In major procurements it is important to make an assessment of the budget requirements so that in the first place, a source of funds can be identified and then, later, an assessment made of the likelihood of the final project being completed within the figure identified.
Budgets can be exceeded for a number of reasons
- Unforeseen problems such as ground conditions making the setting of foundations in a new building difficult; inclement weather causing delays in a construction project; delays in the supply of materials/equipment needed before a project may proceed.
- Initial costing exercises failing to identify all the possible elements, for example, a failure to take all operating costs into consideration when pricing a proposal for new equipment.
- Legislative changes that require the institution to have to carry out some work that was not originally identified or where there is a change to the wage expectations of staff provided under a service contract (for example, where hourly rates are near to or at the minimum wage level).
Actions to reduce risk of exceeding the allocated budget include
- Detailed preparation at an early stage in the project where the institution should try to identify what could go wrong. Try to estimate the likelihood of each problem happening and estimate the additional costs if it does. Then, try to see what can be done to minimise that risk happening and/or reducing the potential costs/problems.
- The Whole Life Costing model can help determine the likely cost of ownership. The model contains a list of likely costs that may arise at installation stage, during its operational life and at disposal. The list can be continually updated as new issues arise, helping improve the quality of costing exercises in the future. Work completed at this early stage can help identify where budget issues may arise in the future and, again, action can be taken to minimise the risk or to seek additional funds to cover the increased costs.