Detecting the First Signs that a Project is in Trouble

 

Difficult to Agree that Action Should be Taken

Most of us would agree that when a project is heading for trouble … when the outcome is unlikely to contribute to the bottom line, or when the execution of the project is behind schedule or over budget … that some form of intervention must be considered. Sometimes the project should be killed but more frequently, steps need to be taken to turn the project around.

While we all agree that there are times when intervention is necessary, we usually don’t agree when that intervention should take place.

Here is an example that illustrates this point.

Signs of Financial Meltdown Ignored

For several years before the financial meltdown of 2008, there were economists who warned that a housing bubble was forming and that the repercussions from this bubble, should it break, could be devastating. But the warnings went unheeded and the bubble grew larger. World debt increased at an alarming rate and the new financial derivatives, called Consolidated Debt Obligations (CDOs), that inflated the balance sheets of the banking and investment community eventually brought on the near-collapse of the world economy.  So severe was this recession that it was almost inconceivable that most economists, most investment analysis, and most financial institutions failed to see it coming.  In fact, most economists refused to acknowledge that we were in the recession until it was months old.
While this is a story with which we are all familiar, variations of it occur in the corporate world all the time. It is especially common when projects are headed toward failure. There are signs of trouble but it goes unheeded.

Subtle Signs that are Ignored

Indeed this pattern of neglect is so common that behavioral scientists have a word for it. They called it “conservatism.” It is the situation where information contrary to the beliefs or interests of decision makers is either minimized or ignored altogether.  As a result, new information carries little weight and the original course of action is staunchly defended.  Projects then take on a life of their own and few individuals are willing to raise even reasonable concerns.

The question is: why does this happen?

First, most early signs are subtle. In 1998 Chrysler merged with Daimler-Benz, and then in 2007 it was acquired by Cerberus Capital Management. With sales plummeting, the economy in a tailspin, and a product line of gas guzzlers, Chrysler filed for bankruptcy protection on April 30, 2009.  When it emerged in June 2009, Fiat took a twenty percent stake in the company.  Sergio Marchionne was named CEO. He arrived with an impressive record; taking the reins of an ailing Fiat in 2004, he turned that company around in less than three years.

Five months into the Chrysler turnaround, September 2009, Marchionne was interviewed at the Frankfurt Auto Show and asked about the progress of his post-merger plan.  He acknowledged that restructuring Chrysler had been more difficult than he had anticipated. “We were surprised by how little had been done in the past 24 months …  It will be slow progress in the beginning but we will see significant improvement in 2010.” (Soyoung Kim, Reuters, 9/16/2009).  

Was Marchionne telling us that there were subtle signs the turnaround was faltering?  While dramatic action in this case may be premature, he is suggesting that these signs cannot be ignored, and if a more consistent pattern emerges aggressive action would be required

Act or Wait

The decision to act or wait is a human decision and as such depends upon who is making the decision.  We have all worked with people who resist taking decisive action even when the data are compellingly clear and even when convincing patterns begin to emerge.  These individuals request more data, often interpreted as a defensive move that delays their decision.  Or, it may be that an individual succumbs to conservatism and minimizes or disregards new data. Whatever the reason, these individuals prefer to wait rather than act.  Yet, there are also individuals who prefer to act rather than wait.  They take action when the first sign of trouble occurs. Less attention is given to these individuals in the management literature perhaps because it is more difficult to get away with this behavior in a bureaucratic organization than it is to postpone decisions.

Prospective Fault Analysis

Useful clauses Gypsum cardboard Decorative furnish

To increase awareness of subtle signs and evolving patters, the organization might find it useful to identify, at the beginning of every project, what could possibly go wrong. Prospective Fault Analysis is one way to formalize this approach.  First, project stakeholders identify what could go wrong, then they establish metrics for monitoring these problems, and finally they identify what could be done should these symptoms occur?  While it would certainly be unrealistic to expect that prospective analysis could identify all possible trouble spots, the major benefit from this exercise it that it raises awareness of what can go wrong and makes it clear that scanning the environment and reporting problems is an important part of the project management process.

Independent Panel

Projects take on a life of their own, and for this reason Conservatism sets in and the subtle signs that problems and patterns may be emerging are ignored by project managers and others.  A second strategy to prevent the project team from ignoring the subtle signs of project difficulties is to create an independent panel whose job it is meet periodically, solicit data about progress, and to mine these data for the subtle signs that problems are surfacing and patterns are forming.  The composition of this panel is critical and depends upon the independence of its participants. What is essential, however, is that some members must not be a project team member or other stakeholder.  

Summary

The signs that a project is headed for trouble often come very early in a project’s life cycle, but for many reasons these signs are often ignored.  Sometimes they are ignored because they are subtle and sometimes they are ignored because no one wants to confront data suggesting the project is in trouble.

Since so many projects prove disappointing and since so many fail altogether, it seems reasonable to conclude that the majority of projects need to accept turnarounds as a normal part of the project management process. If accepted and if project managers and others are trained to recognize patterns before it is too late, it is likely that many projects can be saved.