No Time for Budget Busting

Stimulus or no stimulus, cost overruns are as dangerous as ever.
 

As stimulus money flows from the feds to state and local infrastructure projects, one big question troubles us: What if a state or locality doesn't come up with a solid estimate for the cost of a project? "That's certainly a concern," says Steven Hancox, deputy comptroller in New York State. "You get $40 million for a project, and if it turns out to cost $50 million, you're the one who's going to have to make up the difference."

In the past, cities and states have had a pretty dismal record on estimating expenses. In New York, for instance, the new Ulster County Jail, which opened in 2007, was completed at a cost of $100 million--three years late and $30 million over its initial budget.

There is a long list of reasons why projects come in over budget, starting with a failure to plan for the unexpected. "You have to have inflation factors and contingencies built in," says Hancox. "There's always an unforeseen event that crops up that drives additional costs--like the shell bed you didn't anticipate." Or the hold-up over scheduling problems, such as completing a structure's cooling unit in the late fall, when it can't be tested until late spring.

Good estimates, then, start with planning that's methodical--despite the rush to get things moving quickly.

There are other keys. One is to understand who the stakeholders are. John Deatrick, a former director of Cincinnati's Department of Transportation, recalls a project where O-DOT, the state transportation agency, wasn't perceived as an important player. After Cincinnati approved the plan for its Fort Washington Way road project, O-DOT stepped in and ordered two extra lanes--one in either direction--as a safety measure. Not surprisingly, that threw off the budget.

Another step is to measure project progress at regular intervals to catch problems early on. Indiana is finding its attention to a recent statewide performance- measurement initiative is paying off. In the first quarter of 2007, when the state first started scrutinizing performance indicators, 65 percent of public works projects were on time and on budget. By the fourth quarter of 2008, 83 percent met that mark.

And don't forget "maintenance of traffic" plans. If there is no plan to minimize the hassle for local drivers, the public outcry can translate into expensive alternatives, such as unbudgeted weekend work or schedules that require doubling the size of the crew.

Of course, all the planning in the world doesn't guarantee that costs will not exceed expectations. There are hugely expensive problems that no one can predict. The price of a raw material can soar suddenly. Or, a project can unwittingly run into a site of archeological value. We've all heard about new construction projects that are stopped in their tracks when a Native American graveyard is discovered on the premises.

And then there's politics. All the best efforts to control costs can be undone when there's a drive to low-ball initial estimates in order to gain legislative approval of a project. Sad, but true, politics usually trumps management.

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