (at 6 years vs. 5 years) and came in 80% over budget (at 4.6 billion pounds vs. a 2.6 billion pound forecast).”

While there was only one major hiccup in the scope strategy (the tunnel specifications were change to accommodate air conditioning), it was poor communication between the British and French teams that ended up undoing the project.

A great plan with solid scope can be in place and human error can still wreck your project. Consider software solutions like ActivCollab and BaseCamp to facilitate better team communication. Whether it’s cross-country or in the same office, having a solid communication plan in place can help mitigate all sorts of issues that lead to over budgeting, like accidentally duplicating work or under-assigning tasks.

More?

Are you worried your project will go over budget? How are you dealing with it? What other tips, tricks, and solutions do you have up your sleeve? Leave your answers in the comments below!

Looking for Project Management software? Check out Capterra's list of the best Project Management software solutions.

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About the Author

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Rachel Burger

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Rachel is a former Capterra analyst who covered project management.

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