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The Hidden Costs of Poor Project Management for Your Business Finances

by Arthur Zuckerman

Managing projects of any size is a complex process that requires careful planning and strategizing. Not only is it important to maintain momentum and meet deadlines, but also to stay within the budget and scope, while ensuring employee happiness and productivity.

While this is not an easy goal to achieve, the costs of poor project management can be dire. A lot of it comes down to using the right software, yes, but effective management is also about having good leadership, workflow, communication, and setting clear expectations.

Even so, only about 25% of companies actually use dedicated project management software. 

Let’s take a look at the hidden costs of poor project management, how it impacts business finances and other areas of your company, and what preventative measures you can take. 

Project Delays and Setbacks

First things first, let’s talk about project timelines, roll-out dates, and continuous progress. For a project to move forward successfully, it’s not only important to eliminate roadblocks and avoid stagnation–you have to ensure daily incremental progress as well.

This will ensure that you’re constantly moving towards the roll-out date, knowing that the finished product, service, or event will be up to the standards that the customers expect. The problem with delays and setbacks, however, is that there can be numerous reasons for their existence.

From the complexity of the project to poor talent management and resource allocation, all of these issues can negatively affect your project timeline. What’s more, it’s important to use the right business management software and the right project management tools to organize your workflow. 

When there’s a disruption in the timeline, there’s an inevitable disruption in financial planning and budgeting.

The key to avoiding these issues is to spend additional time in the planning phase. Make sure to carefully allocate talent and technological resources, and map each stage of the project development lifecycle.

Ensure accountability across all teams by defining communication lanes and using the right software to work, track progress, and monitor the project as a whole. 

Resource Misallocation and Reduced Profitability

Resource misallocation refers to any resource that you’re using for the project that you or your team members are not using properly or efficiently. It can be a piece of software, it can be the allocated budget for each team and stage, and it can be an actual employee and their skills that are being misused. 

Whatever the case may be, it’s important to note that any misallocated resource can lead to financial distress and setbacks. This is especially true for physical events and projects that deal with organizing corporate events in the real world–such as conferences, meetups, professional hubs, promotions, and more.

For example, when you’re organizing a physical event, you may need to rent or purchase turnstile gates as a physical resource utilized for access control or security purposes. Inefficient project management may result in misallocating or underutilizing this resource, leading to financial complications and setbacks.

It’s essential to analyze the exact requirements of each team and every aspect of the project so that you can allocate resources accordingly from day one.

Poor accounting

Poor accounting in project management can result in various additional costs. It can lead to inaccurate budgeting and financial forecasting, causing unexpected expenses and cost overruns. Decision-making may be compromised due to lack of accurate financial information, resulting in wasted resources and inefficient project execution. Inaccurate financial documentation and reporting can lead to audits, legal issues, and reputational damage, affecting the project’s future funding and investor attraction. 

Implementing robust accounting practices is crucial to mitigate these risks and ensure accurate financial management, ultimately minimizing additional costs in project management.

Implementing accounting software can effectively address the challenges of poor accounting in project management. By automating financial processes, such software ensures accurate budgeting, forecasting, and expense tracking. Real-time visibility into financial data enables informed decision-making, allowing project managers to allocate resources efficiently and prevent cost overruns. 

With streamlined documentation and reporting, accounting software minimizes the risk of audits, legal issues, and reputational damage. It also enhances transparency and accountability, attracting potential investors and securing future funding for projects. By leveraging the power of accounting software, organizations can significantly improve their financial management practices, mitigate the negative impacts of poor accounting, and ultimately drive project success.

Scope Creep and Rollout Delays

Scope creep is a common issue that can arise from poor project management and resource allocation, especially in the initial stages of the project’s lifecycle. Scope creep is a term used to describe the project’s requirements and deliverables that go beyond the initial project plan. Typically, this issue is rooted in project planning and the inception stages when you’re setting expectations and processes for each team.

However, the effects of scope creep are usually felt much later in the process, when it’s already too difficult to pivot and maintain momentum due to the added workload. While having some amount of scope creep is almost inevitable, you can avoid it by focusing on maintaining momentum at the start of the project.

You can also adopt the DevOps methodology to leverage automation and incremental daily improvements. You can also automate processes outside the direct work of your teams to make organization and workflow more seamless. For example, leveraging finance automation will help with ensuring a steady cash flow throughout the project so that you can keep funding your teams and daily progress.

This will help the teams stay on track, while automation allows them to focus on more complex tasks.

Constant Rework and Quality Issues

Reworks are some of the costliest types of setbacks. If you’re a project manager, you should do everything you can to avoid them while retaining work quality and meeting expectations. Should you fail to manage your people properly, or if you do not set clear tasks and expectations, you run the risk of having to rework parts of the project regularly.

You have to make sure that you’re keeping project expectations clear and that you’re checking in with your teams regularly. Make sure that you have daily standup meetings to define daily tasks, deliverables, and expectations. 

Address any issues for the day and make sure that everyone understands their roles and responsibilities for that particular set of daily tasks. This way, you’ll keep quality and productivity high while avoiding unwanted reworks. 

Communication Breakdowns

Efficient and effective communication is the key to staying on budget, but it’s also crucial for employee satisfaction and morale throughout the project. Make sure that you develop clear vertical and horizontal communication lanes so that all team members know how to communicate effectively with each other and the higher-ups.

It’s also important to practice good communication with clients and stakeholders to ensure proper financial backing and feedback. Automation comes in especially handy here, as you can use automated invoice processing to get paid on time by your clients and backers, ensuring cash flow.

You can also automate access management to your projects and grant access to backers and stakeholders so that they can monitor the performance and the status of your project. 

Managing Stakeholder Dissatisfaction

Lastly, stakeholder dissatisfaction is another problem that can ruin entire projects and cause financial stress for the company. Your project stakeholders can be your clients, customers, and investors, all of which will determine the success of your project upon release.

If you’re receiving financial backing from investors, you need to be able to produce accurate project reports and projections and to prove that you’re able to meet deadlines as well as their expectations. Make sure that you have regular stakeholder meetings to showcase the progress you’re making and to take feedback early in order to avoid having to go through costly reworks down the line.

Be sure to keep up with your contracts and obligations, as well, and manage existing and upcoming contracts efficiently. You can expedite this process significantly and reduce the risk of errors with contract management software that will allow you to create new contracts quickly, manage them, and get them signed to ensure consistent cash flow.

What’s more, take your project public on forums and social media and keep your audiences and customers in the loop. Engage them in meaningful conversation around the products or services you’re developing, and ask for feedback and their honest opinions. This will ensure that you’re developing for the people and their needs and save you the costly reworks and updates post-launch. 

Over to You

Poor project management can have dire financial consequences for small and medium-sized businesses, but the long-term ramifications go far beyond financial strife. If you’re not careful and if you don’t set up an effective project management process in your company, you risk losing talent and disappointing your customers. 

Now that you know what’s at stake, be sure to avoid these common pitfalls by empowering your teams, setting clear expectations, and using the right technology to boost productivity.

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