It's time to axe the tax. Imagine that there is a tax of between 25% and 100%. This tax is totally voluntary yet 95% of firms are, unknowingly, paying it.

It's time to axe the tax

Imagine that there is a tax of between 25% and 100%. This tax is totally voluntary yet 95% of firms are, unknowingly, paying it. This tax rips value out of the firm to no avail; so it is not as if the tax is funding anything worthwhile. It is just a penalty paid for inefficiency and ineffectiveness.

It is a complete waste of money.

And it is totally avoidable.

Every dollar spent on projects over the optimum cost, every dollar missed, lost or destroyed contributes to the 'tax'. The 'tax' also includes missed strategic opportunities and lost competitiveness. As most organizations pay a 'tax' in excess of 50% of the available value, this 'tax' is very, very expensive.

By eliminating this 'tax' your returns on project investment can increase by the currently incurred level of ‘tax’ (25%->100%) without any additional cost or work. Indeed, in many cases, both the costs and the workload will diminish when you eliminate the tax.

So you’re actually paying more and working harder to pay this unnecessary tax than if you eliminated it.

Now imagine if you had to propose your firm pay this unnecessary ‘tax’. How would you ‘sell’ this to the board or senior management? Your initial response may be that you couldn’t sell this tax, its madness. But it is sold, everyday. The arguments that support continuation of paying the tax include:

  • It’s the norm – everyone pays it so it must be alright — “Most projects go over budget”
  • We, the practitioners, don’t actually pay the tax so it’s someone else’s problem — “The governance team is accountable for delivering a return on the funds invested.”
  • I can claim a reduction in the amount of tax paid as a benefit — “We only went 30% over budget”
  • The prevalence of the tax means my incurring the tax will go unnoticed — “Yes, but everyone’s project goes over budget or extends in time.”

Partial attempts have been made to reduce the 'tax'. Cost overruns are frowned on, project budgets are reduced to prevent over-expenditure. Benefits values are locked into future budgets to ‘ensure their realization’. But still the tax continues to be paid. Excessively. Unnecessarily.

How much of this 'tax' a firm pays is not usually known as

  1. The existence of the tax is not recognized
  2. The drivers of the tax percentage paid are not known, measured or managed
  3. The means of achieving a zero tax rate are not known, tracked or measured.

And so boards and managers continue to pay the 'tax'. Everyday. Expensively. Unnecessarily.

It is time to axe the ‘tax’.

There are 22 major drivers that cause the tax to be paid. Most firms track, measure and manage only 5 to 7 of these drivers. The other 15 or so drivers are unmeasured, unmanaged and directly increase the amount of tax paid.

It is time to manage all 22 drivers, to eliminate the tax, to reduce the costs and workload, and to increase your returns on investment.

The top 5% of firms that have axed the ‘tax’ have increased their average returns on investment threefold and, over time, increased their profitability and shareholder value by 40% vis-à-vis their peers.

Why pay a tax you don’t need to? Why pay a tax that is increasing your costs and workload to deliver less value?

It is time to axe the ‘tax’.

Sources: BCG and McKinsey research 2000-2012


Topics: Strategy Execution, Costs and Waste

Further Reading



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Revision History

First published: Simms, J. (Dec 2014) as "You're Paying An Expensive, Unnecessary 'Tax'"

Updated: Chapman, A. (March 2020), Revisions and Corrections