Project success is not improving
Studies by Arthur D Little in 1991 almost 3 decades ago and then by The Standish Group in 2008 show about the same figures - that 60% to 70% of projects are "challenged" when evaluated against the standard criteria of project success.
When projects fail, usually the spotlight is on the project manager, but research shows ineffectual Steering Committees are a far bigger problem
Project success rates are awful.
And they have not improved over the last two decades. In fact success rates are considerably worse than the headline stats would indicate because they mostly measure projects against the orthodox measure of failure - a project that fails to deliver "on-time" and "on-budget".
The problem is that this is the wrong measure of success. Because it measures projects on the inputs used—not on whether the project produced an output which was of value to the business!
When you measure project success on outputs—did the business get the intended business outcomes and valuable improvements—project success rates are far far worse. Less than 3-5% of projects deliver all of the planned outcomes and benefits.
The orthodox prescription to improve project success rates has been "better project management".
Yet the past two decades have not shown project results improving - despite the enormous sums that have been invested over the period in project management methods and the fact that certification or some kind of professional qualification has now become de rigeur for project managers.
Why on-time and on-budget can still be failure
The reason why "better project management" has not - and can not - fixed the problem becomes blindingly obvious when you measure project success by the value of the output.
Project management is a lever that acts on the input-cost side of the equation. It can preserve value by managing resources well to ensure that the project does not destroy the value by spending more than it should.
But on the output-value-delivered side of the equation, if a project has no real business value at the outset, then value cannot be created by the project manager to rescue the project, no matter how well the project is delivered or how heroic the project manager.
If a project delivers on-time and budget, but the business does not reap the value in the intended performance improvements, investment returns and business strategies, then that project is a failure!
No ifs. No buts. No exceptions.
So whilst the focus on improving project management skills and processes has been essential and important over the last two decades—in order to reduce value destruction caused by resource overruns—by itself, "better project management" cannot improve project investment returns and results.
This simple distinction makes clear what the essential role of the Steering Committee should be - the Steering Committee is there to ensure that the project delivers the maximum valuable output - for the resources that are input to the project.
Unfortunately, that is not what most Steering Committees are doing.
Poor Project Governance destroys around 10% of the available business value
The Steering Committee determines the value
The Steering Committee controls the levers which determine whether the project produces something of value to the business. The Steering Committee is responsible for how well the business governs the project from the seed idea through to the investment project's endpoint, which should be a new working business-as-usual operation. The Steering Committee is responsible for steering the project into the business.
Poor project governance by Steering Committees has been shown to be a substantial contributor to value destruction and project failure.
My colleague Jed Simms conducted research whilst he was at The Boston Consulting Group in the early 1990s, which showed that poor governance is responsible for 10% on average of the value destroyed on projects. Updates on that research by TOP over the last 2 decades have not shown any improvement.
How does this value get destroyed? By the Steering Committee failing to understand that its primary role is to define and protect the business value. Just some of the ways the Steering Committee can destroy value include:
- Failing to articulate at the outset, what the desired business outcomes are, in clear precise, specific unambiguous language;
- Allowing scope reductions to order to meet on-time on-budget criteria even though these destroy business value;
- Failing to track variances in projected value during the project lifecycle and as a consequence failing to cancel projects which become irrelevant due to changes in circumstances;
- Failing to ensure that all of the activities required to realize value are systematically planned and the actioned, instead of "hoping" that the benefits will just appear;
- Green-lighting projects even though the business case is confused and incomprehensible because "we know this project is really important".
Confusing Cost and Value
We do projects for reasons which are pretty standard—to deliver performance improvements, improve products, implement strategies, maintain assets, avoid risks or comply with regulatory requirements. We expect projects, even the must dos, to deliver a business return for the capital invested, even if not a financial return.
We do projects to deliver an end result which is better. We don't do projects just to spend money. We should not be doing them just meet industry benchmarks for CAPEX, to use up allocated budgets or to keep our project resources fully utilised...
However, orthodox project methodologies emphasis cost management whilst largely ignoring value management. An interesting indicator of how obsessed current project thinking is with cost whilst ignoring value is to do a search on scope management or project success. Article after article will mention the impact on project cost as a factor in determining scope decisions during the project period. Only the rare few articles mention the need to assess the impact of scope changes on the business returns and results.
Measuring Project Success
The concept of "Project Success" causes even more problems. Most articles struggle to define success in terms other than on-time, on-budget and to-spec. As one article put it "measuring project success is not going to be easy!"
Actually, it is easy to measure project success - and there are four simple measures:
- Did we achieve the clear, specific, measurable list of desired business outcomes that we created for the project at the outset - Yes or No?
- Did we achieve the list of benefits that we defined - Yes or No?
- Did the value calculated for the project match the financial model that we built and if not were the reasons for the variances acceptable to us - Yes or No?
- And, did we achieve all these for the optimal cost in order to maximize the value delivered - Yes or No?
The cost of the failed project investment is just a downpayment on far greater longer term consequential losses.
Steering Committees which focus on controlling costs rather than managing returns and results destroy value.
Confused, uncomfortable and not in control
Few executives on Steering Committees can answer the question, "Why am I here?"
Too many Steering Committees are ineffectual
Project Governance is an area of competency for business executives that to date, has largely been ignored.
TOP research has shown that few business executives sitting on Steering Committees have any idea what their role is and how they can add value. In one major corporation that we surveyed, we found:
- Of 110 executives who sat on Steering Committees, 98 admitted that they did not know what their role was with any confidence or how they could add value to the project
- Of the remaining 12 who claimed they were confident, further investigation showed that only 2 actually had the correct understanding of their project governance role
So that means 108 of 110 executives either didn't know what their role was or had the wrong idea.
This is typical of most of the major corporations. Is it any wonder that business executives struggle with making sure their projects are successful and deliver business value?
The Steering Committee's role is to define, protect and deliver the project's value.
Now that we understand -
- about the importance of managing projects to deliver value and
- the influence that the Steering committee has over the levers of value
we can see what it is that Steering Committee members need to know to be effective in governing projects and thus what they need to learn.
However, if you ask the orthodox project community for advice on training for Steering Committees you will likely get suggestions for courses in Project Management, or on different types of technology or systems development techniques. Unfortunately, these are not things that will help the Steering Committee members in their role. Most projects have competent project managers—indeed it's the role of the Steering Committee to ensure they do—and do not need the Steering Committee members to second guess this aspect of the project.
Delivering a project occurs over a time frame and is subject to changing circumstances because the environment in which a project is being delivered is never fixed. The Steering Committee must guide the project and make decisions over its lifecycle. Sometimes, that can even mean cancelling a well run project, simply because a change in the external environment means the business rationale is no longer there.
The competencies required for project governance are not intuitive
Members of the Steering Committee need to understand their role and purpose and to have the skills and expertise to fulfil it. They need more than the competencies required for normal operational management and more than just a tick-list of responsibilities to help them.
To be able to lead and direct a project, a business executive must:
- Understand how to define a project that has value and understand what can cause costs to escalate without adding value;
- Be able to distinguish a valuable project from a poor one and understand how to optimize value delivered against the cost of delivery to convert a low value project to a high-value one;
- Know what to do, why, when and how, at each important phase of a project to protect value;
- Have the confidence and skills to deal with problems and risks;
- Know when to dig down into the detail level to check that it is congruent and coherent with the "big picture";
- Be in control of the project;
- Be able to avoid being ‘snowed’ by the techies, vested interests and ‘experts’.
A business executive should also be able to diagnose the early warning signs of failure so as to take preventative action early enough for the project to get back on track.
The four stages of competency development
It takes individual competency AND organizational capability to get consistent results
As well as developing Project Governance competencies for individuals on specific projects, to deliver consistent and reliable results for every project, you also need to build organizational capability. That way all staff, regardless of initial skill levels, can reliably and consistently govern projects and deliver the business results. Otherwise the organization will continue to have hit and miss results and remain reliant on individual "heroes" and or imported "gurus".
But that isn't hard because Project Governance is a learnable skill. Acquiring it is a four stage process and every business executive who has responsibility for delivering a project needs to go through this learning cycle.
First—you need knowledge, to learn the principles and mental models so that you can look at a project and clearly understand what is really happening, in order to be able to make good decisions. For example, you need to:
- understand why the project's value proposition is so crucial to success and why on-time, on-budget are measures of input efficiency, not output success;
- Understand what the start and end points for a project should be;
- understand the difference between opportunity scope and solution scope and why that matters;
- understand how IT projects are different from other types of projects and therefore what additions you must make to the management techniques;
- Understand the difference between the "turn-key" and "operational" (EPCO) models of project delivery and which one you should be targeting;
- just to mention a few.
Second, once you have the basic knowledge and understanding, you need practical tools and techniques so that you know how to do key tasks. For example, how to:
- define the desired business outcomes for the project
- define the correct "measures of success" which guide the steering process;
- set and protect the project's scope;
- direct and agree the business requirements as processes;
- evaluate and approve the project business case;
- select and manage the project manager;
- negotiate and agree the project's completion criteria;
- ask the right questions and assess the answers to ensure all is well;
- evaluate answers or information indicating that there is an issue which needs a decision or direction;
- decide when you need to dig down into the detail and what the warnings signs are that tell you when you need to do this
- decide what actions to take.
Third, you need to build experience and confidence so that you can anticipate the patterns which arise in different projects and preempt common problems.
Finally, you develop discerning judgement and expertise; where you can look at a project, listen at the Steering Committee meetings and understand exactly what leadership or direction you must provide. With expertise, you become your own "hero" or "guru". Having an expert sounding board can be useful. That's something that you can build inside your organization by talking to colleagues or by getting external support.
The choice - value managers or cost controllers
So, organizations must make a choice—they can continue to focus on controlling costs rather than managing value and can continue to emphasise project management skills whilst ignoring the impact of poor project governance. As a consequence, they can continue deliver investment projects which fail in business terms. They can also continue to rely on heroes and gurus instead of building capability and as a result continue to get "hit and miss" results with projects instead having the confidence that they can deliver all the projects that they tackle.
Or instead, organizations can choose to improve the competency of Steering Committees and build their organizational capability to govern project investments.
The remedy is simple
First, make the fundamental shift to measuring project success in terms of the value of the project outputs - the desired business outcomes, benefits and the value - rather than the inputs used - time, money and people. That change in emphasis alone - from cost to value - makes the rest become straightforward.
Next, equip the business leaders—the Steering Committee—to maximize the value delivered by the project right from the start, when the idea is first conceived through to the endpoint when the new business-as-usual environment is delivered. The business now directs and leads the project instead of being "engaged".
Then, realign all the project delivery and management processes from cost to value and add-in all the missing value-delivery processes.
The shift in focus from cost to value transforms projects, often doubles the business results and allows the organization to invest less whilst reaping far more in returns.
To use that terrible expression, the payoff seems like a 'no brainer'.
What do you think?
I have worked in the Strategy & Project execution space for more than 30 years.
Got questions or queries? You can connect to me on LinkedIN.
Please help me improve this article by leaving suggestions, queries and feedback
AlexandraChapman (author) from Australia on October 30, 2012:
Good point Patrick,
The Steering Committee has a Leadership role and and Management one. I have often thought about renaming "project governance" - but the problem is, that's what most people describe it as.
In fact, Jed and I talked to John McFarlane (ex ANZ ceo) and he made the same point.
So for the moment, I guess we are stuck with "governance" but then need to elaborate on exactly what people are supposed to be doing.
Stakeholdercircle on October 26, 2012:
Describing the role of a steering committee as a ‘governance function’ is 90% of the root cause of the problem! The MANAGEMENT role fulfilled by a steering committee (or project sponsor) is (or should be) to provide the next level of management responsible for delivering value from the organisation’s investment in a project. This involves managing the change processes within the organisation and managing the interface between the project and the organisation to realise benefits and maximise value.
Theses management responsibilities are above and outside of the management responsibilities delegated to the project manager but are critical to achieving a ROI on the organisation’s investment.
Whilst the concept of ‘governance’ is widely misunderstood, neither the wrong definitions that focus on ‘due process’ nor the correct definitions that focus on the objectives of the organisation and stewardship of the organisations resources and assets have anything to do with generating a specific return on a specific investment made in a project.
All the while these key management roles are incorrectly called ‘governance’, everyone is confused and no-one bothers to set management KPIs and measure the management performance of the steering committees and sponsors. For more on the difference between management and governance see: http://mosaicprojects.wordpress.com/2012/03/27/man...
Richard Lindner from Melbourne, Australia on October 20, 2012:
Alexandra - much sense in your thinking. On the surface, it is patently obvious that only too often, confusion reigns regarding true project identity, and that this then results in a lack of clarity in the true performance metrics that define project success or otherwise. For example - is "The Project" the construction of a new building? - or rather may the building merely be an enabler to "The Real Project", the success of which may in fact be measured using parameters other than the cost/time/quality performance of the building project.
Victorian Government Treasury's Investment Logic Map process goes a long way to assisting stakeholders to clearly identify the real problem that "The Project" may be attempting to solve, following which a range of alternative solutions may be explored and a potentially optimal solution defined. For example - is a new building the right approach? - or rather may the solution better lie with technology upgrades, better space utilization, or staff training instead? The ILM process is one that we have recently introduced to our tertiary education sector business case development, and the output from the preliminary workshops that the structure contemplates have proven valuable in generating understanding regarding true objectives and relevant KPIs.
Once the problem and solution has been identified, the responsibility of the Steering Committee / Project Control Group must be (inter alia) to clearly articulate these, and to disseminate this vision to other project stakeholders, as well as any external consultants and contractors. In this respect, the selection of both an appropriate SC/PCG sponsor as well as a suitably authorized and engaged membership is vital. Further, the establishment of a communications plan that aligns all Project participants towards a shared strategic outcome is paramount.
Good article - thanks.
Lyle Barbour on May 10, 2012:
Excellent article on one of the key areas for project success, yet one where training is seldom given to participants.
Benjamin Miller on May 08, 2012:
Excellent article, hands down the best one I have read on this topic.
I work in a company that has a massive "governance" process that is focused on "cost mgmt" and not "value creation".
I work at the tactical/project level and have learned to do whatever I can to AVOID the governance process...as just as your article reports, the people "steering" have no idea what they are doing or how to do the job in a manner that creates/protects value.
It is not 'magic' and it is a "learnable" skill and thanks for the quick tips as there is always HOPE that things will change.
Though for this to happen, creating value will need to be measured and rewarded instead of whatever it is that has created the 'tapeworm' corporate bureacracy that I live within...
Thanks again for such an excellent and information rich article...Nice work!
And if/when I ever have a chance to share/influence--I will include this article.
Frank Chen on May 06, 2012:
What you say is 'true', especially that which refers to the failure which we continue to experience when running projects.
Your views about how best to overcome our deficiencies is also 'true'.
Allied to this, I consider that there might be other contributing factors to failures:
1. Complexity and groups - Large projects are typically complex yet Steering Groups and even sometimes Portfolio and Program Directors might deal only with 'dumbed' down information preferring not to deal with specifics and detail. It is sometimes even said in boastful tones that 'here - we do not deal with implementation but only the higher level abstracted details'. This can be a problem.
2. Continuous change and groups. The only thing for certain is change. One should presume that what is of value or importance today might not be so tomorrow.
Tim Washington on May 03, 2012:
Awesome article. You provided numerous good points about how Steering Teams have greater levers than project managers do in delivering project value to customers. From a governance and portfolio management perspective, this is critical. Thank you.
Alard on April 24, 2012:
An insightful article that many businesses would benefit from being reminded of before signing-off their next major project.