In the previous article we have discussed how to handle project timing and delays. But in business and digitalization, there’s an additional pressure: the budget. Often set nearly in stone, it somehow manages to stretch out, leaving you in the uncomfortable position of asking your CFO or CEO for more money. This puts them in an even more awkward position—while the project can't fail due to the investment already made, extra funding was never part of the plan.
Budget overruns are a common challenge in HRMS projects. Unlike project delays, they are relatively easier to handle if you are aware of the risks. Most of the factors leading to budget overruns must be addressed before signing contracts or starting the project. Here are some of the main reasons, along with strategies to keep costs under control
1. Licensing miscalculations
Many companies underestimate the cost of software licenses, especially when considering future scalability or additional features. HRMS platforms often have multiple licensing models that may not be intuitively clear even after signing the contract. This is true for both CAPEX and OPEX licensing agreements.
Mitigation:
Carefully review all licensing options and potential costs before making a purchase decision. Include provisions for future growth/scaling in your budget estimates. Are you planning to open a new office in a new country next year? Account for that. A helpful tip is to request a pro forma invoice early to ensure that the numbers in the quotation actually match what you’ll be asked to pay.
2. Miscalculations in support/upkeep costs
Ongoing support and maintenance costs are often underestimated, leading to budget overruns down the line. This can be especially problematic for CAPEX-based purchases, as support policies can be (intentionally) convoluted regarding which services are included and which are not.
Mitigation:
Factor in the full lifecycle costs of the software, including support and updates. Consider negotiating a fixed support cost with the vendor during the initial contract. Items such as software customization, legislative updates, and infrastructure renewal should all be accounted for before the project begins.
3. Unexpected costs from consulting/project management
Hiring external consultants or project managers can lead to unexpected expenses. Even the best consultants may struggle to provide an exact estimate of hours, whether they are third-party or the technology provider.
Mitigation:
Ensure all consulting fees are clearly defined in the project budget. Consider using in-house resources where possible to minimize costs. Above all, establish billing thresholds and/or monthly reporting to track spending versus project progress. Dividing the project into multiple stages with clear budgets and deliverables for each is the most effective way to control these investments. Another tactic is to agree on a fixed monthly fee with a fixed amount of hours, which can be transferred from month to month.
4. Hidden customization/development/integration costs
Customization, development, and integration costs can quickly add up if not carefully managed. Whether it’s adding a few custom fields, creating new reports, or developing API links, you can end up with a hefty bill. This area is somewhat similar to consulting costs, as developer hours are expensive and difficult to forecast. Also, many vendors prefer to leave integrations to 3rd parties rather than doing those on their own.
Mitigation:
During project planning, ensure that all data flows, especially between systems, are accounted for. Request a detailed cost breakdown from the vendor for all customization and integration work before the project begins. Be wary of “hidden” costs not included in the initial quote and statements like “yes, we can easily integrate with that system.”
5. Poor initial vendor selection
Choosing the wrong vendor can lead to unexpected costs, either due to poor performance or the need to switch vendors mid-project. If you’re implementing an HRMS for a short period (e.g., 2-3 years), this may be acceptable. However, there’s nothing more frustrating than spending 2-4 months implementing a solution only to realize that you need to start over in another six months.
Mitigation:
Conduct thorough due diligence when selecting vendors. Consider not just the initial cost, but also the vendor’s track record, support quality and scalability. Ensure you’re honest about your “vendor maturity level” before committing to the project. Ask yourself: Are you a safe customer for the vendor? Will they prioritize your business? Reach out to other customers who’ve already signed on with them to gain insights. Also, try to have a minimum commitment period or similar way to ensure that you can wiggle your way out of contract after 3 months or similar. Best combined with have a 2nd choice you can transition to.
6. Scope creep
Scope creep can inflate costs as new requirements are added throughout the project. This is closely related to and leads to extra costs from points 3 and 4. Following the initial agreement, most scope changes are likely to cost something extra.
Mitigation:
Refer back to the original project scope regularly to ensure that new requests are necessary and justified. Implement a change management process to handle any scope changes formally. Some of these changes are going to be critical, so they should not be ruled out completely but they shouldn’t be left uncontrolled either.
7. Underestimating training and change management costs
Failing to budget for training and change management can lead to a lack of user adoption, requiring additional resources to address. Creation of internal documentation, for example, can be a cost item, especially, if it needs to be available in multiple languages. Employee trainings are mostly done during their work hours, which can effectively be seen as a cost item, as they are not performing their regular duties.
Mitigation:
Plan for comprehensive training and change management from the outset. Include these elements in the project budget and timeline, as well as any additional resources you will need to make a smooth go-live. Work with your colleagues to ensure that they understand the needs and responsibilities during the final stages of the project. Fortunately, most of the companies today are implementing modern OPEX-based solutions, which have a rather straightforward pricing and cost structures. You still have to worry about time but the budget issues are rarer to come by.
In summary
With this guide, hopefully, you and your team can better navigate the common pitfalls of HRMS implementations and steer your projects to a successful, on-time, and on-budget completion. We’ve seen firsthand how these strategies can turn around a struggling project, saving both time and money, even at a later stage.
Here are 3 bonus mitigation tactics:
Locate the biggest time sinks
Identify and address the most significant time drains in your project. This could be anything from inefficient processes to unresponsive team members and deal with them sooner rather than later.
K.I.S.S. (Keep it simple, silly)
Complexity is the enemy of efficiency. Simplify processes and requirements wherever possible to keep the project on track and within budget.
Ask for help
If your project is struggling and you are not sure why – ask a 3rd party or a colleague to run a small audit of the project status. Sometimes a fresh set of eyes is all you need to identify the resource drains and fix them.
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