Project budgets can be challenging to get right. Labor rates and material costs are subject to dynamic swings due to supply chain constraints and market pressures. Volatility across logistics pricing structures only adds to the problem. As teams work to balance all these factors and develop budget forecasts, they also need to acknowledge there could be a lot of unknowns lurking in their cost estimates.
Unfortunately, bad budget forecasts and poor budget management can trigger a range of downstream gotchas that sometimes vex project teams long after the current initiative is complete.
If you’re struggling to get a handle on your budget development and oversight efforts, consider the potential fallout when project budgets go bad.
1 – Executives stop trusting your budget proposals
Leadership teams that lack confidence in your ability to present—and stick to—workable budgets are a huge hurdle. They’ll expect you to devote more time to gathering data to support your forecasts, defending your budget requests, and explaining why any deviations occurred.
2 – Project team members start fudging their own figures
Without strong budget management practices at the top, your group might not feel compelled to put in the necessary work themselves. But rolling up those less-than-accurate budget figures into an overall proposal package will only make your budget problems worse.
3 – Project vendors pad their numbers
Once your organization starts viewing project budget proposals with a suspicious eye, your collaborators might worry their own line items will fall victim to widescale trimming. The result could be more estimates with unflagged “contingency” dollars as a hedge against anticipated cuts.
4 – Your data practices are called into question
Resolving budget management failings is more difficult if stakeholders begin questioning your data management strategy, too. But because every budget request depends on data, you can expect to juggle skepticism targeted at both disciplines when your project budgets are unsatisfactory.
5 – Future projects are underfunded
Consistently missing your budget estimates could make executives wonder if you’ll overspend less when you have less to spend. The result? Lower funding for future projects in hopes you’ll finish closer to the target.
6 – Scope creep becomes persistent
When stakeholders know your budget is off the rails, they may try to submit a few extra requests of their own. Unless you have the data to show these new asks are outside scope, you may be left stuffing additional deliverables into an already exhausted project.
7 – Project quality drops
Trying to stay within a budget that’s clearly broken is miserable, and project teams will often do anything—including cut corners—to keep their expenditures down. But poor quality won’t fix poor budgeting, and the result is simply more problems to unravel as the project winds down.
8 – Opportunities to tackle more interesting projects evaporate
Project management growth and individual team members’ career development paths are likely to stall when stakeholders, sponsors, and executives no longer have confidence that even routine initiatives will finish within budget.
9 – Customer satisfaction falls
The struggle to execute tasks under the weight of poor budget management practices consumes a huge amount of project members’ time. They’ll ultimately have little energy left to maintain proper end user communications and respond to issues in a timely manner.
10 – The negative effects continue to compound
Missed forecasts and inaccurate estimates create a litany of near-term problems for the project team, but that’s just the beginning. Even after fixing today’s budget woes, you still need to work for a long time to come to win back the confidence of executives, end users, your project team, and your vendors.