Through a prism wrongly
Why doesn’t senior management react to how value is lost and costs increase on project investments? Even when the result is a net loss of over 50% of the possible value. This lack of reaction is frightening!
One reason is that much of the value loss and cost increase is invisible. What senior management sees is distorted.
To illustrate
- Say a project has an estimated cost of $10m with benefits of $6m pa.
- The project is then delivered for $11m and benefits of $4m are realized.
- Management sees a 10% cost overrun and a 30% loss of value – “Not too bad” many will say.
But, what if the true figures for this project were
- optimum delivery cost is $6m and total available value is $10m.
Now, with the cost of delivery of $11m, the cost overrun is nearly 100% and the value loss is 60% - a very different outcome.
Invisible loss
This invisible loss is what is commonly happening on many projects.
Now it can be argued that identifying the true costs and value is not in the project manager’s interests as it reduces the funds made available while increasing the value expectations.
However, what this example does illustrate is that it is in business and investment committee interests to identify the optimum costs and value – to deliver the best bang for each investment buck.
It’s time for the business to correct their prism and see what is really happening and take control of their projects’ value delivery and increase returns on investment from projects.
Explore invisible costs more in our ebook The TOP 5%
