When Projects Go Over Budget: The Usual Suspects

John Reeve | January 13th, 2014 | , , , ,

When Projects Go Over Budget: The Usual Suspects

Projects can and will go over budget. In my many years of running a web design and development agency I learned that no project is bulletproof, that even our best laid plans can go astray. And when the project did go over budget, it was typically the result of poor planning and a lack of discipline.

Every time we dug deeper into what caused the project to go over budget we found that one or more of the usual suspects played a part. We’ve rounded up the usual suspects and thrown them in a lineup to help you recognize them before they commandeer one of your projects.

#1) Not billing enough for project management

Whether a project is being billed hourly or at a flat rate, project management hours are often left out when estimating a project budget. There is a stigma that we shouldn’t be charging clients for the time it takes to “manage” the project, only the time it takes to “do” the project. What does that say about your project manager? Or your creative process? Project management is a necessity on any project, one that should be compensated.

When estimating a project we would tack on an additional 20% to 30% for project management. You don’t have to disclose this to your client if you don’t want to, but be sure to include this additional amount. If you don’t charge your client for project management, your project manager’s hours will eat away at the project, reducing your hourly rate by as much as 30%. That’s equivalent to giving your client a 30% discount on the entire project.

#2) Underestimating a project

Web designers and developers have a tendency to underestimate the number of hours it will take to complete a task. I don’t know if it’s because we feel bad about charging the client? Or if we just have a really bad concept of time? Either way, we underestimate tasks on a regular basis.

When estimating a project with our design and development team we would work through the estimate one feature at a time. Then we would increase each estimate by 25% to 33% depending on the complexity of the feature. It may feel like you are at odds with your design and development team when doing this exercise, but it works.  This simple markup exercise resulted in much more accurate estimates every time we implemented it.

#3) Poor time tracking, or lack thereof

In order to accurately gauge the profitability of a project you need to know how much time you spent on it. It doesn’t matter if you are charging a flat rate or billing hourly for the project. Each project requires a certain number of hours — a finite resource over which you only have so much control. If your team spent too much time on one project, it means they spent less time on another. It means you are losing money.

Time tracking is necessary, but it doesn’t have to be difficult. There are online apps, like our own Intervals, that make time tracking easier.  Find one and use it. The data will tell you how much time your team spends on each project, and whether or not you are making any profit. More advanced time tracking software will break down each project so you can see where exactly the overages occurred. The more you know about your team’s ability to complete projects on time, the more you come in under budget.

Is that it?

No. But these are the three most neglected areas that most often result in a project going over budget. Our web design and development agency had to learn these lessons the hard way. We lost money on a few projects. But after implementing these practices, and managing our project budgets carefully, we regularly finished projects within a 5% margin of the original estimate.

 Photo credit: EFF

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A collection of useful tips, tales and opinions based on decades of collective experience designing and developing web sites and web-based applications.

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Intervals is online time, task and project management software built by and for web designers, developers and creatives.
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John Reeve
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John Reeve

John is a co-founder, web designer and developer at Pelago. His blog posts are inspired by everyday encounters with designers, developers, creatives and small businesses in general. John is an avid reader and road cyclist.
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Jennifer Payne
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Jennifer Payne

Jennifer is the Director of Quality and Efficiency at Pelago. Her blog posts are based largely on her experience working with teams to improve harmony and productivity. Jennifer is a cat person.
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Michael Payne
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Michael Payne

Michael is a co-founder and product architect at Pelago. His contributions stem from experiences managing the development process behind web sites and web-based applications such as Intervals. Michael drives a 1990 Volkswagen Carat with a rebuilt 2.4 liter engine from GoWesty.
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