4 Steps To Reducing Project Costs

My project sponsor turned up at my desk the other day. This was unusual – normally I have to make an appointment to see her, as she’s very busy in a senior role and isn’t as hands on as other project sponsors that I have worked with. I looked up from my screen.

“I’ve just come from the budget meeting,” she said. “And we need to cut 20% from the project budget.”

“OK.” I tried not to look shocked. Where was I going to make a 20% saving from?

“That’s not a problem, is it?” she said.

Well, it depends – it’s a problem for someone! Cutting money out of your budget is something that all project managers are asked to do from time to time and it certainly wasn’t the first time that someone had asked me to review a project’s budget with the objective of making a saving. But savings normally come through cutting scope and reducing what the project can deliver, because that’s where you can make the most impact on the budget. So someone wasn’t going to get all the functionality they had asked for because it would have to be removed, or at least postponed until more money was available to kick off a Phase 2 project and develop some more features.

“Erm, let me have a look at what we can do and get back to you,” I said. When she had left, I pulled up my expense tracking spreadsheet and started to look at the costs. There were 4 steps I went through to see if I could make any savings without having too much of an impact on the scope. These were as follows.

Step 1: What Costs Are You Trying To Reduce?

The 20% saving I was asked to make had to come from capital expenditure, in other words, the money we were investing in the product. But sometimes you can have some flexibility with what costs need to be reduced and you may be asked to limit them in other areas. For example, cutting operating expenditure may be solved by renegotiating a support contract, maintenance agreement or by limiting the number of people who work on the project over time.

Sometimes sponsors aren’t bothered about where the saving comes from, as long as some kind of saving is made and can be reported back to the senior managers, so think creatively about where it would be easiest to make savings.

Step 2: Cut The Obvious Things

Then I looked at the obvious things that could be reduced. We were carrying some contingency funds, and while I still wanted to keep some of this in case of emergency, I felt confident that now we had finished the scoping exercise we had a better idea of what sort of problems we were likely to face and could manage to release some of those funds. So some of the money could come from there.

I also looked at the task estimates. While I couldn’t make any savings that way, you might be able to. Tasks that have been over-estimated will cost more, so you could reduce your budget by looking at what you could do faster.

We also had a provision for risk mitigation activities, but several of the risks had passed without happening, so that money could be released. I would have had to do this anyway at the next budget forecast review session, but doing it early didn’t matter and it meant that I had a little bit more to contribute to that 20%.

Step 3: Reduce Costs On The Other Things

Have you got a high cost resource working on what’s basically admin? If you swapped the task allocations around and got a cheaper project co-ordinator to pick up some of the admin tasks you would free up your expensive resource to dedicate more of their time to specialist work (or, in this case when we are looking to save money, finishing their specialist work and leaving the team as early as possible so you don’t have to pay for them anymore).

There may be other areas that aren’t so obvious but that would yield savings. Your contracts with suppliers might include services that you thought you’d use but actually aren’t using now the project has started, or value-added services that you could live without (or at least take the risk of managing without). It’s a big job to renegotiate a contract so get some help from the Procurement team or someone with experience in doing it, and make sure that you aren’t removing any features or costs from the contract that you will regret in time!

If you have cut down the obvious areas where your budget has been carrying extra, and looked at some of the more hidden areas, you can then think about removing features or functionality, or reducing the scope of the project to deliver slightly less for a cheaper price. Before you take anything out of scope make sure that this is discussed with your project sponsor as it is really them and the other key stakeholders who should be deciding what’s left in and what’s taken out.

Step 4: Review Your Budget

OK, so how much has now been saved? Review your budget regularly to see what reserves could be released (or what needs to be added back in). Make a budget review part of your regular project housekeeping and report back to your sponsor about how things are going. This can help you avoid surprises such as being asked to cut a massive amount out of your budget in one go!

I ended up having to ask my sponsor to prioritize some project features so that the team focused on delivering the most important ones with the new, reduced budget. We made some savings elsewhere, so the customer still gets mostly what they asked for, and everything removed from scope has been added to an improvements list to work on in the future. Overall, my sponsor was happy and I felt the project’s objectives hadn’t been compromised too much. It is possible to make savings on your project budget if you know where to look, and while it is hard to do and takes some planning, if you are asked to make the same changes on your project, you can follow these 4 steps and see what you can save.

The online expense management tools in ProjectManager.com will help you manage your project budget effectively wherever you are. Keep track of project costs with real time reports and dynamic dashboards.