9 Good Reasons To Reveal Your Project Budget Up Front
By Vjekoslav Babić
How often do customers reveal their project budgets before the consultants bid? From my personal experience—not too often. And it’s a waste of time, money, and opportunity. Let me ask you up front: If you have allocated a budget for a project, why would you not want to discuss that budget with your prospect vendors?
Do you fear they’ll rip you off if your budget is too high and they find out? Trust me, your budget is far more likely to be too low, than to be too high. With an average IT project cost overrun of 56% and 53% chance of exceeding your time, budget or both, your chances of having too big a purse are negligible.
Do you know your budget is too low, and you don’t want your vendors to find out before having invested far too much time into you to simply back off? Oh my, what a wicked plot! I hope for your sake this is not what you do. Whenever your budget is too low, and you get a vendor’s quote within it, your project is off to contribute heavily to the metrics above. You and your vendor should be partners; your vendor must earn a margin on you. If they don’t, they’ll go out of business. Or they’ll do their best to squeeze a margin out of you by delivering low-quality work. Which do you prefer?
Or are you unsure about where your budget really stands, and you’ll simply pick from among the lowest bidders? If you don’t know whether your budget is realistic, then you have a real problem. It means that you either don’t know the scope, or you don’t know the cost of delivering it. Not knowing the scope is bad—you should first define the scope, then allocate the budget. Knowing the scope, but not knowing the cost is okay—but then you should hire someone who can estimate a realistic budget for you. If you don’t do this, your budget might be too high, and you end up spending more than you really needed. But your budget might also be too low, and you might never get what you need: either nobody will want to do business with you, or worse—somebody will!
Or, do you know that you have a realistic budget? If you do, what benefit do you have from not revealing it? Do you hope to get prospect vendors bid significantly below it? If you do—what will their bid tell you about the quality of their work? If you know that a brand new Lexus IS-F costs $55K, what does your gut feeling tell you if somebody wants to sell it to you for measly $25K?
In any case, by keeping your budget a state secret, you are doing yourself more harm than good.
Let me show you a different perspective. Tell your vendors your budget. Just like that. Up front. In your RFP documentation, or on your first meeting. Whichever comes first.
What good does it do to you? Here are a few quick ones:
- If your budget is unrealistically low, your vendors will tell you.
- If your budget is low, and you can increase it—here is your chance! If there is room for it, it is much easier to increase the budget before the project begins, than in the midst of it. During the project, a budget increase with no scope increase is frowned upon as it indicates poor planning.
- If your budget is low, and you you cannot possibly go any higher, then at least you know you can’t afford it, without spending an enormous amount of your (and your prospect vendors’) time in finding out.
- If your budget is low, you might not need to scrap the project outright. Your vendor can help you adjust the scope, and get the most value from the amount available to you. Then the vendor gets a chance to adjust their quote, and you both win. This might never happen if you keep your budget a secret.
- If your budget is realistic and you know it, here’s your chance to test the vendors. Good vendors will be able to deliver the scope within the budget and commit to it. Bad vendors will rant about it not being enough. Amateurs will bid lower in hope to get your business.
- You avoid those who desperately want to win your business at all costs. When your budget is open, it is much easier to recognize these vendors because it’s much easier for them to quote a below-budget sure-win price.
- You build trust with your vendors. By letting them know your budget, you tell them that you trust them. Of course you can’t trust everyone, but with the money on the table, you’ll more quickly be able to tell whom you can trust, than if it was hidden away.
- You avoid the situation of forcing a vendor into a bad deal due to enormous time investment from their side. Such deals are as bad for you as they are for your vendors.
- You avoid shopping for lowest bid. When your budget is known, you are obviously shopping for quality, not for price, and you make your vendors aware of it. Getting more quality in budget is worth more than delivering less quality under budget.
What’s your point of view?
Vjekoslav Babić is an ERP consultant with ten years experience in the IT industry and six years experience delivering project success on large-scale, high-risk, and international implementations of Microsoft Dynamics ERP solutions. He has project experience in various industries, including telecommunications, insurance, pharmaceuticals, industrial gasses, chemicals, food and beverage, manufacturing, printing, distribution, and retail. He is a PMI certified Project Management Professional, a Microsoft Certified Trainer and holds a number of Microsoft technical certifications. He co-authored the book “Implementing Microsoft Dynamics NAV 2009”, published more than forty articles on business solutions, software development, database design, and internet technologies. He is the author of the NAV Insights column and an Editorial Advisory Board member with MSDynamicsWorld.com, and he frequently writes about Microsoft Dynamics implementation methodologies and project management topics on his blog http://NavigateIntoSuccess.com/. Based in Zagreb, Croatia, he is employed as a consultant at Microsoft.