The Cost of Troubled Projects

 
 
By J. LeRoy Ward  |  Posted 2009-06-09
 
 
 

See also When IT Projects Go Very Wrong.

Troubled projects afflict organizations worldwide, in both commercial and public sectors, as they regularly experience higher than anticipated costs, unmet schedules and unfulfilled requirements. The high rates of project failure -- particularly among information technology projects -- often has an impact an essential business strategy and operations. Study after study details bleak project results, while government reports and company case studies offer specifics of unsatisfied stakeholders from project outcomes. The added pressure from the economic downturn to do more with fewer resources makes these dismal results all the more disconcerting.  However, research and experience show that effective project management can save organizations millions in lost revenue.

Troubled Projects In the United States and Abroad

High rates of project failure have been well documented in recent years. Widely quoted studies from The Standish Group over a several year period show that: 

  • More than half the projects are challenged, usually due to cost or schedule overruns.  
  • Project failures account for 15 percent of all projects.
  • Project success rates comprise approximately 34 percent of all projects.
  • The lost dollar value for U.S. projects in 2002, for example, was estimated at $38 billion, with an additional $17 billion in cost overruns, for a total project waste of $55 billion against $255 billion in project spending.

And, as Greg Balestrero, Executive Director of the Project Management Institute (the largest association of project managers in the world) reports, the rate of failed projects has not changed in recent years.

Documentation from KPMG Information Risk Management found that in 2002, 59 percent of the organizations in the Asia-Pacific region experienced at least one project failure, at an average cost of $8.9 million. Africa, Europe and the Americas followed suit with an average of 56 percent of the organizations reporting at least one project failure with an average cost of $11.6 million.

In 2007, the Economist Intelligence Unit published the results of their survey of 145 senior global executives from different industries on their current and planned IT projects which showed:

  • Twenty percent of the executives reported that over half of their IT projects started in the past two years were late or over budget.
  • Only 13 percent of the executives felt their IT projects had delivered the promised features and functions.
  • Poor project management was cited as the primary cause for IT project problems.

Why the Failure?

Details from organization-specific studies bring the reasons for troubled projects into clearer focus.  For example, an audit of the U.S. Federal Bureau of Investigation (FBI) by the U.S. Government Accountability Office (GAO) determined that the FBI failed to effectively manage its IT investments and spent hundreds of millions of dollars on projects with little assurance they would deliver their intended benefits (U.S. Department of Justice Audit Report 2002). In GAO’s study of 226 IT projects valued at $6.4 billion from 24 federal agencies, it found more than one-third (79) of the projects, deemed critical, had a performance shortfall where they did not meet one or more of the following criteria: 

  • establishing clear baselines.
  • maintaining cost and schedule variances within 10 percent.
  • assigning a qualified project manager.
  • avoiding duplication with other projects.

Examples at the state level provide additional information on why projects fail.  The state of Texas reported that, of the 48 large-scale projects reviewed, project delivery delays averaged 14 months, with cost overruns exceeding $352 million. Contributing factors included: 

  • a general lack of project-level quality control.
  • poor project management. 
  • increased levels of  project complexity (Texas State Auditor’s Office 2003).

The state of Wisconsin’s review of 184 IT projects valued at $292 million that have been started or completed since 2004 determined that troubled projects have cost the state more than $122 million. Lack of project management and oversight were cited as the main cause of troubled projects (2007).

A high IT project failure rate even led the Colorado State Legislature to take the highly unusual measure of passing a law requiring the state government to develop policies on best practices and the verification of project managers and analysts. The law affects major automation system development projects (Digest of Bills 2006).

In response to these overwhelming project shortfalls and failures, companies and government entities have 

•    increased oversight of IT projects,
•    established professional requirements for project managers,
•    emphasized compliance with establishing project management procedures,
•    implemented software tools.

While these actions are positive, the costs and outcomes associated with each remedial action indicate not all of them should be, or even need to be, implemented. Research from two unique sources, the PMAppraise® database and the Project Evaluation System® (PES®), strongly suggest that training on project management best practices is a solution organizations should consider to increase the probability of project success.

The PMAppraise® database, maintained by ESI International, a global project management learning company, contains knowledge and skill assessments of IT project management professionals working for large and mid-sized companies across all industry sectors located throughout the world. PES®, developed by Independent Project Analysis, Inc. (IPA), a project benchmarking company, is a methodology that measures the effectiveness of a company’s practices and procedures in planning, defining, engineering, constructing, and initiating projects.

The previously cited research by the Economist Intelligence Unit and reports of the states of Wisconsin and Texas revealed the lack of project management skills among the IT staff to be the primary obstacle to improving IT project management performance.
Training is one of the chief methods for improving a project manager’s ability to implement a successful project and should be viewed as an investment, not an expense.

According to Mary Ellen Yarossi, Director, IPA Institute, “Best practices have been shown to reduce costs by 10 percent, reduce execution and implementation time by 8 percent, and improve performance by 10 percent.  These project improvements can take a 15 percent rate of return project and turn it into a 24 percent rate of return project. That translates into a 60 percent improvement.”
 
The PES® database reveals that not applying proper project management techniques can result in negative outcomes in terms of significantly higher costs and substantial schedule delays.  The PES® data shows, for example, that projects with a well-defined Project Execution Plan (PEP) shorten the project duration by 14 percent while decreasing cost growth by 17 percent compared to a project with a less well-defined PEP.

The PMAppraise® results show a substandard average score for each of the project management assessment areas. Not surprisingly, the lack of project practices and techniques results in high project failure rates. Increasing a project manager’s knowledge and skills base will enable him or her to apply proven project management procedures and techniques. Undertaking this proactive, cost-saving approach can lead to a higher probability of project success.

J. LeRoy Ward, PgMP, PMP, Executive Vice President, ESI International, is responsible for ESI’s worldwide product offerings and international partnerships. Ward has authored several articles and books including Dictionary of Project Management Terms and PMP® Exam Challenge! He speaks frequently on project management and related topics at professional association meetings and conferences around the world. He is a member of numerous professional associations including the International Project Management Association and the Project Management Institute.