Capital Investments: Why Projects Fail
23 July 2008
Topics: capital, investments, leadership, projects, project
management, projects, risk management
Many businesses recently have lost huge amounts of capital in failed projects and large write downs. This video discusses these issues and presents avenues for prevention.
Script
Many Projects Fail
I indicated earlier, a number of important studies have shown how many projects fail. However, most of us do not need to read a series of long reports to understand how projects fail, because we possess firsthand experience of seeing projects fall short.
Projects generally prove unsuccessful due to:
- Poor strategy
- Poor technology
- Poor project execution
Illustrating the first cause, General Motors is much in the news at present. They are closing plants, laying off employees, and cutting back on capital investments. High oil prices caught them off guard in their strategy. They have been building large trucks and SUV’s, because fuel was relatively cheap and Americans wanted large vehicles. GM did not see oil climbing well over $100/barrel. They missed the opportunity to provide fuel efficient vehicles into a market now demanding high-fuel efficiency.
With respect to failed technology, I worked on a large project several years ago that spent more than $100,000,000 only to eventually result in a billion-dollar facility being closed. The project suffered from poor technology selection. Company politics and ineptitude drove process selection and preliminary design. Senior management placed overly ambitious and inexperienced people in charge of process testing and design verification. The equipment was innovative, but the project team did not identify and quantify project risks. The new equipment not only did not operate well, but it compromised the entire facility. Short on cash during an industry downturn, the company had to mothball the plant. The temporary closure stretched out for several years, and eventually the company made a substantial write down and demolished the plant.
Concerning the last cause, poor project execution is less common on large projects, but medium to small projects often suffer from poor planning, execution, and control, because the work depends on less experienced personnel or projects move ahead with inadequate resources.
Many organizations have addressed these issues by establishing core teams to manage projects and evaluate technology. Even small departments can free up one person to become an expert in the technologies the group needs.
Larger organizations often address this concept by establishing project management offices and technology groups to provide expertise to drive new projects.
Colorado Springs Utilities routinely assigns a project manager to the core teams that conceptualize and initiate projects. The utility learned that professional project managers contribute a valuable understanding of project execution and design progression. These skills enable projects to better fit into the overall infrastructure.
Equally important, technology groups can play an essential role staying abreast of new technology, supplementing start-up teams, and troubleshooting operating problems. This qualifies these process experts to serve as project architects and business visionaries.
Conclusion
In conclusion, applying good strategy, the right technology, and good project management can ensure that the organization performs projects that will provide the capability a company needs.