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OK, so we all know budgets change from time to time (normally being reduced unless you’ve got a great reason for your sponsor to give you more, like a change). But aside from office politics and the change control process, there are other things that can affect your project budget. Here are 4 risks to consider when both putting your risk log together and your budget.
1. Gold plating
Gold plating is where the project team adds stuff into the project scope without the customers asking for it. It often happens on software design projects, where the developers know they can add extra functionality to improve the product, so they do. Even if the customer didn’t want it, and didn’t know they could ask for it, the team do it.
You’d be forgiven for thinking that gold plating is a good thing. After all, what project customer isn’t going to want more for their money? It’s the bells and whistles that set your project team aside from any other project team.
However, if your team is working on tasks that are not on the project schedule, that costs you money. It takes time to do extra work, so whether they realise or not, they are helping the project go over budget through their enthusiasm. Talk to the team about the proper change control process and make sure that they are only working on what is approved.
2. Scope creep
Scope creep is something that all project managers have come across at some time in their career. You start off with a narrow, well-defined scope and by the end of the project it’s become a rambling monster of requirements. This is different from gold plating – the team are working on things that are approved, it’s just that the approved work stretches the scope way beyond what was originally agreed.
Scope creep takes many forms, and can be through a poor change control process. If everything gets approved, then you know that your change process is not rigorous enough! While many changes put forward will be good, useful suggestions, some will take the project outside of its original goals and objectives. Should they really be included in this project or would it be better to manage those requirements in another way?
Scope creep adds time to your project, and therefore cost.
3. Failed QA systems
Quality Assurance (QA) makes sure that your deliverables are fit for purpose. Whether your QA system is peer reviewing lines of code or stress testing bricks off a production line, you should have some method of checking your work before you give it to the client.
Poor QA means that deliverables will make it through to the customer only to be rejected. The customer will not sign off on poor quality work, so it is far more beneficial for you to catch mistakes early on. This will reduce the amount of testing required and also give you more of a chance of your deliverables being approved by your client.
Deliverables that are rejected will have to be done again, and by the time the work has got into the client’s hands for approval, it is likely to be costly to make changes and complete rework. It is far better to catch poor quality early so that you can rectify it while it’s still cheap enough to do so.
4. Currency fluctuation
Not all projects will suffer from currency fluctuation, but if you are working with an international team, this could happen to your project. The problem comes when you budget at a certain exchange rate but of course are charged the exchange rate of the day when the invoices come in. In some cases the discrepancy between what you had planned to pay and what you actually pay can be hundreds of dollars (or euro, or yen etc).
It’s hard to plan for this, but you can make your budget a bit more robust by including a percentage contingency to cope with currency fluctuations. Only you will know what seems appropriate given the overall spend of your project and the amount to be spent in foreign currency. Talk to your accounting department as they may be able to advise on how best to manage this.
You can probably think of many more risks to your budget, but these 4 make a good starting point for budget risk planning with your team. What else do you normally include on your risk register when it comes to money?
Posted on: September 02, 2013 03:47 PM |
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