Common errors in project costing

One of the major challenges with large and complex projects (spanning several industries) is cost overruns from original budget making the initiative too expensive to be worth eventually. A noteworthy example is recently concluded Common Wealth Games held in New Delhi where the budget overran by large magnitude. While whole of that overrun may not have been due to pure project management but also governance issues but such events do compromise the position of lead Project manager and credibility of project management discipline overall. To avoid cost overruns one has to be very careful with planning of the project resources from the beginning. Let’s take a common example as to what can go wrong!

So you have landed a project that has a defined and well documented scope and deliverables. You also have the required authority and power to manage the resources required to deliver the product of the project. Before you start using the resources you may want to double check who are these resources and how much they would cost the project to deliver. This is especially true in case you are dependent on any external resource or consultant to bring in that much needed expertise your internal resources do not have. The trap essentially is the hidden costs that do not seem quite obvious in the beginning.

Let’s say you need an architect to design the database of your new application and internally either you do not have resources with relevant expertise or these resources are not available to your project. In your budget, you may have considered X Hours for this activity at the @ of Y dollars. However when this consultant arrives to start work on the database, you may realize that he needs a laptop to work on with all required software fully loaded!

Did you consider the lodging and boarding expense if applicable along with software license cost in your budget? How long will it take to get these required software and laptop to arrange? Will this consultant have any other productive project activities to do in the meantime or will those hours be a strain on your pocket? Are there any other tasks that might be impacted due to delay in database creation costing you additional dollars? It may not be possible to fully estimate all the unforeseen expenses but with some careful advance planning you can minimize the damage or have cheaper alternates in place!

Shyam Verma, PMP, ITIL
Program & portfolio mgnt professional
LinkedIn:spverma. Twitter: Shammy11

One thought on “Common errors in project costing

  1. Good post.

    Having been through multiple large projects in the past and present, PoleVault has evolved an iterative project costing and forecasting approach. The project plan time-boxes and milestones are not only checked for technical progress, but also for strict cost incurred vs. cost projected review, and in turn the corrections for time and resource estimation are corrected for next phases. This gives us a clear picture of what and how it is happening. In addition to this, corrections in the project execution strategy are applied at certain milestones (wherever appropriate) to help reduce the overall cost of the project. We have called this iterative process the “PoleVault Approach(tm)” and it has helped us save both money and time to the tune of 8-10% against the projected figures.

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