Are budgets always a bit askew?

Are budgets always a bit askew?

I recently asked a selection of the Software Process and Measurement Podcast listeners and blog readers which of the classic three factors; on-time, on-budget or on-scope, define project success. While overall the results are not surprising I expected that being on-budget have had more mentions than the results showed. Of the respondents only one person put on-budget at the top of their list. On the other hand, another respondent took the time to explicitly point out why budget could not be on the top of their list. These are two very different takes on the impact of  being “on-budget” has on determining whether a project is successful.

The first comment was, “From the perspective of the sponsor(s), budget is clearly the thing.  This drives a tremendous amount of organizational behavior.” Budget performance is often tied very closely into managers’ performance objectives, and therefore is tied closely to how they are paid or bonused. In order to maximize their individual pay, the budget is often managed by constraining what is delivered or how work is done (ranging from the processes used to where the work is sourced). I have observed the outcome of budget management in projects over the years, which is why I would have through being on-budget would be higher on the list. Budget management can be a blunt instrument, and improper budget management can cause managers to cut the scope to meet the budget, lower quality due to the constraint of testing as the budget runs out, or even logging time to other projects with available budget. In the Software Process and Measurement Cast 306, Luis Gonçalves suggested that many poor organizational behaviors can be traced back to performance objectives and misuse of goals and objectives.

The second comment was, “No project is ever completely on budget.” This comment reflects a certain fatalism toward budgets (and the budgeting process). As we are all aware, budgets are typically developed and set before the organization truly knows what is being asked for and how it will be delivered. Therefore, unless stated as a range based on probability of budgetary outcomes, cannot be correct. Most budgets are not given or recorded as ranges, but rather as a specific number. The false precision based on imperfect information makes the budget a poor goal with little motivational power on its own.

Being on-budget has impact. Organizations allocate funds for work with the expectation of a return. This simple statement is just as true for software maintenance as it is for new product development. Variance in between what was planned and what was spent will have ramifications. Development personnel for the most part can’t impact the budget directly (with the possible exception of product owners), therefore being teams spend less time thinking about whether they are on-budget than on the attributes they can directly influence.