Corporations throughout the world are losing billions in wasted project spending and this waste is being carefully hidden from management and investors. A new global research report shows that one of the biggest contributing factors to failed projects is the lack of alignment of projects with corporate strategy.
A Billion Dollar Problem
The cost of the problem is staggering. A recent example is Royal Dutch Shell on their biggest and most prestigious project, Sakhalin Energy, a Siberian liquefied gas facility. For Shell alone, project costs for Sakhalin Energy doubled from $10-billion to $20-billion (U.S). According to The Times in London the humiliation was even greater because, the Shell chief said, he had not been made aware of the cost increase. The fiasco for Shell is not exclusive. In the IT sector, the results of The Chaos survey from The Standish Group shows that 71% of all projects are either “challenged” because of late delivery, being over budget, delivering less than the required features or they are “failed” because of being cancelled prior to completion or the product developed is never used. This statistic has not effectively changed since 1994.
In addition, in 2004 Pricewaterhouse Coopers found that only a handful of projects ever achieve project success. Their survey focused on a broad range of industries, large and small, in 30 different countries, which represented 10,640 projects, for a total value of $7.2 billion. They found that only 2.5% of global businesses achieve 100 percent project success.
In Canada, project management waste is equally evident. According to The Globe and Mail newspaper, the Ontario government recently paid out $63 million to settle litigation with EDS Canada Ltd. from a failed attempt to create a computer network meant to connect the entire provincial justice system. Furthermore, Toronto’s auditor general says that a police database project called “eCops” that went $10 million over budget was woefully mismanaged.
We’ll never know about the many projects in crisis in the companies in which you or I may hold shares. The reality is that examples can be found from just about every type of organization in Canada and abroad. We’re left wondering what would it take get these organizations to realize that a tiny fraction of their losses is all they would have to invest in order to save millions. Unfortunately, many firms seem willing to pay out millions needlessly on bad project management.
New Project Management Research
The frequency of project failures is something we see quite often and was the key factor driving our research study on project management. We studied over 750 organizations around the world and looked in depth at their project management practices, successes and failures. Our findings indicate businesses are in a crisis with respect to how projects are managed.
The Crisis in Project Management
The research results confirm that many projects negatively impact the bottom-line. Millions are being spent by organizations in project cost overruns. Despite the money being spent on them, these projects are not meeting customer expectations. As well, the wrong internal resources are often being applied to projects – further decreasing their chances of success.
Many organizations set up Project Management Offices (PMOs) as a tool to improve project management. However, the evidence shows these fail more often than succeed. In fact, the research indicated that over 75% of organizations that set up a PMO shut it down within 3 years because it didn’t demonstrate any added value. Project Management Offices cost organizations about $500,000 per year to run. Their return on investment should be positive but it is not.
After reviewing data from these 750 firms around the world, it became clear that tinkering around the edges of project management won’t help organizations work smarter. To get to the root cause of the problem we’ve got to take a broader perspective and look at how organizations approach project management from a strategic level.
In that regard, we were able to use our research findings to develop a number of recommendations to help companies and organizations develop the right strategies to create the environment for successful project management practices.
The Four Things Companies Need to Know to Move From Crisis to Control
There are four key strategies that will immediately make a difference for organizations.
- Ensure all projects are strategically aligned.
- Create a culture that supports a project management environment.
- Implement strategic project management best practices.
- Create a strategic project measurement system.
1. Ensure All Projects are Strategically Aligned
A major reason for project failure is that most organizations do not ensure that all projects they implement align with their organization’s core strategies. In fact, eighty percent (80%) of organizations in the research study had no formal business case for the development of their PMO and seventy-three percent (73%) of organizations identified “lack of executive sponsorship” as being the primary reason for failure of their PMO.
If organizations were to implement only those projects that were in alignment with their strategic goals, their success rate would increase dramatically because executive sponsorship would not be an issue. However, the recent findings show that the majority of projects on the go are not associated with corporate and/or departmental strategic plans. Only thirty-two percent (32%) of respondents said they had a process for prioritizing projects. Therefore it is not surprising that failure is rampant because senior executives are not at the helm to provide guidance, direction and support to projects within their organization. As well, it was found that sixty-eight percent (68%) of organizations had no systematic approach in place to prioritize projects or link them to corporate and strategic goals.
What You Can Do to Align Projects with Corporate Strategy
First, review lessons learned from projects currently underway or completed over the past year to uncover possible success criteria and to determine project prioritization issues. For example, if many projects were unsuccessful because of a lack of resources then resources required to complete future projects should be considered a criterion for determining project viability.
Next, develop criteria against which all projects can be prioritized. Include impact on corporate strategy and customers. To do this, work with a sub-committee of senior management. List all projects along with their goal and strategic alignment. Then try to identify criteria necessary for determining the expected impact each project will have on the organization, its departments and its customers. Rank each project quantitatively and determine its level of priority.
Finally, align projects to corporate and departmental strategic plans, thereby demonstrating how each project’s successful execution will support the corporate and/or departmental strategic plan. Terminate projects that are of low priority or not somehow linked to corporate and/or departmental strategy. This will ensure they stop costing the organization money, resources, time and lost customers.
2. Create a Culture that Supports a Project Management Environment
The research identified a number of reasons why organizations set-up a Project Management Office. These included; more successful implementation of projects (82%); predictable, reusable project management tools, techniques and processes (74%); organizational improvement (66%); help to build a project management-oriented culture (64%) and increased staff professionalism in project management (48%). It is interesting to note some of the more important reasons why organizations should set-up a project management office such as organizational improvement and building the project management culture, were not the top reasons cited in the research. Rather, Project Management Offices were generally implemented for the right reasons yet they failed to deliver. Essentially, they operated at too low of a level and needed to move up to the Senior Executive level so that projects could be strategically aligned.
If a project is strategically aligned and if project management is built into the corporate culture then everyone who works on a project will immediately know what their part is in making the project successful. Staff will not have to locate a PMO to tell them how to manage a project, what tools to use, what templates to use, and so on. Project Management will be a competency embedded into everyone’s role. Much as quality management has evolved over the past 20 years to becoming a competency requirement for all jobs, project management is following the same route.
What You Can Do To Create A Project Management Culture
In order to properly establish a culture that adequately supports a project management environment it is necessary to undertake a change strategy specific to creating it. Business Improvement Architects calls this a Project Culture Initiative™ (PCI™).
A Project Culture Initiative™ requires the forming of a cross-functional steering committee to develop the approach and process for creating the corporate change. This includes the creation of Values and Principles that identify the unique project approach for the organization. A Project Culture Initiative™ will prepare staff for the changes that will be necessary to implement the Project Management and help staff to understand the benefits of the change. Most importantly, a Project Culture Initiative™ educates the entire organization on how to manage the change to a project management environment. This includes working with the project teams and communicating frequently on the new process.
Part of the cultural change will be to create some structure around the management of projects. This includes the development of project methodologies and processes. These will have to be closely monitored in the beginning to ensure they are consistently used so it is important to continue to sell the benefits. Some people will think that the time spent on developing project scope and plan is more work than they’ve been required to do before. Therefore provide them with the support and encouragement necessary to move beyond the initial time requirement. In this way, they will see the benefit that spending time in the initial phases will save during the execution phase of the project.
Stay the course! Understand that changing the culture is a slow process and recognize that this is a journey – it’s never finished. A Project Management Office can be the change agent and must champion a cultural change in how projects will be managed. Therefore, be prepared to evolve, as the organizational needs change. The outcome will be to move the Project Management Office from a “push” department where it is giving information to a “pull” department where people are asking for help, guidance and coaching from the Project Management Office.
3. Implement Strategic Project Management Best Practices
The research identified the strategic priorities of most Project Management Offices and determined that: seventy-seven percent (77%) developed project management methodologies, seventy-six percent (76%) developed structures for their Project Management Offices, sixty-nine percent (69%) identified project roles and responsibilities, sixty percent (60%) developed tools and templates and fifty-four (54%) implemented project management training programs. From these results, it became evident that Project Management Offices were task oriented, not strategic. They didn’t consider lessons learned to be of great importance in their overall mandate.
Organizations take huge amounts of project knowledge every day and throw it away. They fail to retain the knowledge from one project to the next. The type of questions that should be answered includes: “What were the successes from one project that can ensure other projects follow a similar path?” “What were the challenges, issues, risks, etc. that one project suffered that other projects might be able to anticipate in advance and prevent or at least prepare for, should these events occur?”
The overall accuracy of time estimation, resource allocation and budgeting comes from the knowledge transferred from one project to another. However, according to the research findings, knowledge management, though often spoken about, was generally absent in the field of project management.
What You Can Do to Implement Strategic Project Management Best Practices
Knowledge retention is a major benefit to organizations because it contributes to continuous learning and avoidance of repeated mistakes. In order to retain project knowledge that can be passed on as “Lessons Learned” for future project teams, the Project Management Office must hold a formal “Project Close-out Meeting” as soon as possible after a project is completed because, at this point, the knowledge about the management of the entire project is still fresh in everyone’s mind.
The purpose of the closing meeting is to review what happened in the project and what the team and the organization can learn from what happened. The project sponsor, project manager and project team should be in attendance as well as any outside resources and/or stakeholders who would like to contribute their ideas. To ensure that the discussions are kept objective and that everyone’s input is captured, it is preferable for an outside facilitator to conduct this meeting.
The outcome of the project closeout meeting will be the creation of a formal document of “Lessons Learned” for archiving, to be carried to future projects, their managers and their teams.
4. Create a Strategic Project Measurement System
The research identified how Project Management Offices measured their success. Their measurements included projects on time (76%), projects on budget (67%), achieved scope requirements (66%), customer requirements met (65%) and achieved all milestone deliverables (52%). The Project Management Offices chose traditional metrics to demonstrate success, not strategic ones. It is little wonder, then, that the research indicated that over 75% of organizations shut down their Project Management Offices within 3 years because they didn’t demonstrate any added value.
How to Create a Strategic Project Measurement System
The establishment of project success measures will help to provide the senior management team with relevant information needed to make decisions affecting project completion. For example, the presentation of project success measures may convince management to re-prioritize projects or to re-allocate resources.
Project success measures will also provide the Project Management Office with the necessary information to continuously sell the impact the Project Management Office is having on organizational effectiveness. The strategic types of project success measurement criteria should include:
- Ability of the project to be managed within specified quality criteria.
- Ability to meet regulatory requirements.
- Number of resources used versus the number of resources they thought they would use.
- Ability of the project to meet its defined targets.
- Ability of the project to meet all deliverables.
- Successful management of all major issues.
- Customer post-surveys indicate satisfaction with the product or service delivery from the project.
- A successful and problem-free launch.
- Business case was proven through the rate of return.
The outcome of project failure is wasted dollars that steal investor profits and have a negative impact on the organization’s bottom-line. Aligning projects with the strategic goals of the organization is critical for project success and proper return on investment. Superior business performance is dependent on good project management as well as the creation of a culture that supports projects. To this end, senior management needs to contribute more of their time and effort to sponsoring and prioritizing projects on the basis of their strategic fit. When projects are in alignment with corporate goals they will be able to meet profitability targets and generate the necessary return on investment.