Addressing the Cost of Project Failure
Consistently, research has found that around 15% of projects fail, vaporize, get cancelled, never finish or otherwise deliver nothing for the time, effort and costs involved, destroying value and reducing the overall net return on your total project investment portfolio.
This overall cost of failure represents a 15% cost impost or capital loss ‘tax’ on all projects.
Now, you always want to cancel non-feasible, wayward or irrelevant projects – so you don’t want your project write-off figure to be zero otherwise you condemn all projects to completion regardless of whether they are worthwhile. But, you don’t want your failure rate to be 15% either.
To reduce this figure you need to (a) catch poor projects as early as possible to minimise the value ‘written off’ and (b) to offset this value by delivering as much value as early as possible on every project so that, should it be cancelled, it has delivered at least some value. (Another benefit of progressive benefits realization.)
Paradoxically, the best project delivery organizations cancel the most projects – as they are innovating, trying out ideas but recognizing that when events have changed and the project is no longer viable that they need to be cancelled, fast. They do not pour good money after bad.
Project cancellation is not “failure”. Continuing a project to completion when it cannot deliver the planned business outcomes, benefits and value is real “failure”. This simple redefinition of failure often requires quite a mental shift in many organizations where currently “to cancel a project” is seen as a personal failure. Instead, sanctions should be in place for those who continue to fund projects that have no hope of success.
Cancelling projects early keeps the total written off cost down while increasing the overall value delivered by your portfolio by focusing the bulk of the portfolio investment funds on worthwhile projects.
To understand the true measures of success and failure read our ebook "Understanding project success"