3 Reinventing project management

Imagine a world in which most projects deliver the outcome that is intended. That may sound counter-intuitive? Projects are designed to deliver benefits, that’s the whole point. However, there seems to be an impossible tension between the ever-increasing number of projects that organizations and governments are initiating – their growing scale and complexity – and the stubbornly poor performance of much of our project management.

There is work to be done. Even though, as we have seen, project management is universal and timeless, the statistics are not encouraging.

• According to research by IBM, ‘44 per cent of all projects failed to meet either time, budget or quality goals, while 15 per cent either stop or fail to meet all objectives’.1
• Geneca’s 2017 study found that ‘75 per cent of respondents admit that their projects are either always or usually “doomed right from the start”’.2

The Harvard Business Review explains:

Managers use project plans, timelines, and budgets to reduce what we call ‘execution risk’ – the risk that designated activities won’t be carried out properly – but they inevitably neglect these two other critical risks – the ‘white space risk’ that some required activities won’t be identified in advance, leaving gaps in the project plan, and the ‘integration risk’ that the disparate activities won’t come together at the end. So 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.3

This last example is particularly disheartening because it suggests that many otherwise good projects that are apparently ‘well managed’ still fail to deliver success.

The reasons for project failures

If we look at individual project failures, there is plenty that seems to go wrong. Let’s take a look at some of the most notorious cases.

Budapest M4 metro

Originally conceived in 1972 as a means for transporting commuters between Budafok (south-west Budapest) and downtown Pest, the decision to build the Budapest M4 metro was made in May 1991 during the first Demszky administration. Nol.hu writes that the project was started without permits, without the consent of owners, without the necessary management and without money. With the exception of the deadline for completing the first section set by Demszky’s successor, István Tarlós, not a single deadline was met.4 The estimated final cost is around 3.5 times the original budget.

In project terms, the Budapest Metro almost feels like an anti-project as it seems to have broken all the rules. No proper project initiation documents (business case, scope, risk management plan), not even a budget and schedule. The Government simply agreed to act as guarantor for the finance. Big projects are often criticized for unrealistic schedules or hugely over-optimistic budgets but the solution is not simply to dispense with these elements. They are essential in framing the resources, the time-scale and what exactly will be built. Without a basic plan any big project will just grow and spread but is unlikely ever to finish.

Lesson: even the biggest of projects needs to start with the basics: a clear purpose and a coherent business plan. Who will do what, by when and for how much, with what anticipated result?

Saint Helena Airport

In 2010, the UK Department of International Development pumped $347 million (£285m) into building an ill-advised clifftop airport on the island of Saint Helena, a remote British territory in the middle of the Atlantic, with a view to boosting the island’s accessibility and untapped tourism industry. Unfortunately, the level of wind shear makes it impossible for aircraft to take off or land safely.5

Success in any project is basically a mix of two things: what you are trying to do (the strategy) and how you are trying to do it (the project management). Government projects may be more prone to failure than commercial projects because governments are sometimes required to deliver projects that no sensible business would ever attempt. However, in this case, the project seems to have failed because of the lack of a coherent, deliverable strategy. a) Was it ever realistic to see Saint Helena as a tourist destination? And b) That question notwithstanding, delivering a practical airport was simply impossible because of the meteorology of the area.

Lesson: Make sure you take time to sense-check the basics – particularly for the most complex and ambitious of projects.

Russky Bridge, Vladivostok, Russia

This project cost an eye-watering $1 billion and can handle up to 50,000 cars a day but simply connects the city of Vladivostok with Russky Island, which has a population of just 5,000. To say the bridge is under-used would be an understatement.

Perhaps it is unfair to signal this project out for criticism. It delivered exactly what was expected of it: an iconic bridge (when something far more modest would have served). Leaving aside the politics of this kind of decision, it highlights the value of good cost engineering and agile project management – two disciplines that encourage those delivering projects to ‘keep it simple’.

Lesson: Don’t deliver an aircraft carrier when a float plane will do; try fixing the problem with a ferry before you build a bridge.

Oil and gas megaprojects

EY’s 2015 ‘Spotlight on Oil and Gas Megaprojects’ reported that 64 per cent of the projects currently under way were experiencing cost overruns and 73 per cent were experiencing schedule delays.

Complex projects often have complex problems. The EY analysis highlighted a catalogue of failings in many of these projects, including:

• poor (or over-optimistic) estimating
• poor contracting practice (which creates an adversarial relationship between client and contractors), and
• poor contingency and risk planning (so the project is subject to disruption from policy and regulation changes, with no mitigation of that risk).

Lesson: Avoid the temptation to pin down a complex project to a schedule or a budget too early. Your estimates will be taken as gospel and the project will be blighted from then on.

International Space Station (ISS)

This orbital laboratory is a joint effort between Russia, Europe, Japan, Canada and the USA. The project was so complex and unwieldy that it was already four years behind schedule when it began in 1998, and its original estimated cost of $17.4 billion ultimately grew to $150 billion. So far, the ISS hasn’t been as much of a success as NASA hoped.6

There are limits to what can be achieved through projects. At the same time, project success is rarely a simple matter of time, cost and scope. Undertaking hugely ambitious projects of this kind is inherently risky, but space exploration is really a 100-year or even a 500-year programme. Programmes – particularly long and complex programmes – are designed to accommodate different levels of success and even failure. The whole point is that these are projects that involve learning by doing and learning from failure.

Lesson: Complex projects are about learning from failure. Fail fast, learn fast.

Boston’s Big Dig

Boston’s grand plan to bury the city’s central highway in a 5.5-kilometre tunnel was budgeted to cost $2.8 billion but ended up costing $14.8 billion. Begun in 1982, it was plagued by escalating costs, overruns, leaks, accusations of shoddy workmanship and substandard materials, criminal arrests and a death. Originally scheduled to be completed in 1998, it was finally completed in 2007. The Boston Globe estimated that the project will ultimately cost $22 billion, including interest – and that it won’t be paid off until 2038.7

Despite the legendary cost overruns, this was a surprisingly well-planned and well-executed project, involving an experienced contractor. It is an example of how difficult and uncertain major construction projects are in large cities. Surprises included: ‘The unexpected discovery of 150-year-old revolutionary-era sites and Native American artefacts was one surprise complication and source of delays, requiring approvals from yet another diverse set of stakeholders, including historical and preservation organizations and Native American groups.’8

Lesson: If you are running major projects, make sure your organization has a strategy for addressing tail risk – the kind of event with a minuscule statistical likelihood but earth-shattering impact.

Energiewende

This is a German energy project aiming to transition away from fossil and nuclear energies (closing all nuclear power plants by 2022) and towards green energies. In reality, the country has not seen its emissions of greenhouse gases fall since 2009. German households, though, have to bear astronomical costs. One study estimates that the Energiewende project will cost Germans more than €1.5 trillion by 2050.9

Energiewende is a great example of a transformational project; one that impacts all aspects of industry and society. The legacy costs of shifting from established energy systems based on nuclear and fossil fuels will always be high and ongoing. Projects like this struggle when viewed through a purely economic lens; once you apply other measures, such as environmental and social capital, the picture changes.

Lesson: You need to have clearly defined the purpose of your project, and what really drives value, before you start.

The pitfalls of entrepreneurship

Similar stories can be found in the field of entrepreneurship. A startup is a project or, better, a set of multiple projects linked to the vision and ambition of the founder. Since its launch in 2009, Kickstarter, the leading crowdfunding platform for start-ups, has hosted more than 409,000 projects, raising more than $3.3 billion. About 147,000 of them, or 36 per cent, have been successfully funded. However, according to Kickstarter’s own statistics, 63.75 per cent of startup projects funded have failed.10

And we are often not just talking about fiascos in terms of cost overruns or late delivery. It is even harder to quantify the unmet benefits, social impact and loss of revenues that result from the massive delays, or failures, caused by poor projects and deficient project leadership – let alone determine whether the initial estimated benefits were actually met.

What needs to change?

So how do we turn these statistics around? And what are the principles that could set the foundations for success?

From project managers to project revolutionaries

First, we don’t need project ‘managers’, we need project ‘revolutionaries’: people in whom the skills and behaviours of project management are embedded and who are as wedded to the end goal as they are to the means of achieving it. Research proves that very few people receive an education that teaches them the tools and techniques needed to define and manage projects successfully.11 As l have lamented, the leading business schools in the world, such as Harvard, MIT, Wharton, Stanford, IMD, INSEAD and the London Business School, don’t teach project management as part of the core curriculum of their MBA programmes.12 And yet we need this understanding of a) what is to be achieved, and b) how to get there, to be a fundamental part of the skills and understanding of the strategists and leaders within the organization. Strategy and delivery (projects) are integrated and mutually dependent, and should be part of executive development.

From running the business to changing the business

Second, we need to recalibrate all organizations by shifting power, resources and budgets away from simply ‘running the business’ towards ‘changing the business’, which is the remit of projects and programmes.

Efficiency gains in business operations started with mass production more than a hundred years ago, and the trend has continued progressively since. Fewer resources have been dedicated to business operations, year after year. Now, in order to grow larger, companies need more new products or more building sites – in other words, more projects.

This is a trend that is reflected in the evolution of the economy. Governments’ and central banks’ economic and monetary structures have a direct impact on the number of projects that organizations can run. The amount of money in circulation in the economy, the availability of ‘cheap’ money (i.e. low interest rates) and the velocity of the money (i.e. the average frequency with which a unit of money is spent) can be indicators of this shift. The more money there is in the economy, the more companies use it to invest in strategic projects. The lower the interest rates, the more companies borrow to invest in strategic projects. To explain this, we can look at the evolution of gross domestic product (GDP) over the past century in the UK,13 making the following assumptions.

• In recession years (negative GDP), companies reduce their spending on projects.
• In years with no GDP growth, nothing changes.
• In years with growth (positive GDP), companies increase their spending on projects.

The impact of these increases or decreases is felt the following year. Figure 2 shows the results of this analysis.

After decades of operational improvements, the opportunity for further efficiencies tends to be incremental rather than transformational. At the same time, the number of projects in organizations – their size, ambition, complexity and timescale – continues to grow unabated. Projects are on the march and, at the same time, the management models on which we used to rely as a basis for designing and running our businesses are now hopelessly inappropriate and outdated.

Yet, according to my latest research, more is to come. Disruptive technologies will accelerate this trend. Robots and artificial intelligence will take over almost all the traditional administrative activities and operational work. Some of these roles have already disappeared or been completely reshaped. Organizations will shift their focus more than ever to projects and project-based work. Projects are the new norm for creating value or, indeed, simply staying in business. We are now in the project economy.

The seven obstacles to project success

My research shows that the traditional functional company’s poor project management skills and the resulting poor project performance can be linked to seven main obstacles.

1 Absence of uniform methods and standard processes

2 Misalignment of organizational structure with the company’s changing reality

3 Lack of appropriate governing structure to support strategy execution

4 Lack of project execution culture, skills and leadership attention

5 Complexity of tracking and forecasting project costs, financials and benefits

6 Inadequacy of systems and tools for monitoring strategy execution

7 Lack of focus

1. Absence of uniform methods and standard processes

The existence of well-defined project management methods and processes – referred to as the project management ‘methodology’ – identifies those companies that have the best chance to consistently deliver project results.

For many decades, companies lacked a common and standard approach for managing projects, let alone a common definition. Projects were often initiated without a detailed business plan. Their costs were not only poorly defined before they started but were not properly tracked once the project began. To make things worse, one department would often launch a new project only to find out subsequently that another department within the same company had launched a similar project. With no uniform methodology or processes, companies were unable to effectively execute and document key aspects of a project.

Alongside this absence of project management methodology, companies lacked a standard way of selecting and prioritizing project ideas – which in project management terms is called ‘project portfolio management’ and is the engine for the change-the-business activities. This includes selecting those projects in which to invest, ensuring that they:

• are aligned to the company’s strategy
• bring enough value to achieve the company’s objectives, and
• are systematically executed until their completion.

It also includes deciding which initiatives to stop. A great example of a project being stopped is the decision by Airbus to stop the production of the largest passenger aircraft in the world, the A380.14 Certainly it was not an easy decision to take after more than fourteen years, but probably the right one.

2. Misalignment of organizational structure with the company’s changing reality

The alignment and the balance of the organizational structure need to reflect the shift towards change-the-business activities. More often than not, management underestimates or completely ignores this requirement; organizations fail to evolve (or adapt) as quickly as the business drivers, and consequently a large proportion of projects fail.

The departments in most functional organizations are not set up to work collaboratively. On the contrary, they suffer from internal competition and a silo mentality. Heads of departments invest in building their own little kingdoms Unfortunately, the largest and most critical projects are almost always cross-departmental.

Cross-departmental – or company-wide – projects in a traditional functional organization always raise the same fundamental questions.

• Which department is going to lead the project?
• Who is going to be the project manager?
• Who is the sponsor of the project?
• How are members selected for a multidisciplinary team in charge of a company-wide project, and how is their dedication to the project secured?
• Who is the owner of the resources assigned to the project?
• Who is going to pay for the project?

To summarize, almost all of the power in a traditional functional organization – meaning resources, budgets and decision making – still resides with the functional/department heads. But the most important projects have become cross-departmental, requiring the sharing of power among other members of the organization. For example, the integration of an acquired company, or a digital transformation, impact almost every business unit and function in an organization, requiring time and resources from most of them.

3. Lack of appropriate governing structure to support strategy execution

Another important reason why traditional hierarchical organizations have difficulty supporting and following up on strategy execution is the absence of the right governing structure. Today’s organizations require a governing structure that includes a body to oversee the cross-departmental projects and provide a consolidated view of progress and problems across the portfolio.

A project management office (PMO), on the other hand, is a small department whose main mission is to follow up and to report on the progress of all projects under its scope. My recent research shows that 52 per cent of companies have an established project management department but only 23 per cent have a project portfolio management office, which is the engine that should coordinate the company’s entire change-the-business dimension.

4. Lack of project execution culture, skills and leadership attention

Many companies lack a clear execution culture, an omission closely linked to the fact that many senior executives ignore the full potential of project management. This is typically reflected in the following ways.

• Project management not considered a core competency
• Absence of any career path for project managers
• Lack of training for senior management
• Failure to link incentives to project results
• Weak culture of accountability
• Inability to tackle cultural differences, silo mentalities and internal competition

5. Complexity of tracking and forecasting project costs, financials and benefits

What gets measured gets done, and what gets measured easily is much more likely to be deemed important. There is no disguising the fact that tracking project costs is extremely cumbersome in most organizational financial systems; measuring the benefits of investments is also a tortuous exercise.

Calculating precisely the time and resources that companies dedicate to change-the-business activities (projects) is a challenge. In most businesses, employees spend only part of their time working on projects and the rest continuing their operational work. A single individual may also work on several projects simultaneously. (The exceptions here are organizations such as consulting firms, which make a living completing projects, or companies that dedicate resources full-time to one specific project.)

Another problem with trying to accurately track project costs is that most companies outsource a portion of the project to external consultants or contractors, often for a fixed price. The method of recording these costs is different to that used to track employee costs. In addition, projects involve investment in software, hardware or equipment, many of which may be amortized by the business over a period of years and which may then be shared with subsequent projects.

Probably one of the biggest shortcomings in project management is the failure to track clearly the benefits delivered by projects. In principle, a solid project management culture should help a company achieve its strategic objectives. Yet, in reality, most of the project benefits as described in the initial business case are rarely tracked.

Finally, the standard annual budgeting cycle of many organizations simply does not correlate with the needs of its projects, which may run for a wide variety of funding periods.

Very few companies create a budget for company-wide change-the-business activities. Some companies forecast project costs by department, but rarely do they develop a budget for projects that are in the best interests of the entire company.

6. Inadequacy of systems and tools for monitoring strategy execution

Company shareholders, boards and even financial analysts rarely demand detailed information about the key projects and change-the-business activities once the investment decision has been made.

Neither of the two most important sets of accounting standards clearly specifies how companies should report on their projects and their change-the-business activities. Both the Generally Accepted Accounting Principles (US GAAP) and the International Accounting Standards (IAS) fail to include a codification topic covering how to account for project costs and how to report project benefits. The closest they get to mentioning project reporting is a discussion of development costs that should be amortized (US GAAP 350-50/IAS 38).

7. Lack of focus

Collectively, the problems associated with how organizations manage their portfolio and the projects within it may be described as a lack of focus.

• Top executives do not know the extent of the portfolio or understand the status of the projects within it.
• Being focused is difficult and requires discipline.
• Closing delayed projects (or those that are no longer relevant or drifting from their objectives) is very difficult, and consequently the number of projects continues to increase.

Moving forward

The fact is that the world will see an increase in project spending – an average $3.7 trillion in annual infrastructure spending between now and 2035 to keep pace with expected GDP growth15 – yet the risk of project failure will continue to be huge, unless organizations and governments embrace advanced project leadership practices.

All is not lost. The good news is that there are many great examples of excellence in project management. The iPhone, the 2014 World Cup-winning German football team, the Airbus, the Panama Canal expansion, the Boeing 777, the Hong Kong–Zhuhai–Macau Bridge or the Renault–Nissan alliance are just a few.

What did these examples have in common? How did they successfully manage their projects? What lessons can we learn to ensure that, in the future, projects are significantly more successful, generate great wealth for the economy and impart benefits to our societies?

In the following chapters I am going to describe in detail a framework that can be used by leaders and organizations at the beginning of a project to assess how well it has been defined and whether it is worth starting right away or needs further refinement. This framework consists of principles that can be applied to programmes, strategic initiatives and any other activities that can be considered projects.

The 10 Principles of Project Success have been implemented successfully in several organizations (small, medium and large) in different sectors across the world, yielding significant tangible improvements both in terms of return on investment and in developing an execution-driven mindset and culture. The organizations include a leading European Bank, a pharmaceutical corporation, government institutions, a global cinema conglomerate with more than 100 theatres in Europe and North America and a US-based corporate law firm, one of the most prestigious in the world.

Let’s start to take a look at how the 10 Principles work in practice.