How do I talk to a client about budget overages?
The different ways to address lost budget
A fellow project manager that I know who also works in the industry came to me recently with an issue: “What do I do when I feel like we’ve wasted some of a client’s budget?”
No project manager wants to think about this possibility, but the unfortunate fact is that it sometimes happens. You have your developers go down the wrong path, you find out a requirement was misunderstood, or you realize mid-development that your chosen solution just isn’t possible.
In the professional services and agency world, the model is often very cloak and dagger. You would hide the tasks in other buckets of time. If there was work that had a more positive and tangible outcome, you would buff up how much time it would take in comparison to other tasks.
I’m not a fan of this. I believe in partnership with clients and being upfront. Surprisingly enough, this usually has the best outcome. Instead of trying to hide away the issue, go to your client hat-in-hand and explain the situation.
By being upfront about potential pitfalls you take away the risks that come with deceiving a client. In a worst case scenario, your client is not accepting of the overages, your costs are absorbed, but you’ve built trust at the least. In a best case scenario the client understands the overrun of costs and is willing to provide additional budget.
Confronting your client about the budget
Getting the right information
In order to best address budget problems, you need to first ensure that you have all of the information.
- How much will this cause the budget to go over by?
- What caused the budget to have been wasted?
- How much of the work done is unusable?
- What are the next steps forward?
Once this information has been gathered it needs to be brought to the client.
Discussion with the client
After obtaining all of the necessary facts, the hard part is bringing up the budget with your client. Ideally you already have a regularly scheduled call, but if not set up a meeting to discuss the current state of the project. After any relevant updates for the project, bring up the issues around the budget.
Trying to sugar coat the issue is always very transparent and should be avoided. Be very direct and walk your client through the story of the current situation. Give them the information that you have and explain how you propose moving forward.
The final piece of the conversation is having a frank discussion with your client about providing more budget. If you’ve been working on cultivating a relationship of honesty and partnership, and have chosen the right clients, this becomes significantly easier. Be clear about the implications and what you expect from your client, often times if they won’t be able to cover all of the costs, they will be willing to split some costs with you.
Ways to prevent lost budget in the future
The most important part of a budget issue, or any challenge for that matter, is learning from the mistakes that were made. This is often done in a post-project review, but regardless of your process you need to ensure that even if this happens early in the project, the knowledge is retained for a review.
In addition to using these lessons learned to improve your own processes and ensuring that these waste areas do not occur again, it is also important to share these findings with your client. Put yourself in their shoes and think how you would feel if your vendor (whether you chose to help them with their costs or not) came to you after a project to inform you how they intend to do better next time. It is showing a degree of trust and openness with your client that is refreshing in the modern development age, and is a great way to build that relationship in the long term.