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Beware of Low Budgets April 26, 2009

Posted by Jason in Insider's View Relapses.
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Since 1972, federal regulations have required qualification-based selection for federal projects requiring professional services such as architecture or engineering. The legislation had the effect of taking price out of the selection criteria, maintaining professional qualifications as the primary focus. This certainly seems logical, but what about our professional ethics that dictate our regard for public safety, duty to the client, and duty to the employer? Are we to believe that a low bid for a juicy project could somehow affect our professional judgment?

While it may seem that a budget is strictly a financial tool, studies have shown that our minds do not always follow logical rules when dealing with money, whether actual cash or numbers on a page. Further, a budget can also be a psychological motivator in the sense that it creates a deadline or limit. Anyone who experiences the stress of a looming time constraint knows this feeling. While we strive for professionalism, we are indeed limited by our biology and must consciously work to overcome this shortcoming.

A low bid is obviously not unethical in itself; there are many reasons why a project budget may be set lower than normal. With business drying up, many firms consider special discounts, “buying work,” or other tactics designed to spur a client along or win a job. It is every business owner’s prerogative to accept a prudent level of risk. Others may just poorly scope and estimate the contract, leaving a project manager holding the bag. Whatever the reason, a low budget can literally become dangerous, and not just to profits.

Though the result of many factors, NASA’s Challenger disaster illustrates the catastrophe that can result from placing too much emphasis on project deliverables (the launch) while neglecting, or at best assuming, mission safety. The tragic flight has often been characterized as pressure from executives and managers more concerned with public relations than safety concerns. It is easy to imagine, however, that at least one executive contemplated the monetary cost of a launch delay and agreed to move forward with such budgetary constraints in mind.

As much as we are logical, rational thinkers, our brains have a way of hijacking our best intentions. We are much better at justifying our actions after the fact than we are at predicting consequences. When faced with a dwindling project budget, how many of us imagine that we are facing some kind of ethical dilemma. In realty, the ethical course of action is clear—public safety comes first. By artificially creating such a constraint, however unintentional it may be, we begin to box ourselves in with less and less room for negotiation. If the project budget really was poorly developed, the time to come clean is near the beginning, not when all the money has been spent.

On the other hand, if it was intentionally bid low, that fact should be made clear to anyone who comes in contact with the budget—whether a principal, manager, technician, or someone in between. While it is still important to maintain a prudent use of everyone’s time, it should be made clear whenever management has established a budget that should only be given lip service. Of course, the expected variance should still be factored into the books somehow. Perhaps it is considered marketing expense; maybe there is a case to be made for a donation of time to a non-profit entity. Whatever the case, the slippery slope of cost-cutting is a tempting path when managers become desperate to show success.

As attractive as it may appear to have a “fire sale” to attract new business, there are other considerations besides the financial sheets. Take heed to ensure that the pressure to boost profitability does not damage or destroy the ultimate responsibility to public safety, and remember that none of the ethical canons contain any language about a duty to your shareholders.

–from Insider’s View, April 2009

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Comments»

1. Project Management Hut - May 28, 2009

The definition of a low budget can be misleading, if the project is over-budget, does it mean that it had a (knowingly) low budget in the first place? Or it was just a misestimation mistake?

If the budget is low and the project is finished according to specs, then the budget was not low in the first place. Hence, low budget projects become overbudget when dealing with non-governmental clients. As for governmental agencies, you probably can get away with (substantially) reducing the quality and accommodating your low budget, but again, this is almost always the case with every single project out there.

Jason - May 28, 2009

Good questions. I think either case can be found on many projects (and there is probably quite a bit of gray area as well). The main concern is whether the low budget — however it came to be — affects the performance of the team and their relationships with the client.

In your latter example, of a low budget being spot on, then it really doesn’t meet the criteria of a low budget; rather, it must have been a well-budgeted project. Perhaps it was “low” compared to the competition, but if it was met, then the firm obviously has some sort of know-how to get the project done more efficiently.

The challenge is when the budget really is low compared to what it will cost the firm to produce. When things get tight, corners often end up being cut. Choose your corners wisely.

Thanks for your comments.

2. Project Scope Statement - May 5, 2009

Hi Jason,

I agree on many of your points. However the excuse regarding public safety v budget has been used many times in the UK to the detriment of IT deliverables. In one recent instance an NHS IT Programme went from a cost of $5.2B to nearly $25B and despite being 4 years late still has not been delivered. One of the reasons for this being that patient medical records could not be compromised therefore money had to be flung to resolve the issues.

I personally think that the key thing in all projects is that Scope should eb nailed down and adhered to, unless it can be unequivocably demonstrated that the public safety or privacy would be affected. Only then can scope be allowed to creep.

Lastly I think it is insane to make decisions on tenders purely on the basis of the qualifications of those bidding. Cost has to be a major consideration alongside quality particularly in these cost conscious times when taxpayer funds are dwindling.

Regards

Susan
Site Editor http://www.my-project-management-expert.com

Jason - May 5, 2009

All good points. I agree that the public safety philosophy can be taken too far, and often is. I do believe that personal responsibility is the ultimate deciding factor in accepting or rejecting risk, but there is always a balancing point that shifts depending on the circumstances. Like most other things, the final answer is usually, “It depends.”

Your example of the medical records snafu is a case in point. I’m assuming that the records needed to be secure due to various regulatory or legal requirements, as they are here in the U.S. While the argument was likely made that the additional cost was justified to promote public safety, one must logically ask how much harm is done with a less secure system. In other words, there is often a deeper ethical question to be confronted in today’s overly regulated world. The project did not necessarily cost more because the managers and engineers thought that it would promote public safety. It cost more because the laws dictated various measures, regardless of the ultimate outcome.

In the final analysis, there is a degree of trust placed in professional engineers (hence, the public license requirements). That trust extends not just to the “hard” project requirements but to cost as well. As engineers, we keep people safe. As businesspeople, we want repeat clients. The two can (and must) co-exist peacefully.

Thanks for your comments.

Jason - May 30, 2009

Though not on the exact topic of the original post, I found this article to be pertinent to the particular example of patient privacy:

http://www.forbes.com/forbes/2009/0608/034-privacy-research-hidden-cost-of-privacy.html


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