We all know about the Golden Triangle of project management, which includes time, scope, and budget. It would seem that if you managed to meet all three criteria, the project is successful, and you as a PM probably would not be blamed by your management, at least, and if you`re lucky, you may even deserve a sparse praise.
But what if you exceeded all expectations and delivered your project within a smaller budget? Will you receive that much-desired full praise from your boss in the form of a bonus or maybe even a raise? Well, not always. In fact, the opposite can happen, and instead of a bonus, you might receive a reprimand and a public scolding in a small circle. Let’s figure out why, in particular, why a project that came in well under budget is not necessarily considered successful.
Why Being Under Budget Feels Like Success
Let`s try to figure out first why delivering a project within a smaller budget is often considered a win. The point is that in the business world, money is a universal metric. Businesses talk about money, and if they were able to save some amount, it is often considered equivalent to earning money, which is good, for sure. If you tell your stakeholders that your project was delivered with less money than expected, most of them will be happy.
However, if you look closely, the apparent cost savings often hide many pitfalls that can turn the initial joy into disappointment, at least for some parties involved in the project, including you as the manager.
Therefore, if during project execution you notice that your project is spending significantly less money than initially planned (everyone knows about Earned Value Management, right?), don’t rush to celebrate and report the good news to your bosses. Let’s dig a little deeper first.
Why Being Under Budget Isn`t Always Good
Let’s figure out what unpleasant surprises might be hidden in a project that is under budget.
1. Scope Reduction
At the beginning of this article, we already mentioned the Golden Triangle of Project Management, if you remember. It is called a “triangle” for a reason. All their constraints —time, scope, and budget —are interdependent. And if you see any impact within one constraint, you must be sure that the other two are also impacted in some way. So, if, in the middle of development, you notice that your project is under budget, the first thing I would encourage you to do is double-check if all the features planned to be delivered by this time have actually been delivered.
2. Quality Issues
There is a very essential thing missing in the original Golden Triangle – quality. Some people include it in the Scope definition, while others place it at the heart of the triangle to emphasize its importance. One way or another, a product that lacks quality is not something your project stakeholders would be happy with. So, if you see that you’re under budget, the next thing I suggest you do is request a QA report for the delivered features, run a round of regression testing, and maybe even conduct some hands-on testing yourself.
It would be a real disaster if your team delivers a supposedly high-quality project to the client, only for it to turn out full of bugs during actual use, fixing which would cost a lot more money than was allegedly saved. Moreover, if that happens, the client will be furious.
3. Planning Mistakes
If your project is under budget, but after a meticulous check, you’ve concluded that everything else is on track, then you may consider yourself lucky. However, there is still a problem there, because in this particular case, planning miscalculations probably occurred, which may make your project stakeholders think that you’re either not a good professional in the field or, even worse, that you wanted to trick them initially.
So you better come up with a good explanation on how it happened that the project became under budget. Which one? I don`t know. When you come up with something, please let me know in the comments.
4. Underutilization of Resources
Quite often, under-budget projects go hand in hand with the underutilization of resources. Being under budget for a project usually means that people do more than expected in less time, which means they finish the work sooner than the initially planned delivery date. Another case is that they complete the job on time, but with fewer people involved.
In both cases, the company is losing profit at best, and losing money at worst. So, even if the client is happy with saving some of his money, your manager definitely won`t be. That’s why, when you see that the project is under budget, you go to your manager first with this news. And only after you agree on your joint position and align it with the company’s needs can you discuss it with the client.
When Under Budget Is a Sign of Great Project Management
Although a project that is under budget is not always a sign of good project management, as we have just figured out, it can still be. Let`s try to understand the conditions under which we can consider a project under budget as good project management.
First things first, a project can be considered successful when none of the components of the golden triangle have been compromised. This is true for any project, and a project that is under budget is no exception. It means that if your project is under budget, all the features from the scope have been delivered, the quality is good, and it is not delayed, the chances that it is successful are good.
And here the question arises: how can a project manager save on project expenses without compromising any of the golden triangle elements, and at the same time, not look unprofessional due to poor planning?
There are actually a few ways it can be possible:
1. Process Improvement and Optimization.
I guess you`re aware that a considerable part of your work as a project manager, and especially as an Agile manager, is to improve workflows and make them more efficient.
A great project managers foster a culture of constant improvement. They encourage feedback from the team, making adjustments throughout the project to boost efficiency and reduce waste. The project costs can be cut dramatically by streamlining workflows and eliminating redundant tasks.
For instance, using automation tools to manage repetitive administrative tasks can free up time and reduce the need for extra personnel.
2. Introducing new technologies.
Introducing new and more effective technologies to the project is a good opportunity to save on project costs. However, this approach is risky because implementing a new technology requires time to learn it, which often results in project delays. And project delays in turn may actually lead to the project being over budget. Also, a new technology is always uncharted territory that may hide many surprises and pitfalls.
So, whenever you decide to introduce a new technology to the project, make sure that you have good specialists on these technologies who can not only implement it but also educate the team.
3. Pro-active risk management.
If your company and you personally follow a robust project management practice, you definitely should have a contingency budget in place. This contingency budget quite often represents a significant portion of the project budget, sometimes up to 30%. So, this is an excellent opportunity to save money.
What you need to do is proactively monitor potential risks and apply mitigation strategies when needed (of course, having a risk management plan and risk matrix is your first step to success).
If you succeed in this and therefore save money, you can consider yourself a great specialist. And by the way, this is that rare situation where everyone will be satisfied with your work.
How to Address Your Company`s Profit Loss from Project Budget Savings?
As discussed earlier in this article, even if your under-budget project is truly successful, there may be stakeholders who are not happy with it, particularly your company management, if your company is a contractor for the budget owner. So, what can be done about it?
An answer is simple – upsell and cross-sell! If you manage to find out what else your client needs, you can come to them and say something like, “Well, Chris, we were able to save some money on contingency funds due to effective risk management. Why don’t we use this money for user experience improvements?” If the client agrees, and I bet they will in most cases, your company bosses will be much happier with your project being under budget (especially if your upsell amount will be higher than the saved costs 😉 )
Key Takeaways
So, as you can see, a project being under budget is not always an effective project management strategy. When managing a project, it’s crucial not to lose sight of any of the elements of the golden triangle of project management (including QUALITY!!!). If you managed to achieve this and also saved costs through process improvements, introducing modern and efficient technologies, or effective risk management strategies, you did well! You can now sit back in your chair and puff on a victory cigar.
But hold on, since you’re a winner, why not give back to the community? Share your success story in the comments! Maybe you have other tips on how to reduce project costs without compromising on other critical elements.