GFOA Capital Planning and Forecasting Practice Test

Choosing to underfund capital projects can lead to a range of negative consequences that significantly impact not only the projects themselves but also the organization as a whole. When capital projects are underfunded, it often results in project delays because necessary resources, materials, and workforce are not adequately provided. This can lead to extended timelines as project managers scramble to find alternative funding or to cut corners to stay within budget.

Moreover, underfunding typically results in increased costs over time. When projects run over budget, organizations may face escalating expenditures due to the additional resources needed to complete the project, inflation on material costs, or the need to pay for expedited services.

Decreased asset quality is another major consequence. When projects are rushed or funds are insufficient, the quality of the final output may be compromised. For example, using lower-quality materials or insufficient labor can lead to projects that do not meet desired standards, ultimately affecting the lifespan and effectiveness of the assets.

In contrast, increased stakeholder engagement, completion of projects ahead of schedule, and heightened employee morale are typically not direct outcomes of underfunding. Stakeholder engagement often decreases if stakeholders perceive projects as mismanaged, while employee morale may suffer due to stress and dissatisfaction stemming from resource constraints in underfunded projects.