Why Projects Overrun – 11 Reasons why Projects Lose Money

Why Projects Overrun

Most Projects lose money. Here we want to show you why projects overrun both time and budget, the main areas where money leaks away and how to stop the haemorraghing of profits from the project or the overrun of budget.

A Finance Director of my acquaintance once said, when I gave him the Project estimate plus or minus 30%, “You can forget the -30%. Projects are never under. You just hope that they are not too much over the +30%” – and he was, of course, correct to say that (but not on this project).

There are many reasons for this.

1.  Firstly, project estimates are usually wildly out because there is no historic data on how quickly an organisation can produce software and so the estimation process is completely flawed. If you were asked how much time someone would take to run a marathon without knowing what time they took previously your estimate could be wildly out. The first task before estimation should be to find out the previous speed of delivery of functionality which can be measured in Function Points per Man Month.

2.  Secondly tracking a project is wildly out mainly because incomplete tasks are counted in the tallies. How does one know how many errors there are left to fix in a piece of software? Developers underestimate the time left to complete to take the pressure off themselves. Who wouldn’t? Only completed tasks should be counted.

3.  Thirdly, there is no motivation for anyone to finish ahead of schedule. That means that the different components of a project are either finished on schedule or behind schedule – and unless you are very lucky and all the many components are finished on time then the project will be over time and over budget. There are several ways to cure this problem.

4.  Time is the most important thing on a project and that is what is measured and monitored. However, Fitness-for-Purpose and Quality are usually more important to the customer but these get sacrificed because Time is the most important driver whilst the project is running and the others are not usually measurable or measured during the project. The goals of the project should be aligned with what the customer wants and we have ways to measure this.

5.  They say be careful what you measure as that is what you will surely get. They also say Time is Money. However, this is not the case on projects. Because Time is all important, quality and fitness-for-purpose of the system suffers – and the rework to fix this scuppers the Time (and money) as well. This is the main reason for the failure of virtually every project and it is very curable.

6.  The Customer is King so they say – and who would want to upset a customer? Unfortunately, the customer, or those working for the main customer, are the ones most likely to screw up the project budget by failing to deliver information, equipment and data on time unless there are systems in place to make sure they can’t – and there seldom is. No one likes to kick the customer but there are times when the customer becomes the supplier and processes must be put in place to make sure they, like any other supplier, deliver on time – or else.

7.  External suppliers can also screw up the schedule, budget and profitability of a project by not delivering on time and there are seldom mechanisms in place to make sure that this is monitored and everything is delivered on time or there are severe penalties.

8.  The way projects are measured and the way those working on them are monitored is penal, de-motivating and bad for morale. There are better ways of motivating those working on projects and making them strive for success rather than having all their concentration on not failing.

9.  The person running the project may well have got to that position by being a good analyst or developer. However, the skillset for running a project is totally different from the skills and abilities they have shown so far. Any aptitude for their new role would be just a fluke. The project management role on a project should be split the way it is in the film business with a Director responsible for creating the system and a Producer responsible for the logistical side. This is currently done nowhere and brilliant analysts and developers are failing and causing major losses to their companies because they can’t estimate, track and manage suppliers and the other logistics that are needed to run a project successfully – skills which are nothing to do with being a good Analyst or Developer.

10.  The same mistakes are made over and over in projects as there is never time to look at what went wrong and how it could be put right with both a short term and long term solution. Even football teams take time on a Monday morning to go through the video to show how things went wrong so that the team can see how they can stop those things going wrong in the future. The same system would work on IT projects.

11.  One of the main ways that profitability leaks away from a project is through poor Change Control.  If this is not rigidly adhered to the customer gets a lot more functionality than they paid for. Of course functionality will grow as one looks more closely at a project. However, that is an opportunity for a supplier to make more money from a project rather than get the same amount of money for a greater amount of functionality. This is one of the main money leakers on a project. It should be one of the great money makers on a project.

Conclusion

Capitalism has been a much greater success than communism – yet at one of the bastions of capitalism, free market companies, their IT projects are run as if they are the command and control economies of communist states. There is little motivation for the workers to achieve. It would be much better to open the doors to capitalism and unleash the people on IT projects to achieve and to make the reward of success the main goal of people management on projects rather than the fear of failure.

The FD said to me “You can forget the -30%. Projects are never under. You just hope that they are not too much over the +30%”. That is certainly true in the way the great mass of projects are run. However, it doesn’t have to be so. We have shown you why projects overrun. However, there is another way.

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