According to many studies, too many IT projects, especially the large-scale ones, fail to deliver on time and on budget. For example, a study conducted by McKinsey and the University of Oxford (*), on more than 5400 IT projects, suggests that, on average, large IT projects run 45% over budget and 7% over time, while delivering 56% less value than predicted.
So, why things do go wrong? What are the main reasons behind the gap between what’s planned and what happens in reality? Often we ask this question once the project is over while conducting post-mortems or during audits to document lessons learned. But project managers can also ask themselves this question since the beginning of the project. In other words, it would be very useful to ask the following question during the planning period: What would happen during the execution that would create a gap between what’s planned versus what will happen in reality? This is an open question that requires a proper orchestration in order to keep the focus on the project scope along with the expected business benefit; and grab the best answers which will allow adjusting the project plan in order to minimise the gap between the project plan and the actual results as much as possible.
There could be many reasons that lead to a project failure, a huge delay, or a cost overrun. Here are 3 main reasons behind the gap between what is planned and what happens in reality:
1- The unknown project issues that arise during the project.
2- The risks that materialize during the project.
3- The project management governance.
Before going through those 3 reasons let’s remind the difference between an issue and a risk. An issue is an incident or a problem that occurs or occurred in the past and prevents to complete a work package as it was expected; while a risk is an incident or a problem that might happen in the future and prevents to complete a work package. The key words here are “occurs or occurred” for the issues and “might happen in the future” for the risks. That’s why when it comes to the risk management, 2 parameters need to be determined for each identified risk: the probability or likelihood and the impact of the risk when it materializes. To be specific, the impact of the risk should be investigated against the project objectives in terms of scope, schedule, cost and quality.
1- The uncertainty or unknown issues:
As far as the unknown issues that arise during the project, a general rule suggests that the uncertainty is high at the beginning of the project, and keeps on decreasing gradually as the project evolves. So, a useful approach to handle the uncertainty is to assume that there are too many unknown issues at the beginning of the project. Thus, the project manager should interact with the project stakeholders along with the project team to discover those “unknown” issues as quickly as possible. This means that the project manager workload is very high at the beginning of the project not only because of the planning preparation but also because of the interaction with the people involved to reduce the uncertainty, thereby preparing a more accurate project plan.
Figure 1: The uncertainty over the project timeline with limited risk management
The project managers who succeed in intercepting the project issues as early as possible would be in a better position to prepare quickly the appropriate actions, thereby reducing the gap between the project plan and the actuals.
2- The risks that materialize during the project:
Roughly, the risk management processes during the project planning phase, involve the following three steps
- Identify risks through brainstorming sessions and globally through the interaction with the stakeholders and the project team.
- Analyse risks: determine the probability and impact using a rating process; classify the risks using thresholds for low, medium and high risks for example.
- Determine the response or the mitigation plan for each identified risk. Of course the high risks require more attention than the low risks.
Once a risk materializes, the planned response or mitigation plan is triggered. This will have an impact on the project delivery date and cost depending on how we planned the contingency reserves.
In fact, the risk management approach helps reduce the uncertainty and prepare a more accurate project plan because not only it allows preparing the contingency plans that will be executed once the risks materialize, but also helps anticipate potential issues and fix them before they arise.
Figure 2: The uncertainty over the project timeline with effective risk management
Imagine if a major issue arises close to a project milestone and was not associated to any identified risk. Because no contingency plan was prepared in advance for that issue, there would be many meetings improvised under a high pressure in order to come up with a plan to address this issue. Moreover, in such situation, not only the project cost is impacted (cost overrun) but also, most likely, the planned project delivery date will be delayed. Refer to my article “Project Management and the art of managing shock waves” published in PMI.org in 2011: http://www.pmi.org/en/Knowledge-Center/Knowledge-Shelf/Leadership.aspx
3- The project management governance:
This topic is related to the PPM, project portfolio management, function.
Since the uncertainty is high at the beginning of the project, from the governance view, we would need to make sure:
- we start the right projects
- we oversee the cost while making sure we generate value
One of the proven technics is to set up a project management workflow with a gate process where a gate is linked to the project budget with an expected accuracy level. The gate approval, sign-off, allows continuing the project. Also, one of the key points is to agree on the budget accuracy understanding.
Here is a simple project management process with 2 major gates as an example:
Gate 1, the approval to start the project: here, since the uncertainty is high, the project budget is less accurate by a high percentage. For example, if the inaccuracy percentage is 20% and the budget for gate 1 is 1 M$, we assume that the budget can fluctuate between 1.20 and 0.80 M$.
Gate 2, the approval to start the realisation: this gate will trigger the execution. Since the uncertainty is reduced through the blueprint completion (architecture and solution design), the project budget is less accurate by a low percentage. For example, if the inaccuracy percentage is 5% and the budget for gate 2 is 1 M$, we assume that the budget can fluctuate between 1.05 and 0.95 M$.
Of course, after gate 2, the project estimated cost can be updated based on the approved project change requests. Sometimes, even the detailed project plan needs to be adjusted once confronted to reality. After all, the initial purpose of any project is to generate business value and fulfil the business requirements.
Figure 3: an example of project management process with 2 major gates