How to Manage Going Overbudget

We went over budget on this project, and it still isn't complete. What are we supposed to do?

Projects that go 1% over budget can balloon to 50% over budget very quickly, in part because your design team (or yourself) gives up trying to hit your hours. These situations must be controlled in order to make any profit on a project. You will also risk consuming valuable staff time that could be better spent securing and servicing new projects.

Follow this simple three-step process and you'll be more likely to close out your project without blowing your margin.

 

1. Create a shadow budget.

Write an estimate for the hours needed to complete the project. This is a budget that is used just for the time necessary to close out the rest of the deliverables you've been contracted to deliver. Do this on your own, based on your knowledge of your team and their capabilities.

 

2. Negotiate the new hours with the team.

"You had 20 hours to complete that web page template. You've used 24. Can you hit 30 for the rest of this phase of the project, then stick to the rest of your estimated time?"

This isn't just about the time required to finish the work. This is about what's necessary to make sure that you don't make your company lose money... Unless you messed up the estimate in the first place, which means you should find a negotiating position where everyone wins a little—whether that means staying a hair profitable or chalking it up to experience and folding your learnings into your estimating process so the same situation doesn't keep happening over and over again.

 

3. Run the project to the shadow budget.

In managing the shadow budget, and having your entire team aware of it, you can better ensure that everyone is hitting their new hours or alerting you if it seems like it isn't possible. This is also the place where it becomes clear if there are specific people on your team who need further training or support in order to fulfill the tasks set out as part of their job description—or that client demands are not being properly managed.

 

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A project that is 10% over hours can still make a profit. The same does not apply for a project that's 50% over. So be aware of exactly how much give a project can have when creating your shadow budget, and make sure you're not waiting until it's too late to react to these situations when they are glimmering on the horizon.

Thanks to Fiona Robertson-Remley for contributing to this piece.

Comments

[Jean-Louis Mainguy]

As a freelance web and graphic designer, I have to interact with clients often for projects. I had a couple of experiences where I didn't sign any contract and ended up going overbudget and working for 6 bucks an hour. For this project I'm working on, I send an estimate with a contract that was clear about certain things. The estimate was for information purpose and the final amount could change during the process depending on all the corrections or changes the client would ask for. On the other hand, I have to provide time sheets that can support the estimate. This way, if I reach the max amount stated in the estimate, I inform the client and he choses or not to continue with the project. If he choses to finish the project, I calculate the overtime and add it to the final bill.

[hans]

A nice benefit of "shadow budgets" is that they quantify your expectation of overage. That, in turn, increases the likelihood you'll generate a change order when it's called for.