Money & Money: Budgets and Scope
Why Budgeting Right Matters
Over 50% of projects experience cost overruns. A Harvard Business Review study found that IT projects, on average, go 27% over budget. These overruns often result from poor planning, unrealistic estimates, and failure to account for risk factors.
When Should You Develop a Budget?
Budgets should be finalized during the planning phase, not execution. The key is to account for known risks upfront. Proper budget planning requires engaging financial teams, analyzing past projects for cost patterns, and adjusting estimates based on industry benchmarks.
How Much Variance Should Be Included?
PMI recommends adding a contingency buffer of 10–20% to account for unforeseen risks. Research shows that projects with no contingency budget experience twice the failure rate compared to those that do.
Real-World Example: Denver International Airport
This project went over budget by $2 billion due to underestimated risks and scope creep. Unrealistic cost assumptions and lack of early-stage cost validations contributed to the massive overrun.
Tips for Budgeting Success:
- Perform a thorough risk analysis
- Define scope clearly
- Include contingency reserves
- Monitor expenses regularly
- Engage finance teams early
