The Consequences of Projects That Go Over Budget

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While routine business operations keep your business functioning, projects are what propel and advance your company. From integrating new technology systems to marketing research, projects are used in almost every area of your business. Some projects may be limited in scope, but large projects can require dedicated employees, time and a budget. Sticking to a budget is essential to help ensure the project contributes to your long-term business goals.

Financial Stability

  • Projects that go over budget can affect your financial stability. Increased prices, employee overtime and poor initial cost estimates can cause projects to take more time and money than initially planned. While some of the capital costs of large projects can be spread out over time and may be financed through loans, the immediate costs of labor and supplies usually requires dipping into your available cash. Withdrawing funds from your bank account can affect your immediate liquidity, your cash flow and your ability to pay for other business expenses such as utilities and employee salaries.

Reputation

  • Going over a project’s budget can affect the reputation of your overall business, project managers and executive leadership. Public companies can face increased scrutiny from current investors, analysts and potential investors if publicized projects are not done on time and to budget. Private companies can still face negative backlash from partner companies, private investors and customers. Being able to accurately project a budget and stick to the original financial constraints is viewed as prudent management.

Profit

  • Projects performed for clients that go over budget can affect your company’s profits. If the project is performed on a contract basis, you are likely held to many of the initial cost estimates you provided to gain the work. Your business may have to absorb any cost overages, which will lessen your profit. If the project goes too far over the initial budget, your company may lose money on the job. Even if your project is not contract-based, going over budget can strain relationships with your clients and business partners if it cuts into their profit margins.

Productivity

  • When your business projects run over budget or schedule, it can affect productivity. Employees who were scheduled to work on other projects can be delayed, needed supplies can be unavailable and the additional funds need to finish the project can leave less funds for other projects or business functions. Additionally, the “blame game” that can occur to justify project costs takes time and increases the frustration level of project participants.

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