Why Big Projects Run Over Budget and Behind Schedule

Have you been involved in a major project that ran well over budget and way behind schedule?  I'm sure the answer is yes.  We all have experienced this misery at times.  Why do so many large projects encounter these problems, while failing to deliver the expected benefits as well?  University of Oxford Professor Bent Flyvbjerg and journalist Dan Gardner wrote a terrific book about this topic.  The book is titled, How Big Things Get Done: The Surprising Factors that Determine the Fate of Every Project, From Home Renovations to Space Exploration, and Everything in Between.  

The book is chock full of insights about why projects go off the rails, and how we can approach projects more effectively.  They argue that a bias for action gets many project leaders in trouble.  They rush to execute before planning adequately.  "Just do it" becomes a dangerous mantra.  Moreover, they argue that some project leaders engage in strategic misrepresentation.  In other words, they know the budget and schedule are not reasonable at all.  Yet, they "start digging a hole" knowing that it will be hard for those providing resources to not fund the overruns once the project has begun.  

The authors argue that experience is essential in managing large projects.  They are big fans of the practical wisdom and learning that emerges from experience.  However, they argue that many project funders and leaders marginalize experience.  Why?  One key reason is what they call the "uniqueness bias."  In short, people always seem to believe that their project is unlike any other that has been done.  Thus, they think there's little to learn from others.  Moreover, many of them strive to produce something that is the first of its kind or the "biggest, tallest, longest, fastest" of its kind. This desire to produce something unique means that they can take huge risks, and they fail to learn from the experience of others.  Thus, we should all ask ourselves:  Is our project truly unique?  Moreover, do we need it be unique?  Is it ok if it is NOT the tallest, biggest, or first of its kind?"  

Why Do We Miss Deadlines and Overrun Budgets?

Source: USA Today

We all have experienced projects that miss key deadlines and exceed budgets.  It's not a fun experience.  In retrospect, it seems obvious that we were overly optimistic in our estimates.  Yet, at the start, we thought we had been reasonable, even conservative, in our projections.  Why do we make these crucial errors?  One study offers an interesting explanation.  Bradley Staats, Katherine Milkman, and Craig Fox once published a paper titled "The Team Scaling Fallacy: Underestimating the Declining Efficiency of Larger Teams" (Organizational Behavior and Human Processes, 2012). 

Staats, Milkman, and Fox found that people tend to overestimate the benefits and underestimate the costs of increasing team size on a project.  Adding more people can enhance expertise and skills available on the project.  However, the challenges of coordination and collaboration grow as well.  By not acknowledging those costs sufficiently, many people generate overly optimistic estimates regarding budget and schedule on important projects.  

The study confirms the intuition of leaders such as Jeff Bezos at Amazon, Steve Jobs at Apple, and Brad Smith at Intuit.  Each of those leaders advocated keeping critical work teams small and nimble.   For example, the "two-pizza rule" maintained that you should be able to feed the entire team with two large pizzas (meaning the team should probably not exceed 6-7 members).  

Big Hit or Big Flop: Extreme Outcomes for High-Status Project Leaders

A project manager has had a remarkable track record.  Surely, it makes good sense to assign him or her to lead the next high-profile project in your organization. Right? Not so fast. Balazs Szatmari, Dirk Deichmann, Jan Van Den Ende, and Brayden King have published a fascinating new study titled “Great Successes and Great Failures: The Impact of Project Leader Status on Project Performance and Performance Extremeness.” They find that high-status project leaders may be prone to extreme outcomes: perhaps another blockbuster hit, but just as likely, a major flop.

The scholars examined the video game industry in depth. They studied 349 games developed between 2008 and 2012. Kellogg Insight summarized the findings:

Leaders with high status, the research revealed, are prone to extremes—big successes or big flops—while moderate status is associated with the highest average level of project performance. Why? With status comes everything a leader needs for a project to succeed: resources, support, the faith of executives and team members. But there is peril, too: high-status project leaders are often overburdened. And precisely because of their status, the people around them may not offer honest feedback. “We tend to be too deferential to people who we consider to be higher status. And where we give deference, what we should be doing is increasing our scrutiny—or at least, scrutinize them as much as we do people of lower status,” King says. “There is greater potential for them to let their egos take control and produce something that sounds good to them but that is in reality a terrible idea.”

Naturally, organizations should not avoid assigning important projects to successful leaders.  What can they do, then, to mitigate the risks identified in this research?   First, they need to create a system of continuous feedback, beginning early and often.  Don't let the project get too far without shining some sunlight on it, and allowing multiple constituents to offer constructive feedback.  Yes, you can trust highly successful project leaders, but that doesn't mean they should delay obtaining input and critique from others.  Second, for each project, regardless of the track record of the leader, milestones must be established at the outset, and leaders should be accountable for providing comprehensive updates on the progress toward those milestones at regular intervals.  Establish clear criteria for evaluating the project at each milestone meeting.  Openly discuss the exit strategy if the project flounders; in other words, be ready to cut your losses, rather than throwing good money after bad simply because of the leader's track record.  Third, be sure to utilize a peer review system or devil's advocate.   Encourage feedback from someone outside of the project.  If it's not their baby, they will be able to provide more objective input.  Finally, examine the project team closely.  Has the team not invited any new members since the last project led by this particular leader?  Has the team grown too like-minded over time?  Is there someone on the team who is respected for their willingness and ability to offer unvarnished advice and criticism?

Project Management Podcast

Andy Kaufman interviewed me recently for his terrific People and Projects Podcast series.   Andy's expertise lies in the field of project management.  His blog has a wealth of resources for managers responsible for managing complex projects in a variety of fields.   To access the podcast, please click here.  I hope you enjoy it. 

Creating an Internal Labor Market: The AdNovum Case

London Business School Professor Julian Birkinshaw describes an innovative way to staff projects in a column for Fortune.  He explains what happens at a software firm called AdNovum.  That company has created an internal market to match talent with projects.  The founder explains how it started: "So we developed a Facebook-like system on the Web where you as an employee could portray yourself, especially your skill set, for others to review. And we encouraged people to keep their CVs and their skill sets as accurate as possible."  Project managers used this data to select staff members for key projects.  Company managers met to discuss the matches being made via this system, and they would adjust staffing to meet the practical realities of deadlines, budgets, etc.  Over time, the system has evolved.  Nevertheless, the basic concept of trying to find a more innovative way to match talent supply and demand continues to endure.

I am intrigued by the concept, though I would point out that this internal market concept works quite appropriately for project-based work, but it may be less applicable in other types of work environments.   At Enron, for instance, executives used to describe their internal labor market.  They would describe how talented folks could "vote with their feet" by moving to a role in one of the new businesses being created.  That "vote" would inform executives as to which of the new ventures appeared most promising.  What is one of the problems with that type of free movement?  People may rotate too frequently, leaving managers unable to ascertain the true long term consequences of their actions. For project-based work, one can clearly measure results at the end of the project.  For managerial assignments, it can be more difficult to measure performance if someone rotates on to a new assignment before the implementation of their strategies has been completed and the results have been identified over a sufficient period of time.