What to do when no more financing is available for a project in PMI

Question

I wonder what would be the formal procedure and step according to PMI when you realize that your project ran out of money and no more financing from client is available?

I think no other alternative to terminate the project, but project manager is not accountable for that decision.

According to PMI, what should be the next step, and what should the project manager do after once he/she monitored costs, and he/she determined that the project was not more achievable.

Should the PM manager write an issue in the Issue Log and report it to the sponsor, and let him/her take the decision?

I have been googling for this scenario, but no success found. Can you point out a reference in the PMBOK, process or a PMI article to read about it please?

Answer 1

The PMBoK is a body of knowledge guide. It is not even THE body of knowledge. It is not a methodology and it will not "tell" you what to do. You will, however, find the basis of information you are looking for in the PMBOK in Integration, Cost Management, Stakeholder Management, and Risk Management. It talks about funding, securing funding from stakeholders, monitoring the funds, reporting on the variances, capturing those variances in your risk management, using contingencies, and of course closing the project. You will have to connect the dots because, again, the PMBOK is not designed to do that.

To answer comment: I cannot speak for how PMI collectively would answer your question but I can provide what I would do in your situation. First, there is a dependency on the type of contract you have. If a firm fixed price type, the lack of funding is irrelevant assuming they funded you and are paying you the fixed price agreement and assuming there is no scope creep. If those two assumptions are true, you continue working until you have provided your scope per your contract.

If T&M or Cost Plus, as the PM I would have made known the funding risk as early in the project as possible, i.e., when I knew it, and begin the process of asking for more funds. If the ask was rejected, I would--again, as early as possible--start recommendations on descoping the project in order to fit what remains. If the customer refused to even consider this, I would inform them of the date funds run out and when my team stops work. On that date, I would stop the work, invoice whatever remains in terms of what they owe me, perform other contract close out activities, and then start my next gig.

Answer 2

I believe that PMbok is based on the assumption that the PM is accountable for all decisions - or at least the assumption that the PM has the absolute authority to close (cancel) a project at any time. This is not realistic, but it is the PMBOK answer.

Realistically speaking the PM has the responsibility and authority to inform stakeholders of any risk to project completion. Lack of funding is one of those risks. If the project is no longer funded, then that should be communicated quickly to sponsors and stakeholders, along with a revised project plan to close out the project.

Answer 3

Ok - my suggestion is to forget about PMI documentation and think about some common sense solutions.

Some questions to be asked:

1. Is the project fixed scope or time and materials? If fixed scope - then your firm is on the hook unless you can get customer sponsorship for changing the definition of success and closure. If time and materials - what does your contract say about termination?

2. Communication - is this a "projected" out of money an "oh crap" moment and you are in imminent danger of doing work with no payment? If it's projected -then start communicating internally to your management now and work on an approach to present to the customer. If it's an "oh crap" moment (which it sounds like from your comment on another answer)- then prepare for professional pain (and questions like - why didn't you alert us earlier?) and communicate status today to your internal management.

3. Do you have subcontractors? Can you change their scope or ask for cost reductions of XX%?

Essentially - you have a number of solution areas to explore, including: a. potential contractual language to deal with the situation b. internal funding to cover gaps in your scope c. team reduction to close up the project d. cost reduction (subcontractors, people, etc)

This is never fun - but actually pretty common. In all cases I would be prepared to answer tough questions about why monitoring wasn't in place, root cause analysis of what happened, etc.