In my article this year in May (Why projects in distress are rather written off than recovered) I described my impressions and considerations about restraints to refer to neutral and competent help in distressed situations. Failure culture is actually one of the main causes for distressed Projects and especially for ongoing or repeated project crisis, and therefore subject of my article here.
Different treatment of crisis situation at companies vs. projects
When companies are in trouble it is obviously a matter of course to bring a crisis-proven consultant (“Turn-around Manager”) on board to apply leverage with his independent insights without mind cuffs and get the company going again. However at troubled investments and distressed projects, even if they are immensely expensive or strategically important, the accountable managers unequally do harder to confess the fact that they are tied up in dangerous waters which they are not able to get out by own means and their project management without significant losses. To all instants and purposes this seems not understandable, as a failed or cancelled project leaves no value to anybody; it’s just an expensive write off, isn’t it? Why then, with the same matter of course, don’t they instead ask an experienced external professional how to yet safeguard at least some benefits and ROI at the troubled project?!
After the broadcast of my article in October I received a lot of feedback and intensely discussed with many colleagues and clients. I now would like to summarize the results here, and to keep the discussion stimulated widely spread. Ideally I’d like to consolidate feedbacks here to provide the information to all participants and interested people. Therefore I’m happy if you adopt my stimuli from the various media and then use the comment functionality here for an intensive, multi-level discussion.
So, what findings about the treatment of projects in distress did I manage to collect?
The reasons for serious problems at projects as a matter of fact are usually of a quite simple nature. What seems to be trivial for my as an expert, is obviously a widespread mystery in practice: Always and everywhere it’s the same, well known, basic mistakes that happen. In certain melanges they then lead to the calamitous vortex that threatens the project to be absorbed. And those who steered it into this situation probably won’t find the way out – if they had seen the peril they obviously wouldn’t have gone there at all !
There are cultural differences dealing with the crisis situation. American/English owned companies tend to react much more willingly and faster to analyze, pinpoint and eliminate the causes than German companies do. In Germany the loss of face seems to outweigh the economic success – very irrational and expensive !
For the same reason the former also ask for competent, external help much more early. If you don’t have the competence for resolution in-house you simply buy it. That’s more efficient and effective, and as we know just in crisis situations time is money !
Corporations behave different compared to medium-sized companies. In big organizations project management processes are increasingly mature and well documented, consequent application however depends on the project manager’s individual qualification and the management’s priorities. When problems appear often responsibles‘ first look is on their own careers. Issues are dismissed, whitewashed or not reported more often. In case of doubt they look for a scape goat, if possible not at the own department. Management frequently is not involved enough, learns late about the problems and decides to consequently take countermeasures even later. Because of the companies‘ usually strong financial backgrounds projects are more likely to be cancelled and written off; some do simply fade away if not driven „top-down“.
In medium-sized companies management mostly decides faster and more consequently – well, it matters to their own money. Having not enough corporate PM capacitiy the project leads have (too) many projects to look after in parallel and are deeply involved in functional work on top. Project Management as a discipline is rarely mature and well-marked. Moreover established corporate culture and a market position free of sorrows for decades have often built a very functional, product oriented way of thinking, in which the management often has not yet properly anticipated their operational roles in their projects. External advisors are said to be too expensive, to have no clue of the company’s individual business, and to be be a potential leak for corporate internal affairs. Here it’s more the jeopardized halo of the patriarchy that leads to long lasting hope for self-healing and prevents efficient and effective solutions.
At public authorities in many countries problems mostly are pre-programmed „in the system“. Processes and instructions for solicitation and seller selection, like German VOB, are pre-defined in nuclear detail; after that projects are expected to strictly follow the contracts. Project management often does not exist at all or is limited to coordination without authority; mostly it is also contracted to the supplier. The faith in regulations washes clean from all insufficiencies outside the rules and blocks self-reliant initiatives for improvement. It really takes a very prominent “bad case”, highly political and too big to die, and a very prominent external savior from the political environment to make a significant setting the course happen. Let’s not examine his own competence to recover distressed projects…
Projects at corporations and public authorities also often suffer from insufficient staffing of the project management positions. To simplify and rationalize the supply chain they prefer to depend on “preferred sellers” or even contract only with the big (and expensive) consultancy firms – without distinction of the hired resources’ effective quality. Procurement’s price lists and provider’s frame contracts rarely leave enough range for adequate project management staffing. Many responsible department leaders therefore need to put up with what they get for small money – even in distress situations !
Distressed Projects recovery is (almost) always beneficial
But nearly all troubled projects and investments have one thing in common: With a small effort and a little bit of impartial support they could be led to a reasonably successful result – much cheaper than if continued as is ! Bringing project partners stuck in positions back to objectives, and achieving agreement on cooperation with concrete, expedient measures would already be „half of the rent“. Within the project there is mostly the willingness to proceed so, the openness has to take place in the accountable management’s heads.
Now it’s your turn. What, in your experience, are the biggest road blocks why projects are still rather written off than recovered? Write your comment, provide your input about the causes for distressed projects to a discussion of which we all can learn and profit !
As a reaction to my recently published IT case study I received many mails which confirmed my experiences and asked for more examples. That doesn’t imply representativeness, but it shows that such cases are not the exception. Together with representative research about Project Management like the Standish Group Chaos Reports or PMI’s Pulse of Profession we can imagine how much money is burned repeatedly in badly managed projects. Totally unnecessary, as again shown in the following case from my practice:
The case:
An SME plant engineering company, after decades of uncontested market leadership, faced a growing low-price competition from foreign countries since some years. The order books were still well filled; the firm was comfortably equipped with private capital. Still customers increasingly discussed prices and didn’t accept delays at the contract fulfilment any more. The company had invested in several R&D projects for retaining technology leadership to differentiate from the price fight and to decrease product costs. Most of them were far behind schedule and over budget. In addition clearing and settlement of contracts were slowed down repeatedly in own plants, at suppliers and during installation.
The management already had engaged a number of consulting firms to perform rationalization and process optimization projects. But it took until a key product development project with a schedule delay of 1½ years was jeopardized to completely loose its time-to-market and therefore its ROI that management determined to conduct a project revision and recovery action.
My expert assessment’s findings:
After roughly four weeks my diagnosis was firm. This is the short version:
In product development top-class engineers were working in multiple projects at a time, led by chief engineers who had special expertise in the specific development field, but did the project management by the side and without explicit education. Their focus naturally was on the technique; problems seemed solvable as long as time and money did not matter. In the Steering Committee there was no agreement on priorities of the goals “unchallenged technology” vs. “product cost cuts”.
Instead of giving direction by decisions, they issued increasing caveats, and swallowed increasing surplus cost for a long time. In the projects development phases and prototypes frequently were delayed, personnel and machines for tests and dry runs were ordered, cancelled, and then were not available for the new dates, etc. “Lack of resources” was the prevalent opinion, but in fact there was a lack of leadership and of a reliable planning and control, spiced with overload and inefficient multitasking.
With a clear, unambiguous scope many tasks wouldn’t have led to conflicts, the majority of the tests could have been conducted in the laboratories prior to building expensive prototypes, and thus could have eliminated a lot of reservations and risks upfront. The Steering Committee could and should have intervened much earlier if they had had a proper reporting and a sense for their own project responsibility.
The complete lack at all levels of project management and understanding for project roles in R&D prompted similar deficits at the company’s delivery projects.
Root causes are in the corporate project management culture
The project leads there had the difficult task to coordinate the assembly in the P&L responsible plants, the shipping, and the installation onsite at the customer without having real competences and access to resources. Sales, driven by commission interests, often threw badly cleared orders and unrealistic delivery promises over the fence at the projects. At the installation sites, in particular with international orders, regional sales interests, mentality or working habits frequently spoiled fulfilment to plan. Suppliers and customers often had a weak organizational maturity to achieve provisions as planned. Thus many projects were “deeply red” already at order confirmation; the involved units’ own lives prevented from targeted project management, and their individual striving for profit made an overall optimization of project margins impossible.
The conclusion was that in both areas not the project leads and teams were the root causes for the misery but insufficient sensibility and recognition for project work and management in the entire company. Besides recovering the R&D key project I therefore had to initiate a successive change in the organizational project culture, away from functional thinking in products towards a holistic customer focus in a project-driven business. (This btw. nicely shows the strategic business component in my professional work …)
The first could quite immediately be managed with some organizational measures, some fundamental decisions about the project’s targets, and a little grab in the project management processes and tools box. After roughly half a year the project was completed with a marketable result; a follow-up project was initiated to further improve the technology.
The project’s distress total balance:
Delay ca. 8 FTE x 1,5 man years = 650,000 Euro
Effort until completion another 8 x 0,5 man years = 200,000 Euro
Effort for revision and recovery ca. 30,000 Euro
or in other terms
Surplus cost in total ca. 880,000 Euro (planned budget 750,000 Euro)
Revenue loss ca. 200 units not built/sold in 1.5 years = 60 Mio. Euro
The company’s “cultural change” is still going on, after management had struggled hard to acknowledge its necessity. Culture is something that has grown and is established, habits of thinking and acting cannot be changed that easy. But if there is to be profit again in the corporate balance instead of a red Zero, if with customer orders (= projects) profits are to be made instead of only turnover, then this effort is a strategic imperative and economically reasonable. To wait would mean to further lose money and market share.
Unfortunately there are only a few “before / after” researches available about the value of proper project management practices for the executing organizations, or what impact an undervaluing by the decision makers has. But a case from my practice (not a unique one !) may underline how much money often is burned by ignorance:
The case:
A software company had sold a fixed price project for implementation of a software system. They were now searching for an „execution“ project manager due to lacking own available capacities. On request I assessed the job’s requirements and complexity (Project Profiling) and suggested a qualified colleague from my network PM-Professionals.eu. The initial assessment meeting showed a “perfect fit”, only with the daily rate we could not come to an adequate agreement that would have made “economic sense” to the company. As a result a project leader was hired for 150 Euro per day less, well knowing that his qualification was lower.
I had the general manager consider that he had calculated the effort of project management too low, and I offered to conduct a Project Health Check for free after a half year of the project’s course.
Inventory review after six months:
My audit after six months discovered significant delays in project progress caused by underestimating the effort of program coding, breaks in resource planning and customer provisions, unforeseen issues with the interfaces, and latent, badly managed disputes about scope and deliveries. The atmosphere already was tending to withdrawal and safeguard positions. More trouble was ahead with the first testing milestone for the complete system as it was not yet ready.
The result:
In bare figures it looked like this:
Savings with the project lead 6 months x 20 work days x 150 Euro = 18,000 Euro
Project delay 6 weeks x 6 FTE, ca. 600 Euro/day each = 108,000 Euro
Penalty at missing the integration test milestone 100,000 Euro (probability without recovery ca. 80%) = risk value 80,000 Euro
Calculated surplus effort for recovery ca. 4 weeks additional 4 FTE = 48,000 Euro plus my salary 24,000 Euro.
The conclusion:
The decision to engage a cheaper, but not sufficiently qualified project manager therefore had set the company back 90,000 Euro already after half a year. To meet the hard milestone and avoid the penalty there were another 72,000 Euro. With respect to the risk value of 80,000 Euro and further delays to be expected without immediate recovery this was probably an economically reasonable option. In total surplus cost / margin loss of 162,000 Euro due to inappropriate saving on the wrong things at project start ! I did not ask how much project margin the software company had initially hoped for …
Very rarely there is a chance to conduct such an audit „on announcement“, because only very few executives want to show the weakness of making mistakes transparent. But the example shows – to my experience representatively – how low good practice in project management is still valued, and that a good project manager cannot cost as much as money is burned without him.
Imagine a company gets into distress, writes losses for a long time and is threatened to fail. What would a responsible entrepreneur or manager probably do to avoid insolvency? He acquires counsel from experts, purchases a restructurer, tries to save what is left, the turn-around. How about Project Recovery…?
With distressed projects it’s totally different
Now imagine the majority of troubled projects, which write massive losses, exceed their schedules by far, are threatened to not meeting their objectives and to be written off. What will many of the managers in charge of these projects do?
Having to admit failures is the biggest obstacle to rescue
First of all it is hard for them to admit that not only the project lead and the team but they themselves have a problem. To hold someone guilty and consider it a question of commitment and effort is the easiest conclusion. To whip on the crew is the most obvious, but mostly least sustainable resolution approach, because short-term performance peaks will usually be followed by higher illness absences and demotivation.
Ignorance and fear of transparency also keep away from recovery
Many managers also shun the transparency of their own responsibility, may be are too far away from the course of events at the project due to a lack of control and communication procedures. Or they seek the causes primarily in technical/professional problems, not in the way how the project is conducted. Well, on executive level project management often is considered to be a commodity, something e.g. every well skilled engineer should be able to do as a sideline. Does he, and does he want to do it, or will he rather naturally turn back to and concentrate on the subjects he knows best when things get rough, and the “unloved” project management will suffer?!
Problems hardly solve themselves
And that is how in most projects in distress all hopes are on self-healing, and they wait too long until the situation is really messy. An expert assessment or project recovery as a resolution approach is fairly unknown to many managers or unimaginable. In many cases a total write-off of the sunk cost and the desired business benefit is preferred over involving the management early in responsibility and purchase an experienced restructurer – from external, because it is proven that internally there is no working resolution at hand. How could this person cost a fortune compared to what will be burned if the project is continued as is or even fails?!
The earlier you act, the bigger the chances
The lines above only describe the “general” part of causes why troubled projects often get to where they are. In addition there are actually many industry or project subject specific reasons which I come across in my expert assessments all over again. It is obvious that the chances for project success and return on investment in a project recovery are the bigger the earlier the management determine to do this step. That leaves finally to appeal to them to decide near-term and responsibly !
What are your experiences with this? Join our discussion and enlarge upon the topic. I’m looking forward to your comment.
Great things coming are casting their shadows before. Accordingly I would like to call your attention already now to some important changes in my service portfolio.
The last years have shown that my experience and expertise have been increasingly occupied by expert assessments and recoveries of troubled projects and programmes. This leaves too short time for a broad service portfolio.
That’s why I have decided to even more concentrate on my very special area of expertise. For the many other cases where there is a need for experienced and professional project managers I have expanded my network “PM-Professionals” significantly. All current services will be continued for you under this label and my quality assuring supervision.
The changes will also be reflected in my Internet presence which I’m currently redesigning from the scratch. It’s therefore also time (and for you a final opportunity) to say Good-bye to my “old” website and its broad overview on my service portfolio. I will inform you in time in ca. 2-3 weeks about the launch of my new sites.
Thank you for your past confidence – I’m looking forward to the many great things which I get to go about with you !
Sir Winston Churchill is quoted to say „Some think education is expensive – think about incompetence and ignorance!” Looking at billions of Euros in project budgets every year and still more than 50% of projects failing or achieving their goals only with significant deviations from plan, I feel reminded of these word. And of my “Mission” to implement Operational Excellence in my customers’ projects and project organizations.
It’s a fact that many executives know well about the benefits of good project management, but they do not invest in this skill and its availability in their companies accordingly. Surveys show that still PM is often done as shared time on top of normal duties. Most project managers have immense project experience but no formal PM education, and therefore practice project management within the horizons of their own experience.. This makes project results very individual, as well, and very difficult to calculate. As said: At nearly 50% of projects their value depreciation starts even before the first invoices are written…
A representative case from my professional practice
The situation described above was the starting point of an initiative I was called to advise on and supervise some time ago. The organization delivered brilliant results from the technical point of view, but starting and controlling projects was always a struggle. The management was drowned with all kinds of reports and formats and lacked sufficient information resulting in continuous bad surprises.
We started with an assessment of PM practices at the project ground level through a series of interviews with the project managers and the teams and comparing with the perceptions of the management. Relative quickly we discovered that the teams suffered most from re-inventing the PM wheel with each new order and from pressure that started already at the beginning of almost every project due to insufficient time for proper set up and planning activities. Many basic flaws which infected the whole courses of the projects could be traced back to these findings. The resolutions depended on the project managers’ individual tool boxes and authorities.
Resolution was unexpectedly quick and easy
It didn’t take long to discover 9 major systemic issues in the PM organization to address, nor was it a big effort to convince project managers and teams to contribute to the resolutions which would undoubtedly ease their lives.
Without going into details: We collected all available PM knowledge and successful PM practices that were hidden on diverse laptops, together compiled a standard set of processes, tools and templates needed in all projects. We additionally started an organizational change initiative to implement a framework of roles, responsibilities and PM infrastructure at the corporate level to support project management. The fact that we did this in a joint effort with all players from the project organizational level prevented us from creating unnecessary overhead and promoted buy-in.
The effort was developed incrementally in an “agile” way, so the teams and managers benefited from quick wins with every delivery that was immediately used in the current projects. The initiative, on the other hand profited from experiences made through practical usage, so that it took little time to optimise the results against the requirements of the people and organization. We built our own, consistent way of operational excellence in the organization’s projects. In that phase my role was merely as facilitator and coordinating supervision of the initiative, which was evolving self-dynamically. Everyone involved, from team throughout to management level enjoyed the progresses and know-how transfer adding value to their own skills and personal successes. The projects finally showed better results emerging with increasing delivery to plan and decreasing write-offs, stress and overtime.
What’s next?
In the coming year a further building block initiative is planned to hand over the maintenance of achieved results back to the company and, under the responsibility of the QM department, further development within the organization, including a rendering into the wider enterprise context. I will accompany this as coaching and with regular audits to assure project management operational excellence and quality is maintained. The HR department has been tasked to arrange PM training for the staff, and a group of employees will probably set up a shared service as a Project Office to support the running projects.
To refer back to Winston Churchill: It seems a company can never invest more operational excellence in projects, than it profits from the benefits: efficient and effective resource usage, less risk, conflicts and cost, better achievement of targets and schedules, and consistently reproducible project successes and results… Not to talk about better customer satisfaction and the image gain compared to competition from the new and reliable competences.
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The case:
onsite at the customer without having real competences and access to resources. Sales, driven by commission interests, often threw badly cleared orders and unrealistic delivery promises over the fence at the projects. At the installation sites, in particular with international orders, regional sales interests, mentality or working habits frequently spoiled fulfilment to plan. Suppliers and customers often had a weak organizational maturity to achieve provisions as planned. Thus many projects were “deeply red” already at order confirmation; the involved units’ own lives prevented from targeted project management, and their individual striving for profit made an overall optimization of project margins impossible.
I had the general manager consider that he had calculated the effort of project management too low, and I offered to conduct a Project Health Check for free after a half year of the project’s course.
Having to admit failures is the biggest obstacle to rescue
A representative case from my professional practice
time to optimise the results against the requirements of the people and organization. We built our own, consistent way of operational excellence in the organization’s projects. In that phase my role was merely as facilitator and coordinating supervision of the initiative, which was evolving self-dynamically. Everyone involved, from team throughout to management level enjoyed the progresses and know-how transfer adding value to their own skills and personal successes. The projects finally showed better results emerging with increasing delivery to plan and decreasing write-offs, stress and overtime.