Tuesday, June 12, 2007

June 12, 2007 - Project Gamble: Hold or Fold?

One of my co-workers is an avid Blackjack player…and he is good at it. On any given evening he can make several hundred dollars playing. The casinos he visits have started changing decks and dealers more often when he is in the house. One of his secrets is to know when to stop. He tells me about other players that start to loose and then start up their bets in an attempt to make it back. Unfortunately they tend to squander it faster instead.

Some projects end up like that. The company doesn’t know when to stop throwing time, resources and money at a project that isn’t going to pay out. But how do you know when to fold and walk away from a loosing project?

Forget the Sunken Costs. Whatever has already been spent on a project should not be a major factor in continuing it. Like our bad gamblers the business thinks “We’ve lost so much, we can’t give up now.” You can’t recoup the budget used to date but you can stop the flow.

Calculate the Cost to Complete. Realistically, how much will it take from this point to finish the project? Is it an acceptable amount? If the budget isn’t there, try again next year.

Revisit the ROI. Has the Return on Investment changed at all? ROI is always difficult for infrastructure type projects where the return is not necessarily found in this specific project. Add to the ROI the things you won’t be able to accomplish if the technical pieces aren’t in place. After recalculating the anticipated return compare it against the Cost to Complete. Since the sunken costs have already been spent, they don’t play a big part in this decision. It is like driving three quarters of the way to an amusement part and encountering a monsoon. It doesn’t matter how far you drove, if you aren’t going to have fun when you get there why drive any further.

Check the Requirements. If the requirements have changed drastically from the beginning of the project is isn’t the same project. It may be better to kill this one and start something completely new. Dragging the old baggage to the new requirements is counterproductive.

Directional Change. There are several things that can result in the company taking a new direction. New management may decide to drop a particular production line. Technology leaps may out pace the current project making it obsolete before completion. The market may not exist any more. Any of these factors can crumble the foundational purpose of the project.

Resource Wasteland. When you no longer have resources working on a project it is dead. I’ve mentored project managers who are issuing status reports on a project with no activity for months. The status report is easy to produce, if not a little redundant, but funds are being tied up that might better be used elsewhere. Unless the business reprioritizes the projects you can revisit this one when the resources show back up.

It may not be easy to walk away, but sometimes it is the right thing to do.

1 comment:

Anonymous said...

The 'hold or fold' analogy for project 'go / no go' decisions is a good visual aid. During the project life cycle and at the completion of each project phase, is when the classic 'go / no go' decisions take place.

Setting project budget loss limits before the project is approved is, in my opionion, a key planning element. That way, the PM knows where the budget variance limits are and can work to mitigate project delays & cost overruns well in advance of a 'fold em' decision by the project sponsors.