Cost of failed projects – is it time to rethink our approach?
13 October 2015
Author: Raymond Poole, managing director of Program Management Information Services Ltd, has over 30 years’ experience in the programme and project management environment. He has acted as project manager on a number of high profile Oracle Primavera implementations in Ireland, South Africa and Azerbaijan. Raymond is a highly qualified expert trainer, having trained and run standard and bespoke project management and related software classes for more than 17 years.
When one talks about failed projects you have to analyse how the parameters for both failure and success have been set up. Not only do projects have a cost overrun when they fail but they also have a negative impact on each of the project team members and all the other organisations involved in those failed projects.
In the Harvard Business Review article ‘Why Good Projects Fail Anyway’, Matta and Ashkenas (2003) discuss how they envisage the current approach to project management where rigid timelines and costs are applicable to highly technical engineering projects, but R&D projects for pharmaceutical or IT do not fit into those confined non-elastic formal structures. They go on to describe a methodology utilising rapid-results.
However, Agile along with Six-Sigma and indeed Lean Management seem to still be eluding the success rates required for this growing profession.
Merrow (2013) of IPA performed a study of mega projects within the oil and gas industry. He estimated that more than 70 per cent of all mega projects fail, where a mega project is classified as one that costs in excess of US$1.5 billion.
It is also commonly known about the cost overruns on infrastructure projects too. However, the costs aren’t always just financial. The seven deaths resulting from the Columbia Shuttle disaster have been attributed to organisational problems, including a weakened safety culture at NASA.
PwC 4th Global Portfolio and Programme Management survey findings
PwC published its 4th Global PPM Survey in September 2014. It had acquired responses from 3,025 individuals from over 110 countries. In the report Mark A Langley, president & CEO of the Project Management Institute states: “It is not necessarily what organisations do but how they do it that makes them successful and establishes their competitive advantage. When it comes to projects, programmes and portfolios, the No 1 differentiator is strategic initiative management. You can’t produce better results without better execution.”
Below in a table taken from the PwC 2014 report one can see that the cause for project failures has not really changed over the past decade. In fact they are almost identical which then poses the question if these are the most common reasons projects fail why has the profession failed to improve upon them?
The human emotional side of projects
“Projects often fail because organisations put more emphasis on rational factors than on employees’ psychological engagement and the cost to organisations is enormous”, so states Hardy-Vallee (2012) in his article on Gallup’s Website about The Cost of Bad Project Management. He goes on to state: “When it comes to project management, most organisations put their practices before their people. They place more emphasis on rational factors, the process itself and less on emotional drivers that could lead to project excellence, like their employees’ engagement with the project and company.”
This behavioural and adaptive approach feeds in to the way in which the management of the iterative nature of projects has to be managed and adapted repeatedly in the overall delivery.
Known unknowns and unknown unknowns, are elements that trigger behavioural and adaptive approaches throughout the planning and rescheduling of any delivery. Another aspect that repeatedly triggers the behavioural aspect is the reaction of humans to the behaviour of others (clients changing scope or objectives during the delivery phase) effecting the project delivery.
Hardy-Vallee goes on to remark in his article: “Multiple studies show that a significant share of projects overrun their original timelines or are never completed. A study by PricewaterhouseCoopers, which reviewed 10,640 projects from 200 companies in 30 countries and across various industries, found that only 2.5 per cent of the companies successfully completed 100 per cent of their projects.
A study published in the Harvard Business Review, which analysed 1,471 IT projects, found that the average overrun was 27 per cent, but one in six projects had a cost overrun of 200 per cent on average and a schedule overrun of almost 70 per cent.”
A McKinsey & Company survey in 2012 further enforces these findings against IT projects. During the above mentioned survey (more than 5,400 IT projects were evaluated) it was stated that after comparing budgets, schedules and predicted performance benefits with the actual costs and results, they found that these IT projects, in total, had a cost overrun of $66 billion, more than the GDP of Luxembourg.
The project management variables
Project management is often presented as the management of three variables. These three variables are sometimes known as the triple constraints. The three most important constraints are time, cost and scope or performance.
What this means is that projects must be delivered on time, within cost and meet the defined scope or customer performance criteria. However the targets or expectation for most projects is that the outcome is balanced between these variables.
Perhaps if project success is simply looked at as a breach of any of the four constraints of time, cost, scope and quality the failure rates will always be excessive. That is to say that just because a project has exceeded these parameters does not necessarily mean that the objective of the project has not been delivered and the benefits may be felt by the stakeholders for whom the project was devised.
An example could be an infrastructure project commissioned by a government that has cost and schedule overrun but still the community are gaining from its completion. The fact that the project breached the constraints of cost and schedule does not necessarily mean it was a failure for the purpose it was designed.
Similarly we could have a project that breaches none of the parameters therefore is deemed to be a success but the market has changed since the original benefits were calculated and is now a failure from the perspective of market penetration.
Project and more importantly programme management is a complex fragile environment that cannot always be controlled from within the organisation’s confines. External factors can also play a role in the success and failure rates.
For more than 60 years various institutions have developed their body of knowledge (BOKs) to provide guidance to the project and programme management profession but even with these BOKs failure rates are at an unacceptable level.
New approaches and different theories have developed as to how to best deal with this emerging profession as the industry grapples to find the utopia BOK.
But perhaps there is a need to start looking at the human behavioural factor. Projects and programmes are governed by individuals who then in turn guide their team members. If one starts with that approach first and then look at whether projects are set-up to fail from the outset due to overly optimistic budgets and timelines given. Maybe senior executives were too optimistic in order to get their projects passed the approval committee.
Projects have always been environments where quick decisive action has to be taken within a phased approach. Successful projects require:
- Realistic monetary budget and timeline set at the outset;
- Clearly defined project scope and objectives with critical success factors (CSF) agreed upon;
- Recognition of internal and external risks to the project;
- Senior Stakeholder commitment and support throughout the project;
- Talented project team members led by project managers who understand the psychological nuances of managing a team to deliver success;
- Adaptive proactive response to the dynamic environment that encapsulates projects.
However, one of the factors that has an immense impact on the outcome of any project success or failure is the ‘Unknown Unknowns’ that inevitably crop up in every project. It is worth bearing in mind what Rumsfeld (William Graham NASA) once stated:
“Reports that say that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things we know we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns – the ones we don’t know we don’t know. And if one looks throughout the history of our country and other free countries, it is the latter category that tend to be the difficult ones.”
Securing control over the known and the unknown unknowns early in the life of any Project will bring a degree of certainty that would not otherwise be present. This inevitably increases immeasurably the chances of a successful outcome. To achieve this the profession must be more adaptive and conscious of behavioural impacts on the project.
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