Why do projects go wrong #6
Overly optimistic budgets.
Early on in a project the definition of what you want to build , and what outcomes and benefits are planned to be delivered, will be formulated in parallel. In order to convince yourself, and more importantly convince the decision makers in your organisation, that it is worthwhile committing resources to the project, some very high level business case models might be produced. Such outline business cases will be based on all manner of untested assumptions about the value of the benefits and costs of products.
There is likely to be a tendency, for those with a vested interests in pursuing the project and seeing it come to life, to produce overly optimistic budgets and timelines.
Budgets and timelines will gain increasing levels of accuracy throughout the project. Too avoid future disappointment, and accusations that the project is going wrong, it is important to document and make clear the accuracy level to which prices and time have been estimated. On a complex project, with a number of supply chain parties it might be that at any stage the accuracy of budgeting or estimating time might be different for each work package. These differences should be noted and acknowledged. Pricing accuracy for part of the project might be quoted as ±50% or more early on in the life of the project, and as greater product definition is obtained and as firm tenders are returned budget accuracy may improve to ±10%. But ±50% of what? ±10% of what? It is unlikely to be ± the final out turn price unless you have prescient powers.
As the project gets further defined, as detailed site investigation takes place, as planning and permitting requirements become known, as the supply chain is engaged and performance demands are made, the likelihood is that you will discover things that had been overlooked in the initial enthusiasm, or extra requirements become known that couldn't have been anticipated.
Whilst your ±50% budget accuracy might have been appropriate for the manner of estimation for the original scope, as the project progress and better accuracy of estimating might have been expected to reduce top estimate of cost, additional scope could easily have more than negated this effect. Indeed these increases could risk exceeding the initial modelled acceptable business case scenarios and sensitivities.
This is where targeted value engineering could help, to challenge scope, programme and costs to bring it back to an acceptable commercial position.
So, the key to prevent over optimistic budgets and timelines affecting the success of the project is to be realistic about your estimating accuracy, and for the whole project team to better understand the dynamic of budget and timeline estimation through the life of the project.
Do you look through rose tinted spectacles? or do you recognise the wonky funnel?
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Other posts in this series
Hi Steve I was on a seminar back in January with project managers from other blue chip organisations, and it turned out that we all agreed that the single biggest problem facing project management is a clear client brief right at the very start.