Updated: Mar 14
The widespread perception: the cost overrun in software development is like a “slight fly”. It is regrettable, but there is nothing to be done. Managers optimistically think that results will be worth it.
Below you’ll see that extra investment does not always mean a quality product and learn how to minimize the risk of over budget in the future.
Can Cost Overrun Destroy Projects? Hair-Raising Case Studies
Great Western Rail Line Modernization
In the race for sustainability UK Network Rail faced a project over budget of £1,9 bln.
The company strove to migrate from legacy infrastructure to a new one. A power distribution system became a stumbling block. Network Rail has to construct 4,200 overhead gantries and 49 power distribution facilities along the Great Western Rail Line.
In 2013, Mark Carne, the former CEO of Network Rail, called poor planning, outdated knowledge of railways, and superficial cost estimation as core reasons for over budget.
As of 2020, the UK boasted of completing a scaled-back Great Western Electrification project. It took 10 years and billions of pounds.
Baggage Management System in Denver Airport
Creators had an ambitious plan to create the first automated system to handle baggage through 3 concourses of Denver Airport. But they underestimated the complexity of this task.
Consequently, engineers built a system serving only one Airport concourse and stopped the transport hub for 1.4 years. The downtime added $560 mln to the entire project cost.
The case was the product required over $1mln/month for maintenance. The system has never worked well, and in 2005, United Airlines scrapped it in favor of a manual management system.
You may also like: Short Guideline On How To Budget A Project
Top 7 Tips to Prevent Over Budget in Software Development Projects
#1 Pay more attention to the discovery stage
Customer companies prefer to ask for quick scanning to the intended research. But deep analysis always leads to better development results, and of course, helps enterprises to save costs. Give the vendor a few weeks to learn your corporate business processes and reveal invisible weaknesses. It will help to avoid surprises in the future.
#2 Shadow your domain development
It's not enough to know the business conditions like the back of your hand. Anytime you can face a challenge like a demand change, new technology launching, etc. If these circumstances can affect your industry, they'll affect your company and project. And you won't like the new expenses they bring. So stay one step ahead of others and analyze predictions by reputable sources. Forewarned is forearmed.
#3 Build healthy communication with your partner
Delegation of software development is a question of trust. You should choose an experienced vendor and be sure in its business transparency to move forward together. Leave the room for a reasonable budget discussion.
#4 Create an accurate roadmap
Some companies failed their projects because of poor planning. We used to think that one new product may solve all business issues. We expect it will match the existing IT ecosystem from the very beginning. It's not true since new software should be grounded on the updated processes.
I mean, planning is not just about "my contact center "as is" and "my contact center "to be". It's about "my IT ecosystem "as is" and "my IT ecosystem "to be". When creating a roadmap, you should consider all the supporting processes as the core ones. They are also an object of charging.
#5 Set a reserve budget to cover risks
Your team and partners can do everything flawlessly: dig deeper into processes, consider forecasts and develop the best action plan in the world. But unfortunately, you can't predict something like a pandemic or global disaster.
Remember about it and work with known and unknown risks while planning the project budget. It is especially vital for fixed-price projects.
#6 Create a full-fledged MVP
Build a robust prototype and test it using all possible scenarios. It will help you discover bottlenecks and eliminate them before they become high-cost trouble.
#7 Use KPIs
Every result is a poor result when you can't measure it. To control budget, you should use several key performance indicators, like:
Actual project cost
Return on investment
The Bottom Line
Nobody is insured from cost overrun. Sometimes it doesn't depend on vendor reliability or client requests. Custom software development is usually a long-term process. So, over budgeting happens because of poor planning or internal/external environmental factors. But it is possible to be prepared for them and prevent budget exceeding outcomes.
Have you experienced issues with over budget and are afraid to feel it one more time? You might get closer to reasonable project budgeting with just a few clicks.
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