HOW TO MANAGE A PROJECT / PROGRAM UNDERSPEND? 

Re-Posted by Amit Goel on 1st May 2025 

As we approach the end of the financial year, some of us might be experiencing underspending in our portfolio, programmes, or projects. While underspend doesn't automatically signal an unhealthy financial situation, it's certainly not a cause for unbridled celebration either. Achieving appropriate utilisation of funds is crucial, and equally important is ensuring that spending occurs wisely and at the optimal stage of the project lifecycle.

Financial management is a topic close to my professional heart, and today we're delving into the realm of cost variance – specifically scenarios where budgets haven't been fully utilised as initially granted or estimated. This situation can frequently arise in multi-year or large-scale programmes and projects.

While some find financial management an art, others believe it is a discipline. It is difficult for some and is not everyone’s cup of tea. 

While having cash reserves on the books might seem positive on the surface, it begs the question: are we managing our finances effectively? Let's explore this in greater detail. In my project management experience, I've found a four-step approach to be particularly helpful in navigating underspend: 

Step 1: Validate the situation

Step 2: Assess all parameters in your program

Step 3: Recommendations or solutions as per findings from Step 2

Step 4: Implicate solutions and probable outcomes from Step 3

Step 1: Validate the Situation – Is This Really a Problem?

The first crucial step is to determine if the underspend truly represents a concern. A large number of unknowns during the initial stages of a programme or at the beginning of a financial year often necessitates a higher contingency allocation. Therefore, a seemingly large underspend early on might simply reflect prudent initial planning. The key here is context. Depending on where we are in the financial year and the lifecycle of the project, the significance of the underspend will vary, directly influencing our subsequent strategy. Don't jump to conclusions; thorough validation is paramount.

Step 2: Assess All Parameters in Your Programme

Once you've established that the underspend warrants attention, the next step involves a comprehensive assessment of all relevant parameters within your programme. This goes beyond simply looking at the numbers. Consider factors such as:

• Project Lifecycle Stage: As any experienced project manager knows, the spend rate is rarely linear. Early phases often involve planning, design, and initial set-up costs, while later stages might see a surge in implementation, testing, and deployment expenses. An underspend early on might simply indicate that the project is progressing as planned and the bulk of the expenditure is yet to come.

• Scope Delivery: Have all planned deliverables been achieved according to the agreed-upon scope? If milestones have been met with less expenditure than anticipated, this could be a positive sign of efficiency. However, it's crucial to verify that no compromises in quality or scope were made to achieve this underspend.

• Schedule Adherence: Is the project on track with its timelines? An underspend could be linked to delays in certain activities, which might have future cost implications. Conversely, completing tasks ahead of schedule could lead to genuine cost savings.

• Resource Utilisation: Are resources (human, material, equipment) being utilised efficiently? An underspend might indicate underutilisation, which could have broader implications for team productivity and overall efficiency.

• Risk Management: Were anticipated risks materialised? If contingency funds were allocated for specific risks that didn't occur, the underspend might be a natural outcome of effective risk management. However, it's essential to reassess the remaining risk landscape.

• Procurement and Vendor Management: Were there any cost savings achieved through effective negotiation with vendors or more efficient procurement processes? This would represent a positive form of underspend.

• Market Conditions: External factors, such as changes in material costs or economic conditions, could have influenced the actual expenditure.

Step 3: Recommendations or Solutions Based on Findings from Step 2

The insights gained from the comprehensive assessment in Step 2 will inform the recommendations and solutions you develop. Depending on the underlying reasons for the underspend, potential actions could include:

• Re-forecasting: If the underspend is due to a change in the project trajectory or external factors, it might be necessary to revise the budget forecast to reflect the current reality.

• Re-prioritisation of Activities: If certain planned activities can be accelerated or executed more efficiently with the available funds, consider re-prioritising them to maximise value delivery within the remaining timeframe.

• Investment in Value-Adding Activities: If the underspend is deemed genuine and won't negatively impact the project's objectives, explore opportunities to invest in additional features, enhancements, or activities that could further benefit the project or stakeholders. This needs careful consideration to avoid scope creep.

• Return of Funds: If the underspend is significant and there are no viable opportunities for reinvestment within the project's scope and objectives, consider the process for returning the unutilised funds to the relevant financial authority.

• Process Improvement: Analyse the factors that contributed to the underspend. Were there any particularly efficient processes or cost-saving measures implemented that could be replicated in future projects?

• Contingency Reassessment: If the underspend is partly due to unutilised contingency, reassess the remaining risks and adjust the contingency reserves accordingly.

Step 4: Implement Solutions and Probable Outcomes

The final step involves putting the recommended solutions into action and anticipating their probable outcomes. This requires clear communication, stakeholder buy-in, and careful monitoring. For instance, if you decide to reinvest funds in additional features, you'll need to manage the scope, schedule, and resources accordingly. If you opt to return funds, you'll need to follow the established financial procedures.

It's crucial to understand that the implications of your actions will vary depending on the chosen solution. Re-forecasting will impact future financial reporting and potentially resource allocation. Investing in new features will have implications for the project timeline and deliverables. Returning funds will affect the overall financial performance metrics.

A Practical Framework

To help navigate this process, consider developing a concise framework – perhaps a one-page checklist – that outlines the key considerations at each stage, along with potential recommendations and the likely implications of those recommendations. This can serve as a valuable tool for quick reference and decision-making.

As an experienced project manager, you likely recognise that the spend rate of a project is rarely a straight line. The actions planned for the final stages of your project will inherently differ from those planned for the initial phases. If you've found a way to maintain a perfectly linear spend rate, I would genuinely be interested in hearing about your approach and learning from your experience. Managing underspend effectively is a nuanced process that requires careful validation, thorough assessment, thoughtful recommendations, and decisive implementation. By adopting a structured approach, we can ensure that our projects not only stay within budget but also deliver maximum value.

Single page framework that provides recommendations and implications of the probable outcomes