It’s astonishing. As many as 8 out of 10 big capital projects fail. They exceed their budgets, blow out their schedules, or fall short of delivering the business case that was the original justification for doing them. Some say that for those involving big data and massive investments, 85 percent don’t produce the results they should.
These failures are about more than a huge loss of investment capital—as if that weren’t bad enough. There’s the poor quality, wasted time, spent resources, and damage to people’s morale. Time and again, owners, investors, and workers watch their efforts fall flat as the project and what it’s supposed to do stalls and shuts down. Or worse still, as things just drift back to “the way we used to do it.”
So, what are the root causes? At first, attention was directed to hard factors, like engineering, accurate design, execution, budgeting, and scheduling. But real-life examples show that even the most accurately designed and executed projects often do not reach their key performance indicators (KPIs). The big thinkers in the field then started focusing on the soft issues, like culture, leadership, and motivation. These are major influencers and contributors to the success of any project, no question.
The fact is, post mortems on that select 80 percent of failed projects almost invariably point to failures in management. By taking a few precautions and stepping up with the right solution at the right time, there’s no reason you can’t be achieving the business case you were promised and have an engaged, successful workforce, too.
Project delivery
Project Management 101 tells us to start by selecting the right project delivery model for the kind of work we’re doing and develop a risk profile that’s appropriate for it. Owners can choose how they want to deliver the project—you can use your own people or contract the work or aspects of it out to others. The choice will depend on your own risk appetite and how much direct control you want to retain and exercise.
Nowadays, there is a whole spectrum of choices for project delivery models. Three of the major groups that are available to owners are: (1) traditional (e.g., design-build; design-bid-build), (2) partnership (e.g., design-build-finance; design-build-finance-operate-maintain), and (3) integrated, where all parties share losses and gains equally. Conferences and discussion rooms are all talking about the benefits of integrated and partnership models, but in reality, these make up less than 10 percent of projects. Far more are still being planned and delivered under more traditional mechanisms.
The risk factor
In a landmark study published in the Harvard Business Review in 2003, researchers Matta and Ashkenas found managers were using project plans, timelines, and budgets to cut the risk that designated activities wouldn’t be carried out properly. What they were not planning for—inevitably—were two critical risks. The first was “white space,” where the cracks and crevices between activities were not being filled in. Sometimes, the activities needed for seamless operations and roll-outs were not even planned for, leaving gaps in the project plan.
The second was “integration risk,” the failure to take steps to pull all the disparate activities together at the end. Matta and Ahskenas say, “Project teams can execute their tasks flawlessly, on time and under budget, and yet the overall project may still fail to deliver the intended results.”
We at Hatch have observed the same effect when we’ve been brought in as an execution team. Our efficiency is often limited because governance and decision-making processes are not defined. Without clear authorizations and approvals, we can’t perform as well as we’d like.
Governance at the project level and beyond
Good, timely decisions are the backbone of any effective project plan. Project governance is about knowing who is authorized to do what. There needs to be a system that addresses how decisions, rights, and accountabilities are determined and assigned between the project team and executives. Ultimately, there must be constant checking that those decisions and choices of direction are being leveraged to the overall good of the project.
While project governance has become a well-known must-have for most projects, very few owners think about how to effectively link project governance to the enterprise risk system (ERM). Without it, it's hard to get consistency on project performance across the board and run seamless reporting at all levels. The C-suite and board-level stakeholders can’t get accurate and reliable data on project performance without being overwhelmed with hundreds of pages and deep technical details.
In order to create effective links between project and corporate governance, the project delivery model should not only be based on the what-is-best-for-this-particular-project approach. The corporate capabilities also must be considered―what the organization can effectively manage.
Capabilities and KPIs
Very often, we see disconnects at the most basic levels, like staff’s own ideas about KPIs not being aligned with those of the project. Small wonder things don’t work well. Some projects don’t take the time to establish long-term KPIs or link them to the corporate KPIs and strategy, so no one is clear about the results they are trying to create.
For big, expensive, and complex projects, it makes sense to retain the best, most experienced people you can find and allow them to set the pace. The public sector frequently doesn’t hire consultants because the project doesn’t have the budget. In the private sector, they often don’t think they need the help consultants can provide. When trouble arrives and they finally call in the experts, the damage is often worse than it would have been had intervention taken place early, when the problem was first detected. Sometimes, the right steps at the beginning might even have prevented it.
Unlike more traditional consultants with a pure business focus, we at Hatch are in a unique position to address issues that can be eroding the success of your projects. Our business is not only creating engineering and execution solutions for your particular problem. We innovate and invent new systems and processes that didn’t exist before, designed specifically for you to improve performance both at the project and corporate levels.
With the right attention at the right time to project delivery and risk distribution, governance, properly thought-through capabilities and KPIs, we’ll walk the path with you to more successful outcomes. Your projects will move out of the failed 80 percent and into the successful top 20, not just more often, but always.
