Question

Projects are often underfunded in the concept stage because:

a. There is complete trust in project managers by top management so more resources can be asked for at any time.
b. The project's top management sponsor is too influential.
c. The project's goals are too clearly defined.
d. The project requirements were deliberately understated.

Answer 1

Underfunding of projects in the concept stage is often a result of underestimation of the project's demands and constraints. Startup firms face the risk of imperfect information, but through personal interactions with investors, they manage to secure faith in their projects.

Step-by-step explanation:

Projects are often underfunded in the concept stage due to several reasons, but one key factor is that the detailed planning process and personnel involvement are frequently underestimated. Clear timelines and project buy-in are essential, but without dedicated staff and sufficient funding, staff members are stretched between competing priorities, especially when their own programs face funding threats. Moreover, in startup firms, angel investors and venture capitalists shoulder the risk of the early stage by getting to know the managers and business plans personally, thereby offsetting the challenge of imperfect information.

The underfunding issue might be attributed to the misconception that project requirements are over-stated and therefore resources are deliberately understated to compensate. A poor detailed design, due to insufficient resources, can ruin a good design concept. Hence, it's critical to secure proper budgeting early on to ensure the project's success.