Why is it hard to recognize impending failure?

The very nature of projects, something that has never been done before, means there is always a risk of failure. 

While some projects fail in pieces, cost over runs or late delivery, others fail in totality. Because projects are often times close to the brink of failure yet they ultimately succeed, sometimes it is difficult to predict abject failure. There are many examples of projects that looked over the precipice a few steps away from total disaster, ultimately achieving great success. Another reason why it is sometimes hard to recognize a project’s impending failure ismany organizations do not have processes in place to foresee it. These organizations lack proper controls, and do not collect relevant information. A change in the structure would go a long way to prevent project failures. Similarly, poor risk management is another cause for project failures that go undetected. Yet another cause of project failures that go unrecognized is “collective belief” noted by Royer. Typically the collective belief begins with the project’s evangelist and continues to grow like a snow ball rolling down a hill. The project’s  evangelist with an extensive and strong network, charisma, and a good reputation can fan the flames of collective belief in the project very quickly. Other factors like personal and organizational desire for a “winner” is further strong incentive for people to believe in the project. At this stage, a “group think” emerges that causes everyone to move in lockstep, critical thinking goes out the window and outliers with differing  opinions are censured.

What are some of the avoidance techniques for limiting the impact of bad projects?

The longer bad projects run, the greater their impact on the organization. Therefore, an early warning sign to indicate a project is a bad one is essential. Ideally, the warning should come very early in the project’s life cycle - the sooner the better. During the initiation phase or at the point of scope development, rigorous examination of the project’s viability including risk profile must take place: Is the project the best way for the organization to achieve its strategic goals? Are there other projects that can accomplish the organization’s strategic goals for less money, shorter duration and less risk? How does the project’s financial metrics like payback, ROI, IRR, or MIRR compare to the organization’s benchmarks? In addition, a SWOT analysis vis a vis the project, the firm, and market should also be done. If the project passes these types of gates and is executed, key factors like earned value, risk, quality and the project’s standing in the organization’s project portfolio must be continually managed. Significant changes that are detrimental to the project means the project should be seriously considered for termination. At the completion of rigorous assessment, if necessary the project should be shut down - immediately. This type of objective, rigorous, methodic process will limit a bad project’s negative impact on the organization and its customers.

By: Deon Robinson

Based on the enterprise risk management (ERM) philosophy, risks that may affect the organization’s strategies must be identified, quantified, and managed. In the ERM model, risks are not managed in “silos” but in a harmonized fashion. The goal is to reduce the cost of risk management, and increase the effectiveness of risk management while supporting the organization’s strategy. The organization’s strategy may very well change from year to year, or even quarter to quarter. Therefore, the risks factors may also change. For example, if the organization decides to adopt a new strategy to expand globally into Asia and it previously only operated domestically, the risks factors will change - significantly. 

In addition, if the organization is following ERM best practices, it’s “approach” will remain constant:

• Risk Identification: What is the specific risk that is threatening the organization’s objectives?


• Risk Measurement: The risk must further be quantified. Typically the risk is given a value that is the product of potential impact times the probability of occurrence.


• Risk Mitigation: Based on the trade-offs, what is the most efficient and effective way to eliminate or manage the risk?


• Risk Monitoring: Because risk factors change in terms of potential impact, and probability of occurrence, they must be monitored as necessary. For example, if bad weather is a serious risks to an organization’s shipping lanes, before and during hurricane season, the treat of a storm must be monitored continuously.

Therefore, while specific tactics for managing a specific risk factor may change depending on the risk factor’s characteristics, the environment, and the organization’s strategic direction, overall the organization adheres to the ERM framework.

Generally, the traditional risk silos do have specialist who are adept at managing risk for their respective domains within familiar contexts. However, risk management is not an exact science. And, the tools and techniques for managing risk, both downside and upside, is still evolving. At this stage to expect practitioners, even those considered “specialists”, to know “exactly” how to deal risks is not realistic or prudent.

Managing risk under the ERM model is different in several important respects:

1. Risk factors must be managed in a holistic manner to ensure maximum benefit to the organization as a whole. This may mean some traditional silos are not optimized in order for another one to be, if it means the organization as a whole gains more benefit.


2. Risk is viewed as either a positive or negative impact on the organization (Banks, 2003).


3. Cross-functional teams are utilized to ensure the organization’s overall objectives are achieved efficiently and effectively, while individual departmental objectives are subordinated.


4. Supports specific organizational strategies: This is considered the most important critical success factor under the ERM model.

Also, it is important to note traditional risk management was focused on managing insurance to transfer risk. The ERM model is much broader in scope with a key objective to lower the organization’s volatility; thereby increasing shareholder value.

- Deon Robinson