Delivering a client project on time and under budget is not easy. It requires careful planning before the project even begins, and, a near-obsessive attention to detail as the project progresses. Managing a project can truly feel like a circus juggling act as you try to reconcile the needs of the client with their budget and timeline.
Fortunately, there are several things you can do to increase the odds of a project being profitable. After many years as a professional services agency that designed and developed hundreds of web sites (with our fair share of them going over budget) — we learned a few lessons the hard way. Here are three reasons why projects go over budget and our solution for how to handle each of them.
Reason #1: The original estimate is too low
Most of the developers and designers I’ve worked with, including myself, will underestimate the number of hours it’s going to take them to complete a task. Even after breaking down a project into smaller tasks, which makes it easier to estimate the project as a whole, the estimates were still too low.
After doing a post-mortem on a few projects that went over budget we realized that we were consistently underestimating the work by the same percentages. And while identifying this problem required a lot of time tracking analysis, the solution was quite simple. We started multiplying our estimates by a factor between 1.3 and 1.5, depending on the person who created the original estimate.
If you find that the total number of hours spent on a project is more than planned, start with multiplying your estimates by a factor of 1.3 and and see how that goes. Padding your estimates in this way makes both the project budget and deadline more realistic and easier to manage.
Reason #2: Scope is incomplete
An accurate estimate really isn’t possible without a clearly defined scope. The project scope informs both you and your clients as to what the final product will look like. It needs to be complete and detailed enough that you don’t fall into “scope creep,” where extra bits are added on as the project progresses.
The project scope governs what to do (and what not to do) when questions about the project arise. An incomplete scope provides only a partial picture, and therefore, a partial estimate. The undefined areas of the project are going to be the primary suspects when the project goes over budget. We know this from personal past experience. We took on a project and overlooked a poorly defined scope because it was a big contract. The poorly defined scope led us to underestimate our bid, and by the time the final project was delivered, we’d actually lost money on it.
The solution is to spend more time up front creating a clearly defined project scope. Even if it takes more time, do it. It’s not worth it to rush through the scoping phase of a project, because it will almost certainly get you into trouble later on. If you don’t want to scope out a project to that degree of detail, consider billing your projects under a time and materials contract instead.
Reason #3: Time tracking is lacking or non-existent
Time is one of our most precious, non-renewable resources. When we break down our days into hours and minutes, there is only so much of it we can give to our clients. Therefore, it’s important that we not only manage our time, but that we keep track of where it’s going.
When we track our time we find out exactly why a project went over budget. Even if we’re billing a project at a fixed amount, and not billing hourly for our time, we need to track our time to know if the project was profitable. If we aren’t tracking our time, or doing it poorly, we can’t really deduce which projects went over budget, much less why. We can only hope that we come out profitable by the end of the year.
The solution is to use time tracking software. Find an app that has timers and let it track the time for you. Getting your team on board may not be easy, but it will give you invaluable data for analyzing your profitability. It’s one more tool that will prevent your next project from going over budget.
Make your next project profitable
Perhaps you’ve made some of these same mistakes. We made them several times before discovering what was holding us back from delivering more profitable projects. We hope you can learn from our mistakes to identify areas of your project management process that need improvement. The important thing is to start somewhere and try something new to make your next project profitable.