Cause & Effect Relationship on Project Management & Cost Overruns
Effective project management relies heavily on the project manager's ability to plan, oversee and troubleshoot all aspects of the project from start to finish. The project manager typically has a budget and timeline to stay within, and unanticipated delays, problems or mismanagement can result in cost overruns. This can be detrimental to both the project outcome and the company’s finances.
If a project manager underestimates the time necessary to complete all aspects of the project, it has the potential to result in cost overruns in a variety of areas. For example, if a project runs over schedule by a week, additional costs will be accrued for payroll of individuals working on the project. If a project is delivered to a client later than anticipated, there could be late fees or assessed penalties. If outside contractor work, such as printing services are required, a delayed timeline could also result in rush order fees to get the project back on track and completed on schedule.
A project manager who underestimates human resources needs on a project can directly cause cost overruns. For example, if a project requires more manpower than originally planned or requires specialty or expertise not found in the company that has to be outsourced, it can raise the overall cost of the project. Additionally, if a project manager assigns tasks to employees unsuitable for particular project phases, it could take longer for the work to be completed, or the quality may be undermined and the steps repeated by someone else, again resulting in cost overruns for manpower.
A good project manager will have an accurate representation of material costs associated with all phases of the project prior to implementing a work plan. If a project manager guesses or estimates anticipated costs, the project could go seriously over budget. This often means a client may be charged additional fees, or the company is faced with absorbing the costs itself. All project team members should regularly check their budget allocations and report back to the project manager with status updates to avoid this scenario.
Most projects have multiple phases, with one phase relying on the effective completion of a preceding phase. A project manager who doesn't monitor progress appropriately, troubleshoot where necessary or manage teamwork issues can experience a phase delay. This can have a costly domino effect. For example, in a 10-phase project, a team stuck on the third phase holds up seven additional phases. In addition, staffers slated to start work on different projects may be delayed, resulting in a backlog of work. If a company relies on successful project completion to bill a customer to generate revenue, this management problem can be costly.