An anatomy of project failure

The Latin word anatomia usually refers to cutting, meaning a dissection of a plant or animal to study the structure, position and interrelation of its various parts.

However, it also refers to “a detailed examination or analysis”. In this article, I will incline toward the former to try and understand the implications of project failures; regarding the latter, there have been numerous studies aimed at dissecting project failures in order to pinpoint their common causes.

What may be missing here, though, is that we seem to have expended considerable effort in identifying the “causes”, but we seldom seriously consider the “effects” thereof; no wonder we are not learning our lessons when it comes to project failures, as the history of project planning and delivery over the last century will so sadly attest.

Defining project failure

There is little argument whether or not a particular project is a failure; one knows it when one sees it – even from a distance.

Nevertheless, a contention will often arise whenever it comes to suggesting a proper “definition” or “taxonomy” of project failure.

What actually constitutes project failure?

• Is it failure to meet its performance targets (e.g. scope, time, cost, quality)?
• Is it failure to meet its original goals or objectives (e.g. business benefits, value)? or
• Is it a context-specific combination of both?

If we consider failure as the opposite of success, we may need to ask ourselves: What makes a project successful? The right answer will probably be: When it has delivered its intended (business) objectives – even though it might have been challenged in terms of meeting its original performance targets such as budget, completion date, etc.

The original estimate for the Sydney Opera House was US$7 million, but the final cost was US$102m, more than 14 times the original estimate. Yet, not many analysts will dare classify the landmark Sydney Opera House as a failure – for tourists have paid it off!

Conversely, if business objectives and goals have not been met, we shall not say that a particular project has been a success simply because performance targets have been reached – the proverbial “Great operation, but the patient
died” scenario.The real question is: Did the project meet its performance targets as well as stakeholder expectations?

Considering the Success/Failure Grid above, we can perhaps categorise project failure as follows:

While Success is only reached when a project has reached its (business) objectives within its original (or beneficially amended) performance targets, Catastrophe (i.e. Total Failure) consists of the extreme whereby both business and performance targets have been considerably missed – budget or schedule overruns, but nothing to show for it.

Eskom’s Pebble Bed Modular Reactor (PBMR) project, at approximately R8.7 billion, is a good example!

Famous project failures

According to Steve Thomas (University of Greenwich Business School in the United Kingdom), the Eskom PBMR project’s obituary was supposed to read as follows1: “South Africa took up a failed German technology in 1998, and spent 12 years and R9bn2 of public money before it admitted failure; by 2002, costs were out of control, time scales slipping, no customers, no investors and serious technical issues raised by United States regulator; reports that year by PwC and a panel of international experts critical, but kept secret; Eskom knew the project likely to fail, but the expenditure continued – until February 2010 when the minister canned it” – a costly mistake, from start to finish!

While we may leave it to the reader to plot this particular project on the Project Failure Grid, we shall mention that project failures are not peculiar to our beloved country, nor is it to our own generation – project failures have been around for ages!

On 14 April 1912, the Unsinkable Titanic – the largest and most complex ship afloat – struck an iceberg and sank on its maiden voyage. Recent studies will reveal a design flaw that ignored dynamic effects on sea; 2 228 people died, including 885 crew.

More recently, in 1993, the Oregon Department of Motor Vehicles (DMV) in the US embarked on what was to be a five-year, $50-million project to automate its mostly manual, paper-based operation.

The project was justified on the ground that this automation would enable the DMV to downsize its workforce by one-fifth and save over $7.5m annually.

Two years later, the five-year project’s completion date crept to 2001 (60% slippage), and the estimated total budget ballooned to $123m (146% slippage).

Finally, in 1996, a prototype was rolled out but, according to one consultant brought in to examine the project, the new system was a complete failure – as increasingly longer queues around the block could tell.

Soon after, in response to public outcry, state officials killed the project; and most DMV officials who oversaw this disaster were fired.

Earlier the same year, the London Stock Exchange halted development of its Taurus paperless share settlement system without any viable solution in sight. The original budget was slightly above £6m, but more than 10 years of development effort and over £800m were eventually wasted by the time it was abandoned, according to Elliott Manley, the Taurus project manager – although the Financial Times of 3 November 1993 reports losses of “only” £400m.

This illustrates how difficult it is to get accurate financial figures on information technology project (IT) costs, or on any challenged projects.

Taurus was 11 years late and 13 200% (yes, that is 132 times) over budget.

The above projects are not only infamous; they squandered huge amounts of money, for which docile taxpayers and other unsuspicious consumers will ultimately pay.

Without suggesting for a moment that the so-called rich countries could afford such wasteful expenditures, this could have spelt fiscal collapse for certain poor and developing nations.

More such failures are listed in the document found at www.sie.arizona.edu/sysengr/slides/failures.doc.

Common causes of failures

Every project is unique, true! However, the underlying causes of failure are usually restricted to a few specific areas. Since we know what these are, steps can be taken to minimise the likelihood or impact of problems in these areas and increase our chances of completing projects effectively and successfully, hence avoiding failure!

The Office of Government Commerce (OGC) in the UK has published a best practice document titled, “Common Causes of Project Failure” (2005), listing issues such as:

• Lack of clear links between the key strategic priorities of the project and the organisation, including agreed measures of success;
• Lack of clear senior management and ministerial ownership and leadership;
• Lack of effective engagement with stakeholders;
• Lack of skills and proven approach to project and risk management;
• Too little attention to breaking development and implementation into manageable steps;
• Evaluation of proposals driven by initial price rather than long-term value for money (particularly securing delivery of business benefits);
• Lack of understanding of, and contact with the supply industry at senior levels in the organisation; and
• Lack of effective project team integration between clients, the supplier team and the supply chain.

However, credit is perhaps due to the OGC for not only articulating these common causes, but as well as for providing a structured approach to addressing such crucial issues.

For instance, to address evaluation of proposals driven by initial price, pertinent questions that should be asked are suggested as follows:

• Is the evaluation based on whole life-cycle value for money taking into account capital, maintenance and service costs?
• Do we have an evaluation approach that allows the balancing of financial factors against quality and security of delivery?
• Does the evaluation approach take account of business criticality and affordability?

However, most causes of project failures have been mentioned since the first edition of the Chaos Report (Standish Group, 1994) which is being revised or published twice a year.

Closer to home, the University of Johannesburg and Project Management South Africa published the Prosperus Report in 2008, focusing mainly on the IT sector. We know what could go wrong in a project!

A new version of the Prosperus Report, due for release later this year, will focus on project failure in a number of industries in South and southern Africa.

Even at the organisational level, Robert Buttrick (Interactive Project Workout, 2000) makes it clear that it is mainly the lack of “clear organisational strategy” and of a “company’s project framework” that leads to chronic project failures.

Since we know what factors could cause a project to fail, and we understand how to address such, why is it the case that projects are still failing? Why are we not learning from past mistakes? Could it be because we do not really grasp the implications of project failures?

By nature, we only learn from painful mistakes: once bitten, twice shy!

Once the Romans realised the strategic importance of bridges, that military conquests and state administration were at stake, they took it so seriously that bridge collapse has turned into a very rare occurrence nowadays. They knew what it could cost them!

Lessons are not learnt

Projects still fail in big numbers, despite a comprehensive body of knowledge.

A report by the Business Technology Research Center in February 2004 suggests that 90% of the executives surveyed stated they did not see project success improvements over the past 10 years.

The Chaos Report, over the same period, reflects that:

• 46% of projects are “challenged”;
• 28% are outright “failed”; and only
• 26% are deemed “successful”.

According to the Independent Project Analysis (IPA) 2010 survey covering processing plants (e.g. large chemical and/or thermal processing plants), 23 out of 31 completed projects (with a total capital expenditure of $34bn) were classified as failures – which represents around 74% (worth $25bn).

Was any common cause detected? Well, poor front-end loading!

In actual fact, B. Flyvberg et al. (2003) suggest that project delivery outcome has not improved, but somewhat deteriorated (particularly in terms of cost overrun) over the last century (i.e. their survey covers megaprojects executed from 1910 to 2000).

A comparative review of the Chaos Report (Standish) from 1994 to 2009 reveals that there has been no major improvement in terms of project outcomes; by excluding the 1994 data of successful projects (16%), the remainder gives a standard deviation of 3.53%, which indeed suggests that no significant improvement has been recorded thus far.

Any apparent reductions in failure rate between 1998 and 2002 could be attributed to a heightened focus on project delivery following the financial crisis of 1997/1998. And there was an increase in the rate of “challenged projects” over the same period.

Fifteen years on, and “causes of project failures” have remained the same (e.g. projects still sink due to reluctance, or inability, to manage the owner’s requirements or expectations). Why is the project fraternity not learning from the numerous, repeated mistakes?

Implications of project failures

Project management practitioners, consultants and academics have contributed immensely to analysing (and proposing remedies to) causes of project failure.

It is amazing that not much effort is being spent on analysing the effects of project failure. The worldwide cost of IT failure is currently estimated at US$6.2 trillion – what a waste!

But it is not only the capital outlay that is wasted; failure has manifold repercussions, not to mention the anaesthetic, harmful effects of an unfinished facility to the environment.

Project team

Just as team performance affects project performance (e.g. a dysfunctional team may cause up to 20% overrun, according to the IPA), failure (or simply being on the verge of it) has the potential of corroding the morale of team members – creating chaotic dynamics!

Ultimately, the project manager’s job and reputation are always on the line; he/she stands to lose either or both, should any failure occur.

But even while the project is still being challenged, the project manager’s leadership is often questioned; every stakeholder suddenly gets a loud(er) voice; resources are imposed on the team to ‘help’; finger-pointing or the blame game is on the rise; and a string of rushed resignations may soon follow.

As a result, there have only been a few successful turnarounds to date.

Owner and sponsoring organisation

Most organisations are not even aware of the compounding consequential costs (such as capital loss, delayed or forfeited business opportunities, commercial liabilities and ensuing lawsuits, reputational damages) that may arise as a result of a failed project.

Remember, it only took one failing project, the RB-211 Engine, to spell bankruptcy for the illustrious Rolls Royce in the 1970s, thus the firm was hurriedly nationalised.

Moreover, an unfortunate series of failed projects (e.g. business case defeated by poor performance, as schedule or cost overruns turned the net present value into a negative) will finally affect the owner’s income statement (e.g. operating income cannot cover capital repayment and interests, causing losses) as well as its balance sheet (e.g. bad investments resulting in liabilities, but not compensating assets) – value is destroyed!

In due course, operations will be downscaled, maintenance curtailed, and staff laid off; “cooking of books” may postpone the issue, but there is ultimately no escape.

The next logical thing to occur is financial failure (legally put, bankruptcy) whereby the organisation is unable to meet its financial obligations (e.g. payments due to creditors) and its commitments in new investments as required for strategy execution.

It may follow that an organisation that is no longer able to fund the implementation of its strategy will soon face a “nil strategic throughput” situation, which leads to strategy stagnation and eventually to commercial demise – the company is dead in the market!

Macro economy

Successful infrastructure projects not only generate immediate benefits to the general economy, but they even reduce the cost of doing business, of running any future projects.

Now, according to the World Technology and Services Alliance, countries spend on average 6.4% of the gross domestic product on information and communication technology, with roughly 43% of this spent on hardware, software and services.

Assuming that around 50% of such projects would end up in failure, and that the ratio of indirect-to-direct costs of projects in developing countries ranges from 3:1 to 7:1, countries such as South Africa, Nigeria and Tunisia, for instance, could be losing quite a fortune every year on failed IT projects alone, as per the simulated calculations below:

Hence, a country that has repeatedly invested in failed projects or in “white elephants” (i.e. unproductive, economically non-viable projects) will end up in fiscal failure, since its National Treasury will eventually run short of funds to service its debt commitments.

To keep up with instalments due, its Treasury office will probably increase taxes, cut down on infrastructure maintenance and on social investments (e.g. police, schools, hospitals, housing, social security and grants), not to mention a complete halt on new infrastructure such as telecommunication lines, roads and electricity and water supply.

All the above will translate into missed opportunities for GDP growth, which successful projects could have otherwise sustained through increased revenues or savings and taxes received, reduced imports or increased exports, job creation and other economic surpluses; accordingly, failed and unproductive projects can cost a country dearly.

Twenty percent of the Democratic Republic of Congo’s debt burden arose from one failed project – Inga-Shaba in the 1970s.

History suggests that Egypt nearly went bankrupt as a nation (circa 1875) and eventually fell under British rule, courtesy of one ‘challenged’ project, the Suez Canal! The developer, Ferdinand de Lesseps, had since crossed the ocean to build the Panama Canal.

Project management profession

The fact that (and moreover the extent to which) projects are still failing definitively sheds a bad light on the profession; the impression out there is that project managers generally do not know what they are talking about – which is not necessarily true – or worse still, that they do not care, which is likely, in our modest opinion.

To quote David Hamil (2003), “The management of projects is still treated in a very amateurish way.”

Therefore, every failed project would somehow contribute to corroding the already dented reputation of the profession in the marketplace and could spell one failure too many!

But the real danger may arise on the day members of the public and government entities will realise the implications of the apparent pandemic project failures; they may take the matter into their own hands and proceed to regulate the profession, no matter how, and stop the haemorrhagic array of failures while they still can.

While we may sit around and dread such a scary thought, current records of project outcomes (in both public and private sectors) and the confusion as to what makes a professional project manager are not helping the situation.

The perception being that even well-seasoned project managers are guilty of chronic project failures, who would support the call that chancers and dodgers be excluded from the profession?

But if fake doctors (who may kill) should not practise, unchartered project managers should not either! (For, like De Lesseps, the usual culprits often cross the ocean to lead even bigger projects.)

How to apply the remedy, if there is one?

It is not the author’s intention nor is it this article’s purpose to expand on how to spot and rescue challenged and/or failing projects – methodologies and examples abound in the literature nowadays.

For instance, the “Rapid Assessment and Recovery of Troubled Projects” (White Paper) published by ESI International provides a good framework.

The most important thing, however, is to bring about the realisation that projects are actually strategic investments in terms of strategy implementation, financial returns, economic growth and surpluses, and social welfare. Simply do them right in the first place!

Therefore, costs and other effects of failure need to be taken fully into account when initiating projects.

Moreover, project management shall be treated with the respect and significance it deserves, in addition to being given the profile and standard it requires for achieving effective performance and, by implication, positive project outcomes.

Many organisations still consider project management and the project office as mere overheads; consequently, project directors or sponsors are seldom allowed space to set up the right project management infrastructure: (a) processes and procedures, (b) skills and mindset, (c) organisational structure, and (d) tools and systems – and an adequate governance (i.e. framework for decision-making, definition of roles and responsibilities, and mechanism for enforcing compliance).

The project management infrastructure is the ‘womb’ for project delivery; its configuration determines the cycle, throughput and outcome of projects to be delivered.

And, likewise, effectual governance shall safeguard against oversights and graft.

The owner organisation shall still uphold, not relinquish, such considerations when appointing engineering, procurement and construction management providers.

On the other hand, executive management usually takes a ‘tight control’ approach over any project recovery attempt, translating into counterproductive stances as follows:

• Micro-management of decision-making, which results in the slowdown thereof;
• Project team’s decisions are often overruled by principals, on political grounds;
• Stricter budget control, which restrains any release of additional funds (i.e. financial lifebuoy) required to support the recovery exercise; and
• Impatience and low tolerance for error, leading to hasty dismissal of key staff.

Furthermore, we shall refrain from treating project failure as a brother in jail – there generally is a cloud of secrecy (and spin-doctoring) around many challenged, let alone failed projects.

We are not prepared to take responsibility and disclose what has really happened; this kind of attitude is not conducive to either learning or to experience-sharing.

If we understood what is at stake, the implications of project failure to the individuals involved, to stakeholders, to the sponsoring organisations, and to the country’s macro-economy, we would perhaps learn and take it to heart to properly and adequately apply the body of knowledge made available to the profession to prevent needless project failures in the future and save our company or country from wasting resources.

In most incidences of project failures, there has been an instance of neglect and/or complacency on the part of either or both the owner and the project team; if it is not inadequate project management infrastructure, it is probably slack governance that has led or contributed
to failure.

The Eskom’s PBMR debacle was more of a governance disaster than an engineering failure – decision-makers took too many bad decisions.

It is our submission that projects are not failing for lack of project management knowledge (e.g. there is a plethora of tools, techniques, best practices, etc. available to the project management fraternity), but rather for a lack of realisation as to the insidious implications of projects failures.

We trust that the day both owners (i.e. in companies and organs of state) and project practitioners will fully grasp what is at stake, necessary steps will be put in place in terms of infrastructure and governance to deliver “the right projects right”.

If curiosity killed the cat, unwarranted complacency (not feeling the bite of failure) is killing project delivery and, ipso facto, the profession!

He who has ears, let him hear…

Pascal Mabelo

Footnotes

1. Presentation at National Civil Society Caucus meeting, ISS Corruption and Governance Programme, Cape Town, 14 to 15 September 2010

2. In comparison, the prestigious Gautrain has an estimated budget of R14 billion