We look at 5 common reasons for project cost overruns and how to mitigate them:
- Imprecise specification and over optimistic project cost estimates – precise specifications and accurate estimates are fundamental to project success. Accurate estimation requires a precise specification and accurate cost forecasting based on past projects and industry-specific experience and knowledge. Project cost overruns can often be traced back to poor specifications and inaccurate estimates. Reviewing your specifications and estimates with other highly experienced independent professionals can help improve their accuracy. Sometimes an external view can spot the potential problems you might miss because of your close involvement in the project.
- Poor change management – change is inevitable, and managing change effectively is crucial to project success. Change management must be incorporated into projects from the outset. Change management can be challenging and identifying change, tracking it and collecting the associated costs, and keeping the client informed is crucial. An informed team is an empowered team, and it’s critical in managing change to keep the client and the project management team fully aware of changes to timescale and cost.
- Schedule and cost control – constantly tracking progress against schedule and cost using the appropriate tools is key. Inevitably if the project lasts longer than planned, it is going to cost more! Unapproved spend and cost control should always be at the top of the agenda. Maverick spend – purchases made outside of agreed contracts and established corporate procedures – may often be of low value but in aggregate can be extremely costly for your business. Measuring maverick spend as a Key Performance Indicator will help an organisation understand if the internal controls are suitable and that those provided with appropriate delegation can be relied upon.
- Unplanned costs and risk management – inevitably, even with the best project team in place, unplanned costs arise. These unforeseen events, e.g. product or service shortages, exchange rate changes and weather problems, which are outside your control, can potentially derail your project! They can happen at any time, so building in contingency based on the risk and the complexity of the project, is paramount. Effective assessment of risk and uncertainty and having practical solutions in place will help manage any unforeseen events.
- Under-skilled teams with a lack of diversity – developing a well-rounded team of people with different backgrounds and expertise into a unified and effective project team is critical for success. Every team needs diversity with a range of skill sets and differing strengths and ideas. Ensuring your team is well-skilled and diverse will have a positive impact on project schedule and success.
To manage the above you need to have access to the right talent. Contact Jody to find out how Rowe Advisory can help you put your project in the right hands from the start.