Overruns alter program

The Scope Creep is basically adding additional functions or features to the new product, work, or requirements that are beyond the agreed-upon scope. Scope creep can happen in any project. And it can cause project cost overruns as well as time delay and decreased satisfaction. However, if it is not approved, it is scope creep, and this must be prevented.

Fighting Scope Creep is simple. This step is crucial. So, the project manager must clarify each requirement with the customer. The project team should also clarify the project scope or activities where they have a doubt. The project team should stick to the requirements. And, if there is a doubt, they must clarify it from the project manager. Moreover, no favoritism, nepotism, or bias should be allowed in the projects.

Any additions that may be done must be approved first then incorporated into the product. Once you know the project requirements and needs of the customer, you should acquire the resources with the right skills.

In reality, the activity may take a longer time to complete and exceed your planned cost. You must choose the resources that have the right skills as well as the appropriate level of experience. Why this is important? Well, because a lesser skilled resource may understand the requirements wrong. Or they may be incompetent in developing something exactly as expected. It may even happen that the resource is doing something right but they are too slow. These reasons can cause the project to delay or you may need to rework some of the activities.

This, in turn, will cause project cost overruns. If your planning is perfect, the documentation is thorough but your resources are not skilled enough, you will face issues. And, we know that managing issues will always incur costs. Therefore, you should acquire only the resources that you think have the ability to work on your project. So, corporate companies value to train their employees to increase project delivery competence.

Risk management plays a very important role in keeping the project under budget. If risks are not thoroughly identified or if the proper contingency reserve is not set for these risks, extra costs spent while dealing with the risks will cause project cost overruns. So what happens when there is no effective risk management is that some risks may pop up as a surprise. And you will have no preparation to deal with them. What you will do at that time is try to utilize your resources to overcome the consequences of the risks.

However, a sudden reaction to the risks may require you to use the resources outside the budget of the project. You may even have not many options to choose from in order to deal with the sudden risk occurrence. So, you will end up doing whatsoever possible for you to manage the risks quickly, and this may cost you a lot more money. A project manager must make an effort to consider all the possible scenarios.

To do that, they should use experience, historical data, and brainstorming to identify the risks. Yes, the risks should also be found throughout the project but early identification is far better. So, once the risks have been identified, each risk should separately be assessed for its probability, impact, and priority.

Risks may also be categorized. Categorization could be based on safety, technical, financial, internal, external, resources, or other criteria, as suitable. Categorization helps the project manager to understand where the maximum level of uncertainty lies.

It also helps in monitoring and reporting purposes. With every risk, the appropriate amount of reserves must be calculated and kept. The fact that people also cause the project cost overruns , and not always the project plan, work procedures, or other things, is often ignored. Usually, the project manager focuses on the project activities, project documents, and the resources necessary to complete the project.

However, they should also consider the fact the untrained project people, with no fundamental project management knowledge or enough experience, may also be an obstacle to success. Work done by untrained non-project resources especially can actually make things worse. They are not aware of the processes that to follow. Furthermore, no one is centrally controlling them and they do not tend to work under plans.

So the untrained resources could, for instance, cause inefficiencies in work, produce errors in deliverables, or make wrong decisions. The negative impact of untrained people could be insignificant but it could also be disastrous for the project.

Issues caused by untrained people could require product repair or rework. This would consequently lead to project cost overruns. No one wants a project cost overrun. However, if it happened, what are the ways to overcome and manage the overruns? Read on for effective ways to manage project cost overruns. Every organization has a different level of PM authority. In some cases, there are cost and schedule delay limits that a PM is allowed to manage the overruns.

No one should take this to the advantage though. Even if there is a cost overrun limit, the PM should try to adhere to the planned cost. For their part, the other three main players previously identified—project team, consultants and contractors—possess their own drivers to generate or go along with optimistic estimates. They are, therefore, strongly motivated to see the project approved. Likewise consultants have everything to gain through continued involvement in projects.

Contractors put out their best efforts to be selected, often by making extensive promises on performance and capability Rosenau, , p.

The successful contractor is very often the one who has made the biggest promises. Therefore, areas of potential conflict may be knowingly submerged during project development and contractual discussion, with the view of getting a deal done, and then renegotiating down the road.

Projects can be looked upon as the change efforts of society Webster, , p. Projects are conceived, by sponsors or management, in support of operational or growth strategies within organizations. Usually a project has to pass a set of economic hurdles or meet defined timelines to be approved. Sometimes the initial cost and schedule estimates developed for projects do not meet the specified economic targets required for approval.

The sponsors or supporters of the project are then faced with a dilemma—either they adjust the scope of the project, or enhance the cost and schedule projections to improve its economics; otherwise, the project will be dropped from consideration. Project sponsors champion the project and use their influence to gain approval for the project. Their reputation is tied to the success of the project. The sponsor s must convince multiple parties that a project is viable.

So, the sponsor has to be an individual or group that can draw or retain interest in a vague notion of a project. Such external resources can sometimes be reluctant to commit unless they understand that a project has a real chance of being approved.

After all, such a commitment may tie up resources that could be used elsewhere or on other, alternative opportunities. If the sponsors of a project want to see it selected, they can either reduce the scope, tighten the initial estimates, or both.

Business managers are suspicious of work estimates and have a tendency to believe they are excessive, even though for years, business projects have overrun their effort and duration estimates Scotto, , p. Sponsors often perceive the initial project estimates to be on the generous side, recognizing that project teams like to have some padding in their estimates Mackie, , p. Often, project estimates and schedules are prepared independently Hartman, , p.

The consultants might include factored estimates of equipment or indirect costs that are on the low side of normal. Estimates are produced primarily by consultants, who use historical data on productivity levels, current labor, equipment rental rates, and supplier quotations on materials and plant equipment, among other factors.

Their motivation in developing an estimate is to produce an appropriate level of accuracy commensurate with the known project scope. Contractors need projects to survive.

To assist in making a project economically viable, the contractors might quote low unit rates or pricing to get a job, expecting to make their costs later through changes Cleland, , p. Therefore, in the development of major projects, a lot of interaction can occur between these two players in determining who will carry the cost of risk. If the owner asks the contractor to carry the risk, then the contractor will adjust his prices upward, which can ruin any opportunity to develop optimistic estimates to gain project approval.

The owner usually has to initially retain the cost of risk if there is to be any possibility of getting the desired estimate. Collaboration between sponsors, consultants, and contractors makes a lot of inherent sense.

Innovative ideas about bringing costs down, raising revenues, and gaining consent for the project can then be better articulated. The central issue is to maintain a perspective that avoids blindness to risks. But given the poor track record of performance on major projects, senior management in companies considering such projects should be extra diligent in ensuring that valid estimates are used. What really carries optimistic estimates over the approval hurdle?

And are senior management adequately protecting shareholder interests? But project sponsors cannot stand alone. Senior management recognize that projects are necessary for the continued growth and survival of a company. They also recognize that most LEPs suffer cost overruns. So why should they support such projects? On a purely rational basis, senior executives might prefer to shy away from such projects. But frequently, on large projects, corporate executives operate on gut instinct.

They—by virtue of the overall perspective that they have of a company's strategy, capabilities, and resources—know which projects are right, and approve projects based on that feeling.

However, gut feelings are not auditable and a CEO has to be able to defend his actions. Therefore, control mechanisms—such as budget estimates, stage gate processes, and financial reviews—are conducted to reassure all involved interests that everything is in order and to show that the CEO and senior management are performing due diligence and protecting shareholder interests. This need to demonstrate awareness of company activities has been highlighted by recent scandals in the business world, such as that involving the Enron Corporation.

Legislation such as the Sarbanes-Oxley Act is forcing companies and executives to show that they are efficiently and effectively using resources, preparing reliable financial statements, and complying with the appropriate laws and regulations. Will these changes affect the likelihood that projects with optimistic estimates will be approved? Based on history, things are unlikely to change. On the face of it, the connection between optimistic estimates and cost overruns would seem to be obvious.

After all, if the most beneficial opinion is taken of likely actions or events or the best possible outcome is expected, there is a better than average chance that things will not turn out as planned. Baker, Fisher, and Murphy , p. But the consequences are much worse than any obvious one-for-one linear inaccuracy in the planning for budget and schedule Cooper, , p. Flyvbjerg et al. The length and cost of delays are underestimated, contingencies are set too low, changes in project specifications and designs are not sufficiently taken into account, and changes in exchange rates between currencies are underestimated or ignored, among other factors.

Many major projects also contain a large element of technological innovation with high risk, which can translate into cost increases not adequately considered in initial cost estimates. Most cost estimators, when developing estimates, will start with the most likely forecast or estimate for known activities.

After a check on the validity of such estimates, they will also estimate the most optimistic and pessimistic values for each activity i. But if the range estimates are not wide enough, or if there is a bias towards the most optimistic estimates, then it is very likely that the estimator will arrive at an optimistic estimate.

Estimating, taken on its own, involves a potential major project risk. Estimators need to make assumptions about what they are estimating and how the project will be delivered.

Ideally, Estimators must consider planning, estimating, and scheduling, in tandem and iteratively, to arrive at a realistic project budget. In practice, as the design and then the construction phases commence and proceed, the final cost of a project is continuously re-appraised; revised estimates are established, usually from month to month.

Stallworthy and Kharbanda , p. Then, only at the later stages, will the final cost come back to, and more often than not exceed, the amount authorized. Stallworthy and Kharbanda were of the opinion that an estimate is not a statement of scientific fact, but rather a political gesture. Costs are always controlled by the scope of a project, which is initially determined by the process design and its further development into engineering design. The parameters in this context are most firmly fixed in the early stages of a project.

Therefore, later efforts during project execution, to overcome the handicap of optimistic estimates, are unlikely to be successful. As previously stated, underestimation is the placing of too low a value on size, quantity, or number. Even if an underestimated project is approved, it could still be cancelled if the magnitude of underestimation became known early enough.

Stallworthy and Kharbanda say that the estimate used for project approval is:. Indeed, even if it becomes apparent as the project develops that the expenditure is going to be substantially greater than was at first envisaged, it will be extremely difficult to avoid that extra expenditure. If the money is not spent, there is a real danger of being left with a partly completed installation, of no value to anybody. However, if a project is approved with an optimistic budget, then the likelihood that the estimate of final costs would fall is remote.

Rather, the effort would be focused on maintaining the budget estimate as long as possible. In reality, it is only after a project reaches the point of no return, where it would be more expensive and embarrassing to cancel than complete, that such a project can be assured of execution. How does a project reach that point? It does so in stages, through a process called the Project Game, a term developed by Dr.

Francis Hartman. Figure 1: Project Game graph Graph derived from original sketch by Dr. Such a number is sometimes generated using an outline scope of work, historical cost data, and information from similar projects, among other things, on a top-down basis. Or it may have been generated using a bottom-up method, where the project is divided into work packages small enough to allow accurate estimation. While such an estimate process may be preferred, it is not always possible.

Regardless, if all the players want the project to proceed, then the process of finding the preferred number, as described previously, starts and the game begins.

Once the reduced estimate, often recognized as a stretch target, has been generated, as shown by point B in Figure 1, then the project is approved. The project team, normally a combination of the owner personnel and external specialists, then sets about refining the project scope and making the project a reality. A significant projected rise in costs would pressure the project team to perform an estimate review.

The project team often justifies this higher number by identifying higher facility operating efficiencies or enhanced throughput. At this point, additional scope cuts become difficult to identify because the exercise was performed before approval of the stretch target number was obtained; further attempts to reduce the number would only delay the project. Invariably upward cost pressures, due to the original optimistic estimates, eat away at the cushion afforded by the contingency included in the revised approved budget point D in Figure 1.

Sometimes the real costs are not apparent because contractors are late in their billing practices, the value of the work invoiced has to be certified, the project team is holding approval of invoices in dispute, the revised value of contracts due to changes is not entered into the estimate projections or trends, or the completion costs are not being trended.

Eventually, the contractor or the project team has to confront the reality of runaway costs and impending schedule extensions. At the stage where there is open recognition of a runaway project, it often happens that the project has reached the point of no return point E in Figure 1. This is where the losses in cancelling a project outweigh the benefits in completing the project.

It is usually at this point that the number of people working on the project is at a maximum and it would be difficult and expensive to shut the work effort down. The owners and project team are now faced with the choice of either cancelling or continuing the project. If they cancel they will look bad. If they provide the additional funds to complete the project, owners want assurances that the amount requested is indeed the final figure. The project continues and invariably costs continue to rise.

Any blame for continued cost increases is placed on the original project team by the replacement project team and the increases are explained as a legacy of prior mismanagement.

A common face-saving strategy is to increase the budget by continually announcing scope changes Mackie, , p. When the large increase in costs is highlighted, publicly the blame is often cast towards low productivity, scarcity of resources, unanticipated scope changes, and other scapegoats, but rarely on underestimation.

The replacement project team professes to be more knowledgeable based on lessons learned, and usually are placed in charge of the next project.

But they missed the process where the original estimate was developed and are often doomed to repeat this scenario again. Such are the proposed stages of the Project Game. The root of the game lies in the generation and acceptance of stretched cost and schedule targets, all for the sake of obtaining approvals for projects that realistically might never proceed if the true end costs and completion dates were known.

It is not in itself a proof of incompetence, imprudence, or other problems Fox, Some overruns occur because the scope of work was changed or exchange rates or inflationary pressures caused a significant change in equipment or resources costs. Often overruns occur because of unanticipated regulatory changes or the manner in which contingency accounts are treated. Market conditions can change, causing a project to still be profitable even though it exceeds its original budget or is completed later than expected.

This is often the case in resource projects, where commodity pricing can make many potential disasters look like visionary projects. Of course, the opposite can also occur. Such enormous sums of money ride on the success of mega projects that company balance sheets and even government balance-of payments accounts can be affected by years by the outcomes….

HMS Conqueror, a British Churchill-class submarine, was deployed ahead of the British task force to monitor Argentine Naval assets and sank the General Belgrano, an Argentine surface vessel, before it came within range of the group. Only after they have confirmed that there are no enemy assets will the carrier itself move in. Another point broached by critics would be the lack of airborne early warning AEW aircraft that can be deployed from the carrier.

This rebuttal does have some merit. Its ability to target surface vessels using these aircraft is very limited. A greater threat would be the KN surface-to-ship cruise missile which has a range of km.

This means that in a hypothetical conflict with China, even advanced aircraft like the F will have inferior situational awareness unless supported by ground-based aircraft. However the islands over which South Korea has territorial disputes with neighbors are relatively close, meaning that we can receive support from ground-based AEW aircraft.

If the need arises we can acquire AEW helicopters. However, given the year time frame [until the carrier becomes operational], we believe that we could develop an unmanned vertical take-off and landing VTOL aircraft to fill this role instead. Right now we are deliberating about which one to choose if we do end up acquiring AEW aircraft.

The development of unmanned aircraft is a global trend. Korean Aerospace Industries is developing several unmanned platforms. Moreover, the Republic of Korea Armed Forces have been focusing on the development of unmanned platforms in recent years. Other navies, such as the Royal Navy, are also planning on operating a high number of unmanned aircraft from their carriers.