The world of financial literature is replete with discussion concerning how to identify successful projects and how to increase the success of existing projects. What the world doesn’t seem to do enough of, however, is to make an effort to identify bad projects that can be a drain on the profitability provided by good projects. More attention needs to be given to the fact that overall profitability of an organization can be increased by eliminating any bad projects in the organization’s product mix.
Another way of describing the solution to the dilemma is that by eliminating a negative number from the p&l it has the same effect as adding a positive number into the p&l.
According to Donny Shimamoto (CPA/CITP, CGMA, founder of consulting firm IntrapriseTechKnowlogies LLC in Honolulu), as quoted in the Journal of Accountancy: "Stopping a project is not a failure. Failing to stop a project when it should have been stopped: That's failure."
Sometimes projects must be killed, and doing so can be profitable.
As noted by the same report linked above from Journal of Accountancy:
Perhaps they cost too much or take too long, or the organization's priorities change. The competitive environment, overall market conditions, or customer needs may have changed. While there may be good reasons to kill projects, the desire to continue pursuing a goal may keep the project alive.
The use of real-time monitoring make the life cycle of projects more efficient, and it leads to fewer projects being allowed to continue longer than they should. As noted by the Product Development Institute: “Higher-performing companies are more likely to kill projects before they are launched. Lower performers record a higher rate of failures than of project kills. Regularly scheduled check-ins, which include questions about whether the project should continue, will lead to quicker decisions.”
The following indicators of bad projects are just a few from a sample provided by Project Management Online:
- The project looks like it will take too long to return value.
- The project entails a great deal of risk, and thus very uncertain results.
- The project has a poor financial return for the resources invested.
- It is hard to measure whether the project succeeds or not. Every project needs to have associated metrics to help determine the projects degree of readiness.
- The project does not have sufficient support within the organization. Be sure to look for a strong project sponsor and a stakeholder following that really want the project.
Key Obstacles To Killing A Project
This report notes the following five points that are especially infamous as obstacles for killing a useless project:
- Ego: Project leaders should set aside ego and reevaluate a project based on costs and benefits, no matter whose idea it was.
- Ownership: "Sometimes projects don't get killed sooner because there are feelings involved, or people's entire identities may be attached to a project," said Angela Ho, CPA, CGMA, senior vice president and principal accounting officer at OceanFirst Bank in Toms River, N.J. "Maybe someone was hired for the sole purpose of working on a project and may lose their job because a project is being killed. But that might make way for another project to be born."
- Momentum And Inertia: Projects sometimes are not killed because they are close to being completed, and the desire to check the final few boxes and declare the finished project a success may outweigh the fact that the project is not very useful.
- Culture: "Culture is important," said Amal Ratnayake, FCMA, CGMA, the CFO of officialCOMMUNITY, an entertainment and media firm in Toronto. "It's easy to kill a project if the culture is one of taking risk and understanding that some projects will work and others will fail. That culture will help you look at those projects as learning opportunities rather than failures."
- Sunk Costs: The decision to kill a project should be based on future tasks and future value. Sometimes, a project continues because of money already spent. When time and resources are invested, no manager wants to halt a project. But that money isn't coming back.
In conclusion, hopefully the information provided will inspire team members within your organization to be more attentive and proactive to identifying bad projects and take constructive measures to minimize the impact they might have in your organization.
Do you have the support you need to manage your small business bookkeeping?
Contact us to schedule an appointment to speak with a local small business advisor.