The Cost of Bad Project Management
By Benoit Hardy-Vallee
When it comes to project management, most organizations put their practices before their people. They place more emphasis on rational factors -- the process itself -- and less on emotional drivers that could lead to project excellence -- like their employees' engagement with the project and company.
Large projects, especially those in the IT sectors, have a poor record.
But forcing team members to adapt to project management processes and procedures makes it more likely that the project will fail. The resulting cost from bad project management is reaching astronomical levels. It represents a significant waste of money, and it poses a threat to organizations that rely on the success of large-scale projects.
Gallup's behavioral economics research suggests a different, more powerful approach: behavior-based project management. This approach enables project groups to gain higher levels of emotional commitment and performance from their team members -- and increased levels of emotional involvement from stakeholders -- in a way that improves both engagement and performance.
Behavior-based project management applies the principles of behavioral economics to manage an organization's emotional economy. More importantly, it uses scientific research on human nature and the workplace to develop more effective project teams and to enable better project delivery.
The high cost of failure
Project management is integral to the business world. Milestones, kickoff meetings, deliverables, stakeholders, Gantt charts, and work plans constitute the everyday world of most managers, whether they are called "project managers" or not. Given the vast experience organizations have with project management, it's reasonable to wonder why all projects aren't completed on time, on scope, and under budget.
Yet large projects, especially those in the information technology sectors, have a poor record. Multiple studies show that a significant share of projects overrun their original timelines or are never completed. A study by PricewaterhouseCoopers, which reviewed 10,640 projects from 200 companies in 30 countries and across various industries, found that only 2.5% of the companies in 30 countries and across various industries, found that only 2.5% of the companies successfully completed 100% of their projects. A study published in the Harvard Business Review, which analyzed 1,471 IT projects, found that the average overrun was 27%, but one in six projects had a cost overrun of 200% on average and a schedule overrun of almost 70%. And we all have heard about large construction projects -- the Channel Tunnel, Euro Disney, and Boston's "Big Dig" -- that ended up costing almost double their original estimate.
Cost and time overruns also have a profound effect on national economies. One estimate of IT failure rates is between 5% and 15%, which represents a loss of $50 billion to $150 billion per year in the United States. Another study estimated that IT project failures cost the European Union €142 billion in 2004.
While bad project management comes with an enormous price tag, the costs aren't always just financial. The seven deaths resulting from the Columbia Shuttle disaster have been attributed to organizational problems, including a weakened safety culture at NASA. The failure of the FBI's Virtual Case File software application cost U.S. taxpayers $100 million and left the FBI with an antiquated system that jeopardizes its counterterrorism efforts.
What's more, it seems that this trend is here to stay. With an ever-growing need for accessible and integrated data, organizations require larger platforms to manage supply chains, customer relationships, and dozens of other crucial systems. Mega-software projects are now common in private and governmental organizations. Development is not slowing down, especially in emerging economies.
Considering the failure rate of these endeavors, a great deal of human effort and organizational resources likely will be squandered. So why haven't organizations become better at managing projects, especially large ones in the IT sector?
Benoit Hardy-Vallee, Ph.D., PMP, is a Consultant for Gallup.
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