Corporations throughout the world are losing billions of dollars in wasted project spending, and this waste is being carefully hidden from management and investors.
A new global research report shows that one of the biggest contributing factors is the lack of alignment of projects with corporate strategy.
A billion-dollar problem
The cost of the problem is staggering. A recent example is Royal Dutch Shell on its biggest and most prestigious project, Sakhalin Energy, a Siberian liquefied gas facility. For Shell alone, project costs for Sakhalin Energy doubled from $10 billion to $20 billion. According to The Times in London , the humiliation was even greater because, the Shell chief said, he had not been made aware of the cost increase. The fiasco for Shell is not exclusive. In the IT sector, the results of The Chaos survey from The Standish Group shows that 71 percent of all projects are either "challenged" because of late delivery, being over budget, delivering less than the required features or they are "failed" because of being cancelled prior to completion or the product developed is never used. This statistic has not effectively changed since 1994.
In addition, in 2004, Pricewaterhouse Coopers found that only a handful of projects ever achieve project success. Its survey focused on a broad range of industries, large and small, in 30 different countries, which represented 10,640 projects, for a total value of $7.2 billion. The firm found that only 2.5 percent of global businesses achieve 100 percent project success.
The lack of project success is not surprising given the newest research findings from Business Improvement Architects’ research with more than 750 organizations worldwide. A major reason for project failure is that most organizations do not ensure that all projects they implement align with their organization's core strategies. In fact, 80 percent of organizations in the research study had no formal business case for the development of their Project Management Offices
(PMOs) and 73 percent of organizations identified "lack of executive sponsorship" as being the primary reason for failure of their PMO.
If organizations were to implement only those projects that were in alignment with their strategic goals, their success rate would increase dramatically because executive sponsorship would not be an issue. However, Business Improvement Architects’ recent findings show that the majority of projects on the go are not associated with corporate and/or departmental strategic plans. Only 32 percent of respondents said they had a process for prioritizing projects. Therefore, it is not surprising that failure is rampant because senior executives are not at the helm to provide guidance, direction and support to projects within their organization. As well, 68 percent of organizations had no systematic approach in place to prioritize projects or link them to corporate and strategic goals.
What you can do to align projects with corporate strategy
1) Undertake a review of all the projects that are currently under way within the organization as well as those completed over the past year.
- Ask every department to list all of the projects that they are currently working on. What is the goal of each? What is the strategic alignment, if known?
- Create an inventory of all projects in the organization, regardless of size or scope, that are currently on the go within all departments and within the whole organization.
- Measure each of these projects. Are they are on time and on budget according to the original scope? Are they meeting customer requirements as defined? Or, are there no measurements in place?
- Identify projects completed over the past year and measure their success rate. These lessons learned will help to identify project prioritization in the next step. For example, if many projects were unsuccessful because of a lack of resources then resources required to complete future projects should be considered a criteria for determining project viability. If a project requires many resources, they may rate low on this criteria. If you decide that it is a strategically important project, you will have to ensure that the right resources must be made available or the project might fail.
2) Develop a systematic approach to prioritizing all projects.
- Develop criteria against which to prioritize all projects. Include impact on corporate strategy and customers. This is best done with a subcommittee of senior management.
- List all projects along with their goal, purpose and strategic alignment and the identified criteria necessary for determining the expected impact each project will have on the organization, its departments and its customers. This process will allow you to rank each project quantitatively and determine its level of priority.
- Establish a committee of senior management to review and assess project prioritization on a monthly basis. This committee will provide final approval on all project implementation priorities.
3. Align projects to corporate and departmental strategic plans.
- Review the corporate and departmental strategic plans and if none exist meet with the senior executive team to gain an understanding of the key strategic priorities.
- Examine all projects to determine their alignment with the corporate strategic goals. This strategic alignment will demonstrate how each project's successful execution will support the corporate and/or departmental strategic plan.
- Terminate projects that are of low priority or not somehow linked to corporate and/or departmental strategy. Their immediate termination will ensure they stop costing the organization money, resources, time and lost customers. Projects not linked to corporate or departmental strategy add no measurable value to the organization.
Summary
The outcome of project failure is wasted dollars that steal investor profits and have a negative impact on the organization's bottom line. Aligning projects with the strategic goals of the organization is critical for project success and proper return on investment. Superior business performance is dependent on good project management as well as the creation of a culture that supports projects. To this end, senior management needs to contribute more of their time and effort to sponsoring and prioritizing projects on the basis of their strategic fit. When projects are in alignment with corporate goals, they will be able to meet profitability targets and generate the necessary return on investment.
About the author:
Michael Stanleigh is president of Business Improvement Architects, a consulting firm that guides organizations to align their business strategy with their culture, performance systems and projects to reduce waste and increase profitability. Contact him at mstanleigh@bia.ca.
