Material Overruns

Chances are you 've thoroughly outlined the parts needed for a given task and have obtained bids from vendors on what the parts are going to cost. So you should have a pretty solid idea about what the costs are. Or do you really? Material overruns happen in a variety of ways:

Incorrect materials Specified materials aren' t the correct materials for a given task, though at the time of specification you thought they were. Replacement materials are more costly.

Add-on components You hadn 't anticipated certain add-on components to go along with your materials, and they introduce costs to the material lists. (Some typical things are power whips, fiber-optic patch cables, and termination kits.)

Paying invoices late Your finance department failed to pay the invoice within the stated payment guidelines, and a late fee is tacked onto the cost of the materials—to be debited from your project budget.

Load-balancing redundancy Load-balancing characteristics that you hadn 't counted on require redundancy in equipment.

Additional software Additional software modules you didn' t think you needed are actually going to be of benefit to the project or are even required for satisfactory completion of a deliverable.

Vendor disappears Your original vendor drops off the face of the planet, and you ' re forced to go with the next lowest bid at procurement time. Unfortunately, the next lowest bid is substantially higher than the winning bidder, well out of bounds of what you' d budgeted.

All these are interesting and challenging phenomena, to be sure. But how do you manage such things once they occur? There are several steps in managing overruns. Gather information about the overrun You can' t do anything about an overrun until you identify the reason for it. Once you ' ve identified the reason, you may or may not be able to control the overrun, but at least you understand the why it happened and can move onto the how I' m going to fix it. It' s also important to be specific and certain about the size of the increase you ' re dealing with.

Increase the budget Some increases are marginal enough that they can be absorbed in other project areas that are under budget. Other increases are so substantial that you have to convene the stakeholders and sponsors to come up with answers. Identify and notify the relevant parties The extent of the time or cost overrun might be relevant to one party but not to another. Certainly, if the overrun has project-shattering proportions to it, all parties need to be notified. But some overruns, while substantial, may not affect other areas of the project.

Once you've identified to whom you should communicate the overrun, develop your message so you can convey the information to affected stakeholders, develop a plan for mitigating the overrun, provide the rationale for the change, and describe the consequences if the overrun isn't approved. Then convene the stakeholders and sponsors involved, do your dog-and-pony show, and get the go-ahead to do what you need to do.

This sounds easy, but in lots of projects, the stakeholders aren't all that easily convinced. Some stakeholders can be anti-IT (we've described this phenomenon earlier—it's probably no big surprise to you); in these and other instances, your being the bearer of bad news will not be welcomed, no matter that you couldn't possibly have anticipated the problem. Be prepared with Plan B: a simpler (though, in your mind, less acceptable) solution to the overrun. You should, in other words, be prepared to negotiate in case stakeholders aren©t interested in your first proposal.

Note As a general rule of thumb, if a change in the project task's schedule or budget is on the critical path or the overall budget is impacted, you©ll need to authorize the change through the executive project sponsor. That's the person who is authorized to expend resources for the project.

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