How to Handle Project Budget Cuts

August 3, 2010 | Author: PM Hut | Filed under: Cost Management, Project Management Guides

How to Handle Project Budget Cuts
By Michael Stanleigh

Dear Project Coach:

My project sponsor just cut 30% of the funds and I am really confused and short of ideas at the moment. What is the best practice and how am I to resolve this issue?

This my first project with this sponsor and I don’t want to lose face, truth or the project in any way.

Thanks for your time,

Signed: Challenged

Dear Challenged:

I know that this is a very difficult situation, especially since this is your first project. However, don’t despair. It is very common though I know it is very unsettling. When a Sponsor cuts project funding they usually are unaware of the impact this budget reduction will have on the project. Rather, they believe the project manager will figure it out. We all know this isn’t as easy as it seems.

The first and most important thing for you to do is research. Identify the impact this 30% funding cut will have on your project? For example:

  • Will it make it impossible for you to complete the project on time?
  • Will you have to reduce the number of resources working on the project? How will this impact the project?
  • Will it reduce the likelihood that you will be able to meet your customer and other stakeholder requirements? If so, how will it impact them?

The second thing for you to do is to develop possible solutions. For example:

  • You can extend the end of the project since you will have fewer resources.
  • You can change what you are able to provide to the customers and other stakeholders to meet their requirements. Or, you can deliver some of their requirements through Stage 1 of this project and defer other requirements to a Stage 2 of this project.
  • You can reduce the number of project deliverables you are able to complete as identified in your project Scope Statement.

I’m certain there will be more areas of impact on the project that you can identify. As well, there will be more possible solutions. The next stage is to complete a Change Request. It is important that you document the impacts that this 30% cost reduction will have on the project and follow each impact with a recommended solution.

Your goal is to educate your sponsor. You want them to understand that you can manage with a 30% cost reduction but you need them to understand the impact that this will have on the project and what you recommend as possible solutions to continue to successfully manage this project. In most cases, the Sponsor suddenly becomes aware of the true impact of this significant change and gives more consideration to your suggested alternatives. They will appreciate your concern for keeping the project on track.

Please keep me updated on your sponsor relationship and do let me know if you need any more help managing them.

Signed: The Project Coach

Michael Stanleigh is the President and CEO of Business Improvement Architects. He works with executives and senior managers around the world to help them improve operational effectiveness through strategic planning, leadership development, project management and quality management. Michael has been instrumental in helping his clients reduce waste and increase efficiencies and profits with his clear processes and quality approach.
For more information about this article, please contact bia(TM) at info@bia.ca.

Share this article:
  • Facebook
  • LinkedIn
  • TwitThis

1 person has left a comment

As the Project Coach pointed out you can cut scope or extend the schedule (sometimes). What usually happens is that quality is cut. This is usually a very bad idea. When you tell your resources to get the same thing done with less effort (effort = money), they have to compromise something. The end result is a buggy, unreliable, or crappy looking product.

Cut scope of the project, do not cut quality. Do a Change Request as Project Coach advises too, so everyone will know the impact.

Bruce Lofland wrote on August 3, 2010 - 10:28 am | Visit Link

feel free to leave a comment

Comment Guidelines: Basic XHTML is allowed (a href, strong, em, code). All line breaks and paragraphs are automatically generated. Off-topic or inappropriate comments will be edited or deleted. Email addresses will never be published. Keep it PG-13 people!

XHTML: You can use these tags: <a href="" title=""> <abbr title=""> <acronym title=""> <b> <blockquote cite=""> <cite> <code> <del datetime=""> <em> <i> <q cite=""> <strike> <strong>

All fields marked with " * " are required.

Project Management Categories