Over the last three decades, our research has shown that 95% of businesses waste money, destroy value and miss opportunities on a massive scale when it comes to projects. However, the top 5% consistently generate returns on investment at least double even their next best peers.
When other research, by McKinsey, confirms that this outperformance translates into a 30% premium in profitability and shareholder value over a 15-year period, it’s worth paying attention.
So what is their secret? The difference between the top 5% and the other 95% of firms is their capability in making visible and eliminating the major drivers of waste, loss, reduced value, increased cost and missed opportunities.
By following suit, you can increase project success.
The 12 drivers of waste
Most drivers of wasted expenditure are not immediately visible, rarely managed and allow capital to drip away like water from a leaky tap. Only three (in italics) of the drivers are visible to most.
- Strategically irrelevant projects are approved
- Unnecessary process complexity is retained
- Project budget overstated (padded for contingency)
- Projects ‘set up to fail’ are approved
- Projects beyond the organisation’s capability to deliver are approved
- Project goes over budget
- Project workload increases
- Project cancelled or failed
- Time is wasted on rework
- Excessive use of consultants and contractors
- Projects are ‘condemned to completion’
- Unviable projects continued
For example, many organisations have lengthy processes to initiate and ‘gate’ project investments. But once the project is underway, they lack the ability to cancel them. There can be good reasons to cancel even a well-run project, for example external factors such as changes in interest rates or market demand. There are even more reasons to cancel a poorly performing project, even if that may embarrass the executive responsible.
Far too many projects are condemned to completion when answering the simple question: “Should we continue?” could eliminate the waste.
The 10 principal drivers of value loss
There are 10 principal drivers of investment value destruction, of which only four (in italics) are generally visible. The remainder — the invisible ones — are the ones that are not managed and which cause massive value loss.
- Strategic and business opportunities missed
- Available benefits are not identified and so not delivered
- Benefits are eliminated through scope changes
- Project goes over time thus delaying benefits being banked
- Benefits are diminished due to poor quality
- Benefits are under-delivered
- Strategy is not fully delivered
- Higher than necessary operating costs are ‘baked in’
- The project leaves the organisation worse off than before
- Benefits are not ‘sticky’ over the longer term
Often the loss and waste resulting from the first one — the missed opportunities — can be the greatest waste of all. These can be missed through defining a project’s scope too narrowly at the outset, cutting off options before they have even been identified or considered. This narrowing of scope is usually done to constrain the project size, scale and costs. Yet, sometimes a 5% increase in scope can deliver a 100% increase in value.
What the top 5% organisations understand is this: there are two types of scope — opportunity scope and solution scope. At the idea initiation stage, the top 5% work with ‘opportunity’ scope — a broad-based scope that allows the identification of all of the areas of opportunity.
Then later, as the project delivery details become clearer, and through assessing the project to cull high cost but low value outcomes, the top 5% organisations define the optimal ‘solution’ scope, which optimises the net value of the opportunity for the costs of delivery.
What can you do to improve your management of the 22 drivers of waste and value loss?
First of all, you have to learn about the nature of the drivers and then assess your own processes to systematically deal with each and every one of them.
Understand though, that much of the waste and loss is ‘baked in’ before the project business case is approved and the project is underway. This requires changes to strategy and investment processes, such as business case development and project prioritisation.
At all times, focus on being able to answer the question: “What are we trying to achieve with this project and what is the value”?
The payoff is more value from project investments for less cost. Who wouldn't want that?