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What can you do when you find cost overruns in the middle of your project?

I'm being faced with a situation in my current project. I am almost 50% through my project and now I'm facing cost overruns. What should I do? Since this is my 3rd project I feel that it's going to discredit my position as a project manager. How can I handle this while at the same time make sure that everyone still thinks I'm the one for the job?

One thing to add here, I have approved the budget of the project and said it was feasible (I never opposed it, and in retrospect, I wish I did).
asked 11 years ago by anonymous

1 Answer

We use a term here "Don't put lipstick on a pig!"  I understand your challenge and concern with your reputation, but that is the beauty of projects...we are working in a world of unknowns and you don't know what you don't know.  Look at this as an opportunity!  

Look back at how you came to the budget....

Are the cost overruns coming from a missing party in those discussions?  If so, go to the person and understand what their spend has been to date, as what they need to complete and ask for where they can cut to still achieve quality and deadlines.

If you didn't miss anyone or their savings aren't going to cut it, look for low hanging fruit.  Is there anything that was added in recently.  You could go back to the team and say "I loved that idea and think it would add to the product, but we need to reduce some costs here and focus on meeting the requirements, not over delivering."

Negotiations and big spenders are your next step.  Traditionally, your overruns come from people and a missed calculation on how much time it would take them.  Go back and ask them why the extra time? Anything to reduce that?  Do they need all level 3 engineers or could they use a lower level resource?  (What's the risk to time and quality with that choice?) If it is in service or parts, you could go back to your vendor and negotiate.  The life-cycle of your project is often where they make their money...they are interested in this launching also.

Challenge - Your people should have been the main source of input and they told you it would cost x, take this many hours, etc.  Challenge their overruns.  Push back and ask them to fix it...bring back some alternatives to rain this thing in.

Lastly, put the picture together and present it to your project sponsor.  Let him/her know that you are currently looking at an overrun...here are some reasons, this is what I have done to bring it under control, and here are the options going forward.  A) Gets us under budget, but time gets pushed out B) Only 5% more money, but we launch on time...etc etc.
answered 11 years ago by rkelly976 (230 points)
We need to know more about your project, namely the CPI and SPI. Just stating you have encountered cost overruns does not tell me if there is a problem or not.

Normally the PM does not approve the budget, this is the role of senior management. I can agree that you presented an estimate of cost. With the estimate what was your range of confidence?

Have you gone back to your cost experts and your project team and determined if this is an ongoing problem or just a one time occurrence? What is the cause of the overruns, again I'm more concerned with the CPI and SPI this will tell you just how large the problem really is.

If you must stay within the approved budget then you, your project team and key stakeholders need to determine what can be eliminated to pull the cost down.

If you cannot eliminate any scope from the project then you need to work with your team and develop a new estimate, again CPI and SPI can help with this and give you a good idea as to how bad the problem really is. Possibly the project should be killed but this is a decision that should be made by senior management after you present your findings and you offer alternatives.

Currently you don't know enough to cry wolf but you do know that there is a problem and you do need to let key stakeholders know.
11 years ago by jgt1942 (220 points)

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