Three problems that cause software projects to go over budget (and how to avoid them)

Peter Tylee 20 Jul 2022

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There’s an old Latin proverb “praemonitus, praemunitus” - to be forewarned is to be forearmed. This post will explore what can cause a software project to go over budget so that you can be prepared and know what to avoid. Read on to find out more…

1. Unrealistic quotes

Sometimes the budget that you start with is not actually realistic and isn't enough to cover the project. Similar to the previous article when we talked about a project being over time, the same issue can occur for a project going over budget.

If the scoping work isn't done upfront, depending upon the size of the project, you might need a business analyst to get involved. Otherwise, it might just need some careful investigation of exactly what the functional requirements are and how to implement them. If you skip that step and just guess (“I think it's going to take two weeks and I think it's going to be $10K”), then it's probably going to be wrong. Then it's not so much over budget, rather<u> you never actually had an accurate budget to begin with</u>.

2. Unclear objectives causing re-writes

You need to make sure that what you're building is what you actually need to solve your problem. There's always some problem that people are trying to solve when they build software. Therefore, making sure you are building what is actually going to solve the problem and not just what you think is going to solve the problem is an important step in making sure that you don't have to spend the budget twice because you didn't get it right the first time.

3. Incorrect project methodology

Which project methodology is best for your project? This is a crucial question to answer correctly. Some projects are very suitable for a waterfall methodology and others are more suited to an agile approach. Large enterprises tend to love waterfall because it gives them a fixed budget which means they don't have to worry about not knowing what the range of their budget is going to be, or how many sprints it's actually going to take, as everything is specced out. The main downside of that is that if you opt for a fixed price/waterfall project, the cost is typically going to be larger than if you were to use an agile methodology.

What can go wrong?

An example of what can happen when you have all these problems is a financial institution that had acquired three payments service providers and they were trying to merge or integrate these different systems into one. By getting a lot of what you’ve just read about incorrect, the project ended up being three years late and 100 million euros over budget, and still it was nowhere near completion. They did eventually get it finished and get it back to the line but it’s highly likely that a few project management careers were ended on that project. The bank was not happy, but it was a good exercise in realizing: did they actually do enough scoping at the beginning? Did they talk to the tech teams enough to understand what they actually have to do? Or did they kind of just make it up and come up with some budget that was unrealistic? To a large extent, that is exactly what happened.

How to avoid these problems?

Two simple steps:

  1. Have effective project management: scope out the project correctly and ensure you clearly understand the objectives
  2. Have the most suitable project methodology for the project

If you nail the project methodology and the project management, ultimately the result of that is to make sure that your software project comes in within budget.

If you’ve got a software project idea that you’d like to discuss, CLICK HERE to book a time for a scoping call to run through your idea.

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Peter Tylee

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