Budget Management for Projects: Tips to Stay on Track

Even the most financially savvy project managers can find themselves in hot water with budget overspending, especially with bigger projects. 

Take these statistics from the construction industry alone: 9 out of 10 construction projects go over budget, and just 31% of construction projects arrive within 10% of the budget.

But it’s not just the construction business that has a budget management issue. 

The root causes of cost overrun are pervasive in digital infrastructure as well as physical infrastructure, with IT projects, in particular, notorious for burning through project budgets at warp speed.

The bigger the project, the bigger the chances of overrun. 

In How Big Things Get Done (a highly recommended read for any project manager or owner of a professional service business), the authors both assembled and analyzed data from tens of thousands of what they call ‘megaprojects’. 

Over 16,000 projects in over 20 fields across 136 countries tell this dismal budget management story:

• Only 47.9% of projects reached the budget target.

• Only 8.5% of projects achieved both budget and timeline goals.

• Only 0.5% of projects met targets for budget, timeline, and benefits. 

The fact is, project managers everywhere often get caught in the crossfire of cost overrun, trying to simultaneously reign in spending while delivering the demanded level of quality.

I loved How Big Things Get Done so much, that I decided to draw on the insights the book brings forth to make this list of tips for better budget management for projects. I also included supplemental reading along with some tried-and-true wisdom from my favorite project management software developers 🙂 

P.S. If you don’t want to take the time to read or listen to the book, this YouTube video series gives a rundown in 4 parts.

1. Think slow, act fast.

This is the major takeaway from How Big Things Get Done, so even if you don’t read any of the following tips, remember this one. 

While the examples in the book involve mega-construction projects like the Empire State Building, the methodology of thinking slowly and acting fast applies to projects of all sizes in all industries.

Authors Flyvbjerb and Gardner explain that the reason why so many large projects fail is because their approach is the opposite: thinking fast and acting slow.

Consider this: For most big projects, enthusiasm runs high at the beginning. Agencies are dying to get a budget approved and start work, thus thinking fast during the planning stage. 

As time progresses, that enthusiasm or sense of urgency starts to wane. Teams and managers aren’t as quick to act to get things completed as they were to create a budget and plan out the project. And slow progress leads to more issues that delay the timeline and add to the budget. 

The antidote for healthy projects is to flip the philosophy– think and plan slowly for project success while acting fast and with laser purpose. 

Why? For one, thinking/planning is less expensive than action. When you’re in the planning phase of the project and you go down an impractical path, fixing that simply requires more planning. More hours for brainstorming and budgeting.

When in the execution stage of the project, action to get back on course will always be more expensive. You have to switch suppliers. You have to build a new structure. And so on and so forth. 

In the case of the Empire State Building, which was completed ahead of schedule and under budget by $9 million, the initial design phase was meticulously planned to the nines. Iteration happened during project planning, wherein leaders could standardize processes before construction officially got underway. 

On a practical level, thinking slowly means you will spend more time in the planning stage. This means going ahead with iteration and figuring out all the ins and outs of a risk management strategy. 

Thinking slowly also means allowing for more creativity. Planning becomes a time for exploration and learning, not for rushing through pre-made templates. 

Instead of jumping on the first idea, you can take the time to analyze all the possible outcomes and generate other options, even when it feels exhaustive. 

During execution, urgency should be highest. Since iteration has already taken place during planning, teams should be able to execute tasks according to a standardized plan. AKA there’s less thinking (and time) required in this stage since that brainpower has already been put to effective use during planning. 

2. Begin with the end. 

Steve Jobs is also a point of reference for this tip, as the authors cite when he told his developers to start with the user experience and work back toward technology, not the other way around.

What beginning with the end really means is to not get ends confused with means. The perfect example they give in the book that explains this is the kitchen renovation. 

A couple ends up going insanely over budget with their kitchen renovation, and the root cause gets down to prioritizing means over ends.

In this particular example, the renovation is the means; it’s not the purpose. The purpose of this couple is to entertain guests.

Because the couple confused means with ends, they ended up spending exorbitantly on a renovation that could have taken a quicker, less costly route to achieve their ultimate goal. 

3. Get to know the nuances of client needs and expectations

In order to stay on budget while managing a project, it’s imperative that managers and teams alike understand the nuances of what the client needs and what they expect from the results. 

Be sure to ask the client for verification and clarification on everything to do with deliverables. Don’t proceed based on a feeling or if there’s any ambiguity. Instead, document and communicate all expectations during the planning stage, ad nauseam whenever necessary. 

It’s always better to overdo it with communication versus the alternative, so be sure to keep clients in the loop and elicit all the nuances you need from them about their vision. 

That way, you can make adjustments in the planning stage, when things aren’t as expensive, versus down the line in execution, when ignorance about the client's expectations will cost much more. 

4. Plan with the past in mind.

So, if the way to have more project success is to think slowly and act fast, why don’t more people do it? Flyvbjerg and Gardner say that often the reason is psychological and back it up with various related studies. 

They explain that during the project planning stage, managers can suffer from overconfidence and blind optimism. The rotten fruit of this is underestimating a realistic timeline and budget. 

To fight this psychological urge, managers should force themselves to reflect on the past. 

First, you can use your project management tool to pull up data on similar projects undertaken by the agency. Using past data to improve planning will involve identifying relevant data, analyzing it, and applying it to your current project budget. 

Another way to plan with the past in mind is to seek out managers and teams who’ve completed a similar project. Opening these lines of communication can give insights as to budget management tactics that worked with similar projects and those that didn’t, which will inevitably inform better decision-making.  

5. Consider switching up the methodology

To supplement my reading on the whole ‘think slow, act fast’ approach, I checked out this older but highly informative piece on World Bank humanitarian projects published in the Harvard Business Review, aptly titled Why Good Projects Fail Anyway. 

Like How Big Things Get Done, the author speaks to how the initial sense of urgency during the planning phase naturally wanes during execution and ultimately, can cause the project to fail budget and timeline targets.

In the case of the World Bank’s projects up for discussion in the article, the solution involved switching up the project management methodology. That is, for their ‘rapid-results projects’, the work management structure shifted from horizontal to vertical work streams. 

Vertical work streams are more akin to the waterfall project management method, whereas horizontal work streams are more associated with agile project management.

In the interest of thinking slowly and acting fast, it may be a good idea to consider a shift in methodology during the project planning phase. Not all projects will benefit from verticalized workflows, but as the World Bank found out, short-term initiatives with little wiggle room in budget probably will. 

A better approach to budget management

The ‘think slow, act fast’ approach to budget management requires that you spend more quality time in the planning phase. Planning is a time for learning and deep diving, so it’s also in the best interest of the overall creative value of projects, to ensure that they meet client expectations. To take this approach further, be sure to keep straight the differences between the ends and the means, learn from past projects, and consider switching up methodologies when necessary. According to the resources used to write this piece (as well as the author), it’s bound to work. 

• How Big Things Get Done (Amazon)
• Video Summary: How Big Things Get Done Pt 1 (YouTube)
• Video Summary: How Big Things Get Done Pt 2 (YouTube)
• Video Summary: How Big Things Get Done Pt 3 (YouTube)
• Why Good Projects Fail Anyway 
• The Best Project Management Methodology for Your Business