by David Vose

Projects cost overruns can dramatically affect a company’s performance and jeopardise strategic goals. Yet, in my experience, company executives are rarely provided with actionable information that give them an overview of the performance of projects in meeting their budgets across the business. This article outlines two very simple analyses that can fill that gap:

• An obvious graphical presentation that highlights where major deviations occur from budgeted cost, and is a starting point for investigating where things go wrong (and right), and how to develop better budgets
• A complimentary graphical analysis that can be used as a performance metric.

We start with a list of past projects, the initial budget and the actual completion cost. Many companies actually don’t have data on completion cost because either their accounting system doesn’t allocate expenditure to projects, the invoices from suppliers often roll across several projects, or because going back over past performance to collect the data was never a priority. Hopefully, these analyses will show the value of organizing the business to collect the information.

The first graphic simply plots the final cost against the budget in a scatter plot. The following illustration shows a pattern that is very similar to an analysis we performed recently for a client that has a database of over 1000 projects:

The patterns shows that most project costs are well-estimated or are fixed price contracts, so they lie on the y=x line. Variation above or below that line represents risk. If a project costs more than is budgeted for, the business case for the project may well be destroyed and other projects are put in jeopardy through lack of available funds. On the other hand…