The Cheapest Way to Run a Project Is with Enough Resources

BBoston's Big Dig, the largest highway project in U.S. history, was originally projected to cost about $2 billion. The price now is over $14 billion. I don't know why they're over budget, but I do know that there has been intense pressure to hold costs down. Maybe part of their problem is the pressure to reduce costs.

Since the need to cut costs suggests that earlier estimates were off, why do we believe the new estimates? They're usually made under extreme time pressure, and with obvious bias. They might even be worse than the estimates they replace.

Yet, we do it and we do it again. Whenever we cut budgets, we risk cutting too much. And then we must deal with a hard truth: if we cut too much, the project will likely cost even more than if we hadn't cut at all.

When we cut too much, new mechanisms — many invisible — kick in, and all are beyond the control of project management. Uncontrolled processes lead to uncontrolled costs, and that's why cutting too much raises costs. Some examples:

Wishing

Responding to the call for cuts, people re-estimate their work, knowing that only the "right answers" can save their pieces of the project. Unaware, they bias their estimates. Overruns are inevitable.

Bootlegging

When we charge time to one project and work on another, or when we "borrow" equipment, we're bootlegging. It's widespread, and it's completely off the books.

Hoarding

Excessive budget
cuts encourage
"underground" behavior,
which is hard
to control

If we believe that we won't gain approval for additional staff, we might be tempted to keep some people we have, even when we don't really need them, because we doubt that we can get them back when we do need them again. So when money is tight, we find some people sitting around.

Bingeing and purging

When an organization goes through a sequence of "freezes," it inevitably goes through a matching sequence of thaws. During thaws we grab whatever we can. Often, this grab goes beyond satisfying backlogged needs, and becomes a true binge. Like squirrels burying acorns, we acquire what we can whether we need it or not.

Deferring

When budgets are tight, we sometimes defer addressing problems. For example, if a project is late, we shorten testing. This defers discovery of problems, often until after the product ships, when resolving the problems is even more expensive. The project cost is reduced, but the cost to the enterprise climbs dramatically.

Find out if any of this stuff is happening in your organization. If it's increasing, perhaps you're trying to run projects with budgets that are too small.  Top    Next Issue

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One symptom of resource starvation is the urge to make every effort "count" towards the ultimate deliverable. For a discussion of the downside of this approach, see "Trying to Do It Right the First Time Isn't Always Best," Point Lookout for March 14, 2007.

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Related articles

More articles on Project Management:

Finger Puzzles and "Common Sense"

Working on complex projects, we often face a choice between "just do it" and "wait, let's think this through first." Choosing to just do it can seem to be the shortest path to the goal, but it rarely is. It's an example of a Finger Puzzle.

Bois Sec!

When your current approach isn't working, you can scrap whatever you're doing and start again — if you have enough time and money. There's a less radical solution, and if it works, it's usually both cheaper and faster.

Projects as Proxy Targets: II

Most projects have both supporters and detractors. When a project has been approved and execution begins, some detractors don't give up. Here's Part II of a catalog of tactics detractors use to sow chaos.

Scope Creep and the Planning Fallacy

Much is known about scope creep, but it nevertheless occurs with such alarming frequency that in some organizations, it's a certainty. Perhaps what keeps us from controlling it better is that its causes can't be addressed with management methodology. Its causes might be, in part, psychological.

Scope Creep and Confirmation Bias

As we've seen, some cognitive biases can contribute to the incidence of scope creep in projects and other efforts. Confirmation bias, which causes us to prefer evidence that bolsters our preconceptions, is one of these.

See also Project Management for more related articles.

Forthcoming issues of Point Lookout

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Among the more commonly cited reasons for hiring contractors instead of direct employees is cost savings. But are these savings real? Direct compensation, including perks and benefits, might favor the contractor arrangement, but indirect costs tell another story. Available here and by RSS on July 2.

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