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Challenge 1: Unrealistic or inaccurate estimates
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Challenge 2: Scope creep or change requests
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Challenge 3: Poor tracking and monitoring
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Challenge 4: Ineffective communication and reporting
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Challenge 5: Lack of flexibility and foresight
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Challenge 6: Insufficient or inappropriate tools
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Here’s what else to consider
Project budgeting is a critical skill for any project manager, but it also comes with many challenges. From estimating costs and resources, to tracking expenses and changes, to reporting and forecasting, project budgeting can be complex and stressful. In this article, you will learn about some common project budget challenges and how you can overcome them with effective strategies and tools.
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- Zulfi Ali P.E., P.Eng., M.Eng., PMP
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- Vishal Gabani Senior Project Control Engineer
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1 Challenge 1: Unrealistic or inaccurate estimates
One of the most common project budget challenges is creating realistic and accurate estimates for the project scope, schedule, and resources. If you underestimate the costs, you may run out of money before the project is completed, or compromise the quality and scope. If you overestimate the costs, you may waste money or lose credibility with your stakeholders. To overcome this challenge, you need to use reliable data and methods to estimate your project costs, such as historical records, industry benchmarks, expert opinions, or parametric models. You also need to account for contingencies, risks, and assumptions, and document them clearly.
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- Zulfi Ali P.E., P.Eng., M.Eng., PMP
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A thorough analysis of the estimate is necessary at the project planning stage. All potential costs must be documented before starting the project. Utilization of historical data from similar projects, and consultation with subject matter experts is a right step toward a realistic budget. Consideration of potential risks and their mitigation will also be a great strategy to avoid project overruns and/or underruns. Cost estimates should also be regularly revisited and updated as the project progresses.
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- Vishal Gabani Senior Project Control Engineer
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Project budget challenges are common in various industries and can arise due to a variety of factors. Overcoming these challenges requires careful planning, monitoring, and proactive management. Here are some common project budget challenges and strategies to overcome them.1.Unclear Scope Definition2.Inaccurate Cost Estimates3.Resource Management Issues4.Ineffective Risk Management5.Poor Communication6.Inflation and Economic Changes7.Inadequate Monitoring and Control8.Unrealistic Timelines9.Vendor and Contract ManagementBy addressing these common challenges with proactive planning, effective communication, and regular monitoring, project managers can enhance their ability to stay within budget and deliver successful projects.
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- Peter Faleskini
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If you are doing a project for the first time - a consultant should help you get realistic estimates on purchasing prices and contingencies. An experienced consultant is probably best-spent money on the project.
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- Derek Graham Senior Scheduler, Forensic Delay Analyst and Construction Defects Expert Witness
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Most commonly, budgets can only be as accurate as the scope of work and design intent adequately represented in the construction drawings. Best practice dictates minimizing scope creep and change orders by ensuring that any missing or insufficiently detailed design is sorted and included in the base contract by issuing RFIs. Outstanding omissions can be relegated to contract exclusions. My experience as an estimator compels me to do my own takeoffs and valuations - whether I have bids from trades or not. This is part of the bid leveling process.Adherence to these recommended best practices ensures both ownership, GCs and CMs, and trades are on the same page.
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2 Challenge 2: Scope creep or change requests
Another common project budget challenge is dealing with scope creep or change requests that may increase the project costs or affect the schedule. Scope creep is when the project scope expands gradually without proper approval or control, while change requests are formal requests to modify the project scope, schedule, or resources. To overcome this challenge, you need to have a clear and agreed-upon project scope statement, a robust change management process, and a communication plan that keeps everyone informed and aligned. You also need to evaluate the impact of any change requests on the project budget and negotiate with the stakeholders accordingly.
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3 Challenge 3: Poor tracking and monitoring
A third common project budget challenge is poor tracking and monitoring of the project expenses and progress. If you do not track and monitor your project budget regularly, you may not notice any deviations, issues, or risks that may affect your project performance or outcomes. You may also miss opportunities to optimize your project costs or adjust your plans. To overcome this challenge, you need to have a project budget baseline, a project management software or tool that helps you track and monitor your project costs, and a reporting system that provides you with timely and accurate information and insights.
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- Peter Faleskini
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One thing I found helpful is to appoint a person in charge of a project's budget that is diligent with his/hers personal finance. Not in debt. And owning a home.
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4 Challenge 4: Ineffective communication and reporting
A fourth common project budget challenge is ineffective communication and reporting of the project budget status and performance. If you do not communicate and report your project budget clearly and consistently, you may create confusion, misunderstanding, or mistrust among your project team, stakeholders, and sponsors. You may also miss feedback, suggestions, or support that may help you improve your project budget management. To overcome this challenge, you need to have a communication plan that defines the frequency, format, and content of your project budget communication and reporting, as well as the roles and responsibilities of the communication participants. You also need to use visual aids, such as charts, graphs, or dashboards, to present your project budget data in a simple and meaningful way.
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5 Challenge 5: Lack of flexibility and foresight
A fifth common project budget challenge is lack of flexibility and foresight in managing your project budget. If you are too rigid or fixed in your project budget approach, you may not be able to adapt to changing circ*mstances, opportunities, or risks that may affect your project costs. You may also not be able to anticipate future scenarios, trends, or events that may influence your project budget. To overcome this challenge, you need to have a flexible and agile mindset that allows you to adjust your project budget as needed, as well as a foresight and planning skill that enables you to forecast your project budget based on various factors and assumptions.
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- Peter Faleskini
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My experience shows that on a construction project, 20% contingency is usually enough. On a Software development project, the end product is 3 to 5 times more expensive than initially budgeted. All other types of projects are usually somewhere in between.
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6 Challenge 6: Insufficient or inappropriate tools
A sixth common project budget challenge is insufficient or inappropriate tools for managing your project budget. If you do not have the right tools or software for your project budget needs, you may face difficulties in creating, updating, tracking, monitoring, reporting, or analyzing your project budget. You may also waste time, money, or resources on inefficient or ineffective tools that do not meet your project budget requirements or expectations. To overcome this challenge, you need to research and evaluate various project budget tools and software available in the market, and choose the ones that suit your project budget size, complexity, and objectives. You also need to train yourself and your project team on how to use the tools effectively and efficiently.
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- Peter Faleskini
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My personal experience is the simpler the tools the more successful budgeting of projects will be. Excel with a couple of macros should be sufficient for most projects. Excel combined with MS Project should be sufficient for most highly demanding projects.
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7 Here’s what else to consider
This is a space to share examples, stories, or insights that don’t fit into any of the previous sections. What else would you like to add?
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- Peter Faleskini
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Prices are not fixed and they usually go in one direction and that is up. One way of mitigating increasing prices is to purchase everything at the beginning of the project if possible due to budget and other restraints.As with everything in life practice makes perfect.
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