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Eliminate Software Budget Overrun: #7 Guide To Tackle Unforeseen Expenses

May 9th, 2024
Software Budget Overrun Unforeseen Expenses.


More businesses now prefer developing custom software solutions rather than buying software off the self. Software projects are often complex and unpredictable, and sometimes, they can incur unexpected costs that can jeopardize the budget and timeline of the project.

Businesses need to be aware of the perils that come with developing custom solutions and take appropriate measures to prevent them. How can you deal with these unforeseen expenses and keep your project on track?

Unexpected expenses in software development can arise due to various factors such as scope changes, technical challenges, market fluctuations, or unforeseen operational needs. These unforeseen costs can strain your budget and impact project timelines. This potentially compromises overall project success with a budget overrun.

This article provides a step-by-step approach to effectively identify, manage, and mitigate unexpected expenses throughout the software development lifecycle.

What Are Unexpected Expenses?

What Are Unexpected Expenses?.

Unforeseen software expenses refer to costs that arise during the development, maintenance, or deployment of a software project. One that was not originally budgeted or anticipated.

These expenses can manifest at various stages of the software development life cycle and may result from a range of unforeseen circumstances. Here are common scenarios leading to unexpected software expenses:

  • Scope Changes

  • Technical Challenges

  • Market or Industry Changes

  • Integration Challenges

  • Security Incidents

  • Vendor or Tool Changes

  • Infrastructure Issues

  • Legal or Compliance Matters

  • Personnel Changes

  • Unforeseen Delays

Here are a few statistics to better explain this:

  • The percentage of enterprise resource planning (ERP) projects with budget overruns in 2023 was 47%, while that in 2022 was 41%, and in 2021, 60%. While in 2011 and 2017 this was 74%. 

  • Only 16.2% of software projects are completed on time.

  • Poor requirements are the reason for the failure of 39.03% of the projects.

A Step-by-Step Guide

A Step-by-Step Guide.

Step 1: Acknowledge and Identify:

  • Recognize the Inevitability of Unexpected Expenses: The first step in dealing with unforeseen expenses is to acknowledge their inevitability. Accepting that not all variables can be controlled or predicted allows teams to adopt a proactive and flexible mindset, which is crucial for effective budget management.

  • Identify the Source: Once an unexpected expense arises, promptly identify its source. Is it due to a technical issue, a misunderstanding of project requirements, or an external factor like a change in regulatory standards? Correctly identifying the source is critical for developing an effective response strategy.

  • Common sources of unexpected expenses in software projects: Change requests from clients or stakeholders that require additional features, functionality, or design changes. Technical issues or bugs that need more time and resources to fix or test. External factors such as market changes, regulatory requirements, or third-party dependencies impact the project requirements or specifications. Human factors such as staff turnover, illness, or poor performance affect the productivity and efficiency of the project team.

Example: A good example of issues causing cost overrun can be found in a construction project. For example, design changes during the construction of two major construction projects resulted in significant overruns. These projects were the Sydney Opera House and the Burj Khalifa. Both projects had overlooked issues with the roof that warranted a redesign and ultimately increased the cost of the project.

Step 2: Assess and Analyze:

  • Evaluate the Impact: Assess the potential impact of the unexpected expense on your project's scope, timeline, and budget. Consider how it affects immediate tasks and long-term goals.

  • Prioritize: Determine the urgency and importance of addressing the expense. Not all unexpected costs require immediate action; prioritize based on the potential impact on project success.

  • Drill down to the root cause: This is a good time to ask the question: Why did this budget overrun occur? The purpose here is not to play the blame game but to find the root cause. This is key to finding the right solution and ensuring it does not occur in the future. 

Example: Consider the hypothetical requirement of a XYZ company. XYZ Company plans to develop a new e-commerce platform with a budget of $500,000 and a timeline of 12 months. The project scope includes user authentication, product catalog, shopping cart, and payment integration. 

During the development phase, the team encounters unexpected technical challenges related to integrating a third-party payment gateway. The complexity of the integration requires additional resources and specialized expertise not initially accounted for. 

Resolving the technical challenges results in a delay of two months. The project timeline extends beyond the initially planned 12 months, impacting the overall schedule. 

To address the technical issues and meet the extended timeline, XYZ Company needed additional resource allocation, including hiring specialized developers and consultants. The unexpected expenses for these resources amount to $100,000.

Step 3: Strategize and Adapt:

  • Develop Response Strategies: Create a range of strategies to address the unexpected expense. These might include reallocating resources, adjusting project timelines, or revising scope.

  • Cost-Benefit Analysis: Perform a cost-benefit analysis for each potential response strategy. Evaluate the implications of each option on project quality, timeline, and budget.

  • Decision Making: Select the most viable strategy based on your analysis. Ensure the decision aligns with project goals and stakeholder expectations.

Step 4: Communicate and Consult:

  • Internal Communication: Communicate transparently with your project team about the unexpected expense. Provide clear information about the issue and its potential impact on the project.

  • Stakeholder Engagement: Inform stakeholders, including clients, sponsors, and upper management, about the situation. Honest communication builds trust and helps manage expectations. Explain the root cause, the consequences, and the possible solutions. 

  • Seek Expert Advice: If necessary, consult with experts or mentors who have experience dealing with similar issues. Their insights can provide valuable perspectives and solutions.

  • Renegotiate: Provide a revised estimate of the project cost, duration, and deliverable, and seek their approval and feedback. Addressing the issue of budget overrun with a client is bound to affect the overall trust and long-term relationship.

    Hence, take the necessary steps to find the root cause and determine an appropriate solution. Ensure your solution has a high chance of success. Never bring up the matter of budget overrun more than once, it would be a bad idea.

    Provide your client with a foolproof plan and strategy to tackle the issue irrespective of how much it might affect the existing plan. 

Step 5: Implement and Monitor:

  • Implementation: Implement the chosen strategy with clear roles and responsibilities. Update the project plan, budget, schedule, and documentation to reflect the revised scope definition, cost, and deliverables. Ensure all team members understand the adjustments and their roles in the revised plan.

  • Monitoring: Closely monitor the implementation of the response strategy. Track progress and assess the impact of the changes on the project. Report any issues or deviations to the project sponsor and stakeholders.

  • Iterative Review: Regularly review the situation and the effectiveness of the response strategy. Be prepared to make further adjustments as necessary.

  • Optimize your effort: One of the biggest mistakes in software development is to ignore minor issues that creep up and hope all will work out fine. The fact of the matter is that all these minor issues add up and become the reason your project fails. Proactively monitoring the project and taking appropriate action is the key to getting the project back on track. Optimize the resource utilization and adjust the key factors to ensure you achieve the primary goal of the project. 

Step 6: Document and Learn:

  • Documentation: Document the occurrence, analysis, response, and outcome of the unexpected expense. This documentation will serve as a valuable resource for future projects.

  • Lessons Learned: Conduct a retrospective analysis to extract lessons learned. Identify what could be done differently in the future to prevent or better manage similar situations.

  • Knowledge Sharing: Share the insights and lessons learned with your team and organization. This can help build organizational knowledge and improve resilience against future unexpected expenses.

Step 7: Improve Project Performance to Improve Business Results:

Good software development skills are crucial in building reasonable solutions. However, the ability to get a failing project back on track is also an invaluable skill to have.

The main goal of every project manager is to deliver their project on time and within the budget. Incorporating a high level of transparency during the project development increases the chances of making this happen.

Preventing scope creep and incorporating a plan to deal with changes or unforeseen issues is an excellent way to optimize your performance. 

A good example is the software project for the logistic and financial system of the armed forces in Sweden. The name of the system being developed is PRIO, and it began in 2007. 

The project faced usability and design problems. This led the project to a budget overrun. The decision was made to continue with the project but to increase the budget from 2.4 Billion to 4 Billion. This is still an ongoing project.

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Seek Advice From the Professionals

Seek Advice From the Professionals.

Dealing with unexpected expenses in software development requires a proactive, strategic approach to ensure that projects remain on track and within budget. It is always a good idea to have a plan or set of steps to follow to get the project back on track. A step-by-step guide for the project managers and development teams can effectively navigate the challenges posed by unforeseen costs.

Leverage best practices in identification, assessment, decision-making, and implementation to safeguard project success and deliver value to stakeholders. Emphasizing transparency, communication, and continuous learning will not only mitigate the immediate impact of unexpected expenses but also enhance the organization's resilience and adaptability in facing future uncertainties.

Hire remote developers to handle your software development requirements is a good way to handle budget overrun issues as well. 

Outsource your software development requirements to prevent or handle budget overrun issues. Acquaint Softtech is one such software outsourcing company that can assist your outsourcing requirements or help if you opt for IT staff augmentation.


Mukesh Ram

Founder and CEO, Acquaint Softtech

I love to make a difference. Thus, I started Acquaint Softtech with the vision of making developers easily accessible and affordable to all. Me and my beloved team have been fulfilling this vision for over 15 years now and will continue to get even bigger and better.

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