The Cost of Bad Project Management

When it comes to project management, most organizations put their practices before their people. They place more emphasis on rational factors, i.e., the process itself, and less on emotional drivers that could lead to project excellence—like their employees’ engagement with the project and company.

But forcing team members to adapt to project management processes and procedures makes it more likely that the project will fail. The resulting cost from bad project management is reaching astronomical levels. It represents a significant waste of money, and it poses a threat to organizations that rely on the success of large-scale projects.

Gallup’s behavioral economics research suggests a different, more powerful approach: behavior-based project management. This approach enables project groups to gain higher levels of emotional commitment and performance from their team members, and increased levels of emotional involvement from stakeholders, in a way that improves both engagement and performance.

Behavior-based project management applies the principles of behavioral economics to manage an organization’s emotional economy. More important, it uses scientific research about human nature and the workplace to develop more effective project teams and to enable better project delivery.

The high cost of failure

Project management is integral to the business world. Milestones, kickoff meetings, deliverables, stakeholders, Gantt charts, and work plans constitute the everyday world of most managers, whether they are called “project managers” or not. Given the vast experience organizations have with project management, it’s reasonable to wonder why all projects aren’t completed on time, on scope, and under budget.

Yet large projects, especially those in the information technology sectors, have a poor record. Multiple studies show that a significant share of projects overrun their original timelines or are never completed. A study by PricewaterhouseCoopers, which reviewed 10,640 projects from 200 companies in 30 countries and across various industries, found that only 2.5 percent of the companies successfully completed 100 percent of their projects. A study published in the Harvard Business Review, which analyzed 1,471 IT projects, found that the average overrun was 27 percent, but one in six projects had a cost overrun of 200 percent on average and a schedule overrun of almost 70 percent. And we all have heard about large construction projects—the Channel Tunnel, Euro Disney, and Boston’s “Big Dig”—that ended up costing almost double their original estimates.

Cost and time overruns also have a profound effect on national economies. One estimate of IT failure rates in the United States is between 5 percent and 15 percent, which represents a loss of $50 billion to $150 billion per year. Another study estimated that IT project failures cost the European Union €142 billion in 2004.

While bad project management comes with an enormous price tag, the costs aren’t always just financial. The seven deaths resulting from the Columbia Shuttle disaster have been attributed to organizational problems, including a weakened safety culture at NASA. The failure of the FBI’s Virtual Case File software application cost U.S. taxpayers $100 million and left the FBI with an antiquated system that jeopardizes its counterterrorism efforts.

What’s more, it seems that this trend is here to stay. With an ever-growing need for accessible and integrated data, organizations require larger platforms to manage supply chains, customer relationships, and dozens of other crucial systems. Mega-software projects are now common in private and governmental organizations. Development is not slowing down, especially in emerging economies.

Considering the failure rate of these endeavors, a great deal of human effort and organizational resources likely will be squandered. So why haven’t organizations become better at managing projects, especially large ones in the IT sector?

Why most projects fail

A typical project management approach focuses on processes, policies, and procedures. Every task and step is described in detail by a set of rules. Many companies implement rigid processes that dictate behavior and use statistical methods to control quality (such as total quality management, kaizen, lean management, and Six Sigma). Process guides and rulebooks support work practices, while quality control systems assess and improve these practices.

In spite of these approaches, the rate of project failure does not seem to be decreasing. That’s because current project management tools, techniques, and theories account for the rational components of project management, but they overlook the emotional components. And these emotional factors account for a large part of a project’s success.

Project delivery requires quality control, scheduling, and budgeting. Yet controlling for these factors does not prevent project delays or failure. When projects fail, it usually can be traced to one or more of the following causes:
• Technical (technology developed, project management techniques)
• Individual (project leadership, scope management, communication)
• Stakeholder (user involvement, executive buy-in, goal specificity)

Typical project management techniques such as quality control, budgeting, scheduling, and critical path analysis are good at solving the first type of problem. Their record is less impressive for solving the second and third type of problem, primarily because these techniques are less effective at managing the human, emotional, and social factors at play in individual and stakeholder problems.

Open A Guide to the Project Management Body of Knowledge (Project Management Institute, 2008), and you will see an array of techniques for controlling quality, risk, budget, schedule, and scope. There is a chapter on project human resources management with some keys to select, develop, and manage a team. It shows how to develop a responsibility assignment matrix to define team members’ roles and a resource histogram to manage available hours. It indicates the importance of recognition and performance evaluations and suggests how to use interpersonal skills to resolve conflicts. It’s all spelled out in black and white, often with charts.

None of this is wrong. But again, these techniques mainly address rational factors such as planning and controlling. They only provide more methodologies and processes, and more charts and graphs, which is hardly emotionally engaging for project team members—or project managers, for that matter.

The problem with a single-minded focus on processes and methodologies is that once people are given procedures to follow, compliance replaces results. Everybody is concerned about how to do the job, not about the outcome if the job is done well.

Companies that take this approach do so for valid reasons: They can’t manage what they don’t measure. More important, they can’t let projects run without any direction, hoping for the best. However, by relying on managing only these rational factors, organizations fail to harness the power of human nature by engaging employees’ emotions.

To summarize, the rate of failure for projects has not really decreased, and there’s a reason for that. It’s time to update project management not with more methodologies, but with more emotional content. Employees’ and stakeholders’ disengagement can make a project fail, but behavior-based management can make projects succeed.

Article by Benoit Hardy-Vallee. Reprinted with permission of Gallup Management Journal.

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