Cost Overrun: Why It Happens and How to Avoid It

Exceeding the project budget can turn even the most promising project into a headache, threatening to:

• Derail progress,?
• Undermine stakeholder confidence, and even?
• Harm your company’s reputation.

Sounds scary? It truly can be, but the good news is that you can often predict and avoid this situation.

Keep reading to learn why cost overruns happen and — more importantly — how to prevent them.

* This article is the abridged, adapted version of the blog post originally published on the Plaky blog: https://plaky.com/blog/cost-overrun/?

What is a cost overrun?

Put simply, a cost overrun (also called a budget overrun or cost increase) means more money has been spent on the project than originally planned.

For example, let’s say a software development company is making a custom app for a client with an initial budget of $200,000 and a completion period of 6 months.

However, midway through the project, 2 things happen:

1. The client requests additional features, extending the project timeline by 4 months and increasing labor costs by $50,000, and
2. Bug testing uncovers unexpected issues, requiring an extra $40,000 in development and QA efforts.

This results in a cost increase of $90,000, along with an updated timeline of 10 months total.

Some typical warning signs/causes of budget overruns are:

• Major omissions in project design,
• Frequent budget revisions,
• Exceeding planned contingencies,
• Uncontrolled project scope growth (scope creep), and
• Failure to meet deadlines.

Top 5 tips on how to avoid cost overruns

No need to despair, though — you can prevent a cost overrun by relying on strategic thinking, flexibility, and proactiveness, reflected in the following 5 steps.

1. Aim for maximum accuracy in your initial estimates

With initial estimates as precise as possible, you establish attainable objectives and develop criteria for informed choices.

In contrast, imprecise budget estimates result in:

• Project delays,
• Less effective results,
• Project stakeholder dissatisfaction, and
• Stress among your team members.

There are different project budgeting methods you can opt for, depending on the project type. But, whichever method you choose, it’s crucial to set aside some emergency funds in case of unexpected costs.

2. Use scenario planning to prevent issues

Detecting possible challenges before they actually happen and suggesting response strategies? — a thinking tool known as scenario planning — makes your project more resilient and your team more flexible and vigilant.

Scenario planning can help you avoid cost overruns by:

• Accentuating uncertainties that could affect costs,
• Lowering the likelihood of unforeseen expenses, and
• Preparing the project team to adapt quickly to budget changes.

3. Track progress using software

Efficient progress tracking is vital for all aspects of a project’s success, including budget control.

Most teams do this through regular project meetings and risk assessments, as well as by closely monitoring project expenditures for every task — typically with the help of project management software.?

What may prove particularly handy here is data visualization. For instance, the famous Kanban approach helps you prioritize assignments, enhance processes, and remove bottlenecks.

Additionally, the widely known Gantt chart can help prevent a cost overrun thanks to the clear representation of the timeline, finished and upcoming assignments, and task overlaps.

4. Work with trusted external partners

Some projects require third-party contributors bringing expertise or tools that aren’t available in-house.

Determine whether you can trust an external collaborator by:

• Checking their reputation through reviews and testimonials,
• Verifying their certifications and licenses, and
• Observing the level of professionalism in your interactions.

Dependable external partners deliver on time, and their history of successful projects makes it easier to predict costs.

Also, working with trusted partners means you don’t have to worry about jeopardizing safety when granting them access to project data and documents — which is usually necessary.

5. Encourage transparent communication

Finally, fostering open communication with your team and stakeholders/clients is imperative. This can minimize the chance of a cost overrun by:

• Encouraging team members to report potential problems early,
• Ensuring a shared understanding of budget requirements and constraints, and
• Providing a platform for suggestions on cost-saving measures.

Many companies rely on team collaboration software to:

• Assign tasks,
• Exchange remarks and ideas,
• Store relevant documents and links,
• Receive notifications about assignments, and more.

This provides them with a secure space where everyone stays connected and informed.

Say goodbye to cost overruns

Did you know that a staggering 67% of software projects exceed their budget target??

If not taken seriously, this can cause significant problems and eventually project failure.

On the other hand, it’s possible to get back on course with the right attitude and the right tool — like Plaky.

Our centralized platform lets you:

• Create unlimited boards and items,
• Assign tasks to facilitate task delegation,
• Create to-do lists to simplify work,
• Visualize data in different ways for better analysis, and much more.

What may prove particularly practical when handling budget matters is the summary row feature, showing the total amount spent or available.

Besides being powerful yet user-friendly, Plaky’s pricing is also one of its biggest strengths — especially for those of you trying to reduce expenditures in any way you can.

Put an end to your cost overrun struggles and track projects seamlessly. Sign up for Plaky today!