Alpha Company has implemented a plan whereby functional managers will be held totally responsible

Holding functional managers totally responsible for all cost overruns against their original estimates and requiring them to cover the cost overruns from their budgets, rather than the project budget, has both advantages and disadvantages. Here's an overview of both sides of this approach:

Advantages:

1. Accountability: This approach promotes accountability among functional managers. When they are responsible for cost overruns, they are incentivized to make more accurate estimates and control project costs.
2. Improved Estimation: Functional managers may invest more time and effort in improving their estimation processes and ensuring that their cost estimates are realistic and accurate.
3. Cost Control: Functional managers have a direct stake in controlling costs and ensuring that the project stays within budget. They may take proactive measures to prevent cost overruns.
4. Resource Allocation: When functional managers bear the cost overruns from their budgets, they may become more judicious in resource allocation, ensuring that project-related expenses are carefully managed.
5. Transparency: This approach promotes transparency and clear accountability within the organization. It is clear where responsibility lies for cost management.

Disadvantages:

1. Risk Aversion: Functional managers may become risk-averse and hesitant to take on projects with even a slight risk of cost overruns, which could stifle innovation and necessary projects that carry inherent risks.
2. Inefficient Resource Allocation: The approach may lead to inefficient resource allocation, as functional managers might prioritize cost avoidance over strategic projects that could bring long-term benefits.
3. Interdepartmental Conflicts: This approach could create conflicts between project managers and functional managers if disputes arise over the causes of cost overruns.
4. Reduced Cross-Functional Collaboration: Functional managers may be less inclined to collaborate on projects if they bear the full financial burden of any cost overruns, leading to siloed operations.
5. Budget Constraints: Functional managers' budgets may become constrained, limiting their ability to support necessary projects and causing them to make budget cuts elsewhere to cover cost overruns.
6. Potential Inequity: The approach may be perceived as inequitable, especially if cost overruns are caused by factors outside the control of functional managers, such as external market changes or unexpected project issues.
7. Short-Term Focus: Functional managers may prioritize short-term cost control over long-term strategic goals, which could hinder the organization's growth and development.