Stop Blaming Project Managers for Budget Variances

Project estimates to budgets continue to be pretty poor. If we examine our discipline and thought-processes around forecast preparation, it’s not too big a surprise. There’s so much more we should be doing with our forecasts to get better at this.

Reasons for variations

When a project financials vary from its forecast, there are reasons. It’s important to categorise and collect the reason data.

There’s a hierarchy of reasons we should be monitoring. Starting at the top, there are unknowable and knowable. Unknowable are things that were not possible to be known when the forecast was created. A global pandemic would be a great example. Knowable are things that could have been known when the forecast was created. The fact that a stakeholder wanted to increase the scope, could have been known before the forecast was written, for example.

Knowable reasons further break down again. There are things that were known to the organisation but not known to the project (e.g. the CEO softening her stance on the need for the project), lessons learnt or things endemic to the organisation which should have been known (e.g. we always under-estimate the amount of time it takes for regression testing) and errors from the project team (e.g. we thought approach X would work but it didn’t so we now need to use approach Y).

There are probably others, but I find these categorisations helpful. Each of these represents an opportunity for learning and improvement

The powerful forecasting conversation

Imagine these two different scenarios. In both, the forecast for a project has increased from $10m to $15m. The Project Manager is explaining to the governance board the reason for the increase.

Scenario One: “The scope has increased in two key places adding $1m to the budget. Progress to date has been slower than anticipated and if this continues we expect to need an additional $2m to the budget. The decision to use the existing API for customer data was flawed and a new API needs to be written, which will add a further $1m to the budget. And the final $1m addition is for contingency as there are more variables affecting this project than we anticipated.”

Sound familiar? Many of you will have been in this situation. Here’s how the same changes to the same project play out at an organisation that is tracking forecast variances better.

Scenario Two: “We estimate the project will cost $10m to deliver but request a budget of $15m. The additional $5m breaks down as follows: Poor internal communication and information flow costs 30% to a typical project here, so that’s $3m. Inefficiencies in our internal processes add 10% to a typical project so that’s $1m and the final $1m is for errors and mis-steps that will occur from the project team.”

The root cause

Only one of these scenarios is having the root cause conversation. Only one of these scenarios is not blaming the Project Manager for organisational inefficiencies (and every organisation has them - organisations are not perfectly efficient). Only one of these scenarios has the opportunity to reduce project costs in the long run by addressing the actual causes of budget over-runs.

Scenario 2 is such a healthy place to be. If you want projects to cost less, start addressing the internal information flows, or inefficiencies in internal processes. Rather than the occasional project that does well because a super-hero Project Manager plugged an organisational weakness. You can instead solve for all projects by addressing the real organisational weaknesses.

This is the power of tracking your variations to budgets properly. How are you doing on this score?