Cost Overrun in Project Management: How to Prevent It

What is Cost Overrun?   

Referring to a situation when an unprecedented change occurs in the project budget, thereby surpassing the planned cost for that very project. While several factors may contribute to the escalation in project cost, primary reasons for it include inaccurate estimations in the project planning stages, alteration of project scope and unexpected delays. 

Signs of Project Cost Overrun     

To diagnose symptoms of this issue, project managers need to have a clear strategy to understand how the project is progressing. Listed below are common signs indicating potential budget breaches:  

• Absence of a well-laid-out project budget outline   
• Lack of a proper backup plan, leading to overspending of resources   
• Not using any dedicated project management software or other relevant tools to keep a tab of project spending   
• No proper analysis and evaluation of similar projects undertaken in the past/historical data   
• Lack of a complete resource utilization plan   
• Not tying costs to specific tasks or breaking down the project expense structure   
• Lack of project deliverable documentation, leading to unexplained scope creep   

Causes of Cost Overrun   

In the sphere of over-expenditure, constructional project cost over budget is quite rampant. As per studies, 9 out of 10 construction projects experience expense overrun. So, what could be the possible causes of project over budget? Let’s find out:  

• Inaccurate Cost Estimation: Not predicting the right project budget at the time of planning   
• Scope Creep: Continuous changes made in the project or modifying as per requests sent by various stakeholders   
• Delays: Unprecedented delays in the project timelines that result in increased costs  
• Fluctuations in Price of Materials: Spurt in the cost of materials or equipment needed to complete the project   
• Inadequate Risk Management: Emergence of certain unforeseen risks to tackle which no contingent plan is devised   

Cost Overrun Prevention: Top 5 Strategies   

A study by the Access Group says businesses have identified “capturing time/costs against projects” as their biggest project management obstacle. Therefore, ensuring precise project cost calculation is supercritical. Let’s have a look at the top 5 effective strategies that you can implement to control your budget and have a tighter hold on your project escalations:  

Plan Project Budget Effectively   

One of the most brilliant ways to ensure project success is to plan projects accurately and effectively. If you plan the project budget estimates precisely, the chances of staying within the budget will be maximized.   

Research properly and craft a detailed budget with a concrete work breakdown structure. Further, make sure to have a risk management plan in place to help you out in case of exigencies. As needed for your sprint planning, make sure to establish time estimates.   

Tracking the project completion rate periodically to check if the desired objectives are being fulfilled is essential to affirm its success.   

Collaborate With Reliable Vendors   

Several projects demand strong collaboration with reliable third-party platforms or vendors. You may need the support of these vendors to carry out diverse tasks, starting from sourcing materials to outsourcing work to freelancers or independent contractors.   

It is essential to check if your team members are exercising thorough scrutiny before establishing a professional relationship with the suppliers. You may never know when these vendors start quoting higher charges, thereby leading to cost overrun. Hence, communicating your requirements and budget with these vendors is a must to ensure that project costs do not exceed.   

Follow these steps to curb the excess expenditure of project resources:  

• Evaluate whether a particular vendor is capable enough to accommodate your needs and complete the crucial tasks   
• Check whether the quotes sent are precise by undertaking proper scrutiny   
• Analyze the past track record of the vendor to check their success rate and whether they have a positive work history with other companies   
• Conduct an extensive background check to understand whether the vendor can meet the expected quality and complete work in adherence to the timelines mentioned under the section of deliverables in the contract   

Mitigate Scope Creep   

As per a study conducted by the Project Management Institute, 50% of projects witness scope creep. Therefore, it is crucial to eradicate the root of scope creep at the very beginning.   

Poor planning and multiple requests from end users and stakeholders may escalate the cost of a project. An ideal way to combat scope creep is to take into account all the cases before planning and fixing the project estimate.   

When you receive new requests to make certain changes or modifications, review these carefully to ascertain if these are needed and whether you have buffer resources that you allocate.   

Start Using a Project Management Tool & Track Progress   

According to a report by Straits Research, the project management software research market is projected to reach a staggering growth at a CAGR of 10.67%. As per reports, teams using Project Management Software with in-built communication features have reported a 52% improvement in team communication.   

No wonder why using an ideal project management software platform such as TeamTrace can give a fillip to overall efficiency and project over-spending! Apart from managing project resources smartly, it can aid you in scheduling tasks in advance to avert loss of time or resources.   

Establish Clear Communication   
  

A PWC study has revealed that 77% of high-performing teams use good project management software that offers a diverse range of in-built features. Using software that includes embedded communication channels is beneficial for fostering seamless communication. As a result, things stay on track without any delays.   

Key stakeholders will also be able to obtain a broad overview of the project’s progress in real-time. Further, teams working on the project will also be able to gain easy access to all the work details just by using a single, unified platform for the same.   

Project Cost Overrun Examples   

While understanding project risk management and overspending of resources compared to what was planned, it is crucial to stay aware of certain project cost-advance case studies.   

Development of the US Healthcare Website   

Initially, $93.7 million was set as the estimated cost for the development of the Healthcare.gov website, which is an online marketplace for health insurance under the Affordable Care Act. However, the actual cost exceeded $292 million. Owing to poor project management, last-minute scope creep and poor coordination among contractors, the planned cost soared higher.   

California Court Case Management System (CCMS)   

Around $260 million was decided to be the total budget for bringing to life a statewide case management system for California Courts. However, $500 million was spent on developing this until the project was canceled. This happened because of ever-changing requirements and the absence of clear governance.   

These examples point to the fact that projects can spiral out of control owing to factors like inefficient planning, scope creep, constant changes to the project roadmap, poor communication and mismanagement. Therefore, using streamlined project management software is essential to eradicate hiccups in the path of attaining project success.   

Prevent Cost Overrun With TeamTrace  

It’s time to kick-start efficient project management by using TeamTrace. Achieve all your outcomes by utilizing a broad array of tools that you need to plan, monitor, and complete tasks.   

Use TeamTrace, an easy-to-use fully featured project time management software integrated with the desktop app, that lets you track progress and stay informed while gaining access to detailed reports & analytics.   

  
TeamTrace is not a regular project management tool, that only focuses on handling client requirements and project flows. This lets the organizations take control of the project budget by collaborating time, and resources with the project, the key elements of a successful project.  

How TeamTrace focus on efficiency for transparent project billing and cost control?  

• Identify stalled tasks: Receive alerts for overdue tasks. 
• Track task duration: Measure the average time spent on tasks. 
• Analyze workflow efficiency: Assess the average time taken for transitions between stages. 

TeamTrace’s resource and time-tracking features are instrumental in preventing project budget overruns. By providing real-time visibility into resource utilization and task duration, TeamTrace empowers project managers to: 

Identify potential overruns early: Track project progress against budget and identify areas where costs are escalating. 

Optimize resource allocation: Allocate resources effectively based on project requirements and availability, preventing underutilization or overallocation. 

Make data-driven decisions: Use detailed reports and analytics to identify cost-saving opportunities and make informed decisions. 

Prevent scope creep: Maintain project scope and avoid unnecessary expenses. 

Improve project estimates: Use historical data to create more accurate project estimates. 

Get started today and kick-start the process of efficient project management today!