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Avoid Pouring Good Money Into a Bad Project

“The project was failing. After spending close to $10 million the system still was not meeting requirements. After reviewing the situation, management decided to invest another $2 million in an attempt to recover the project. In operations, everyone thought this investment was a very bad idea as the system was fundamentally flawed yet management proceeded […]

Written By

George Spafford

Jul 7, 2003

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“The project was failing. After spending close to $10 million the system still was not meeting requirements. After reviewing the situation, management decided to invest another $2 million in an attempt to recover the project. In operations, everyone thought this investment was a very bad idea as the system was fundamentally flawed yet management proceeded and the project ultimately failed miserably.”

Does this scenario, or some variation of it, sound familiar? Why is it that people sometimes decide to pour more funds and resources into a failed project? Sometimes, the answer is that there has been an escalation of commitment.

Escalation of commitment is what happens when the level of resources that have been expended too date is so significant that it — when coupled with excessive fear of failure — causes irrational decision-making. In this day and age, if you are an executive, or just about anyone for that matter, who promises positive outcomes as the result of a substantial investment and the return does not happen, you are quite possibly going to have a career-ending moment!

On one hand, an appropriate level of concern is good, as people should use resources wisely. On the other hand, as the level of investment increases, the resulting risk of personal loss skyrockets and may lead to additional investments, sometimes of exorbitant amounts of resources, to try and make a fundamentally flawed project work. The key is to avoid allowing this behavior to start in the first place.

Methods of Avoidance

Escalation of commitment can happen all too easily. At the same time, it can just as easily be avoided by taking some relatively straightforward countermeasures. The following are effective time-proven processes that address this issue:

Proposal Review

Before a project is even approved for funding, objective parties should review it with the necessary business and technical skills to identify the feasibility, costs and risks associated. Resulting from this review, a project may be declined, approved, or conditionally approved requiring changes and/or additional oversight.

The intent of the proposal review is to identify flaws before the project even starts. In principal, it is always easier and cheaper to change a project in the planning stage than at later points. Furthermore, it can also be generally stated that as a project proceeds, it becomes increasingly more complex and expensive to make changes. Thus, it is far better to catch as many issues as possible before the project commences.

Status Reports

Projects should not be left on their own until completion. During the course of the project, the project manager should be required to submit regular status reports identifying task status, budget, project health and so on. These reports must regularly be reviewed by management and issues escalated.

Control Gate Reviews

Depending on the project and organizational preference there must be regular reviews of the project’s health. They can be scheduled based on a calendar method such as the first Monday of each month. Or they can happen at pre-defined milestones such as at the end of the planning phase.

Regardless of the timing, the point of control gate reviews (CGRs) is to have an objective review of the project status by a third party. For example, a few of the recommended elements to cover include progress against the plan, deliverables, risk mitigation plans and status, and, of course, the financials.

All projects are subject to internal and external changes. Requirements, technology, the market, project team makeup, stakeholders, and many other factors can all change over time. Hence, a well-planned project that passed the proposal review and was exemplary up to a point can begin to have problems for a variety of reasons. Therefore, the need clearly exists to regularly audit the project to catch issues before they become problems.

Post Project Reviews

Post-project reviews (PPRs) happen after a project is complete. They will not prevent escalation of commitment, but they are an excellent opportunity to learn what went good and bad during projects. They can help you to understand what caused a project to fail and, thus, what to avoid in the future and what should be covered in future CGRs.

PPRs also can help you develop and evolve best practices. Never skip PPRs — they are an extremely valuable part of project management.

Summary

Escalation of commitment can happen all too easily. Organizations need to recognize this and create mechanisms to identify issues and address them while they are still manageable.

Techniques such as proposal reviews, status reports, and control gate reviews are examples of such mechanisms. In this day and age, management is under a great deal of pressure to deliver results. Care must be taken to not let the pressure create an environment where risk of failure creates undesirable situations.

Never forget, if people fear failure too greatly, the willingness to take risks, even good ones, will go down. Thus, organizations must maintain a healthy balance between risk and return throughout the project process.