We have all had projects that for some reason did not meet our financial expectations. Overbudget projects happen for many reasons, including bidding on the wrong projects to begin with, underestimating the number of hours needed to successfully complete the project, failing to allow for delays and problems, or just not knowing the client well enough to anticipate what they really wanted.
Not only does your firm lose the profit margin associated with budget overruns, but overruns can also have a negative impact on client relationships and cause stress for your teams as they try and minimize the losses.
A great deal of value can be gained by analyzing past project failures to understand what went wrong, and designing safeguards, processes and approvals to minimize the chances they happen again. The following are three of the most common issues with developing accurate estimates, and some structure and practices you can put in place to turn prior past project disasters into lessons that add protection for future jobs:
1. Understand the Client’s Expectations
One of the most common problems in accurately developing a project scope is proceeding with estimating a project before having all the necessary information. This happens for many reasons including the estimators’ inexperience and lack of training, absence of a structured approach to project estimating and just moving too fast – often at the client’s request.
By evaluating the steps your team is following to create project estimates, and implementing a detailed and documented process to gather requirements, you can eliminate a lot of the guessing that occurs because not enough time and care is given to truly understand what the client’s expectations are. An estimating checklist can provide some guidance to estimators as to what questions need to be asked and what information needs to be collected to develop a sound scope.
The more you can understand the level of quality, communication style and preferences of your prospective client, the more you can build an estimate that meets their requirements and justifies your scope.
2. Anticipate everything that can go wrong
As mentioned above, one of the best ways to determine what can go wrong on projects is to review past projects and create a list of things that have gone wrong and situations that you want to avoid. Once the list is assembled, create a team of staff at different levels and analyze why money was lost because of each issue. Then brainstorm remedies (consider changes to processes, upgrades to technology, and training) to ensure that the leakage does not happen again.
There are many reasons that money gets lost on projects, and anticipating the problems in advance and improving communication between your staff and clients, and preparing your staff to deal with out of scope client requests can ultimately ensure that precious profit margins are realized.
3. Build in room for changes
Another important lesson that can be learned from past project overruns is that change requests will almost always occur! You can plan for changes and other issues that will cause projects to go over budget by ensuring that every project has a separate line item for scope changes. This could be an extra 10% to 20% that is only used when needed, but helps everyone, including your clients, plan for changes that will drive the budget up.
You can also educate your clients in advance of winning a project about the possible changes they might want or need, and make sure they understand all the options available to them and the related cost. This will eliminate some of the “surprises” that can cause tension and disagreements about what extra services are really needed.
By establishing estimating templates that account for all the possible changes and include a line for contingencies you can ensure that your staff are following best practices and are aware of all possible options while creating the estimate.
Neither you nor your clients want your project to go over budget. By learning from past project experience, and building safeguards into your estimating processes, you can protect both your firm and your clients’ budgets from exploding. Your clients will appreciate your professional approach and be much happier in the end as well!
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