See the hidden dangers and stop the failed project decisively

Project management is becoming increasingly important, but also less reliable. In many cases, it may be more appropriate to refer to this corporate function as "project mismanagement."

For example, according to a report by PricewaterhouseCoopers LLP, 1/3 to 1/2 of projects are abandoned before completion. And the consulting firm Anderson (now Accenture) found that companies often overspend by 100%-200% on software projects if they don't control them.

While IT projects get the most attention for serious overruns and delays, virtually all projects need help. Poor project management is never the responsibility of the individual project manager. They often don't get the guidance they need.

"In many cases, project managers focus on getting the job done without considering whether the project is valuable to the business," said George Pitagorsky, senior vice president and director of product development at Learning's International Institute. Learning Corporation is a New York-based project management training and consulting firm. "This requires the financial staff to play a check and balance role in this regard. They should constantly consider the question: Is the project's return on capital worth the risk of the enterprise to carry out this project?"

The financial manager should Work closely with the project manager - while also making sure that the constraints are not too restrictive. William Cornfield, president of WSG Systems, a software and consulting firm, worked with a finance manager who described himself as a pleasure working with the project management department in his company. He said: "What she called working closely with the project manager was that she approved the project, and the project managers kept coming to her begging for money. She said: 'If they can't justify the use of the money, I won't approve theirs Budget.'"

Finance management is more than just budgeting. Cornfield believes that financial managers often neglect to provide guidance to project managers. Financial managers should increase the effectiveness of project management by constantly reminding everyone to care about "bottom line" profits. They are also able to develop a macro long-term plan for each project.

Long-term, macro view

There are various theories on how often financial analysis should be performed during a project's life cycle. However, project management consultants and financial managers have reached a consensus on the following points: a mechanism must be established to regularly monitor project expenditures and benefits; all projects should be aware of market changes during implementation, especially for IT projects. . The fundamental purpose of regular financial inspection of the project is to eliminate the influence of various unexpected factors.

Once the financial analysis confirms the feasibility of the project, financial managers should focus on long-term planning: What will the project mean for the business in the long run? How will it affect the company's future financial and business model?

Med Resorts International, a resort management company, recently began redesigning the company's database system. Kathleen Cormier, vice president of corporate finance and accounting, not only conducted a cost/benefit analysis of the project, developed the project budget and schedule, but also studied the various factors that may have affected the project's effectiveness.

"All managers must understand the unpredictable impacts of implementing a project and how those impacts will affect the success of the project," Cormier said. "As our duty, we must Familiarity with accounting transactions, sales cycles, marketing cycles, and R&D cycles, and how to integrate these factors carefully. In addition, we can consider the entire enterprise in the project management process."

Many enterprises are now implementing e-commerce project. Pitagor-sky believes that such projects require macro planning and long-term consideration. He said: "It may be very profitable to implement a series of projects to establish an infrastructure for e-commerce, but the benefits of this plan may not be realized for two years. Therefore, the financial staff should inform the other employees of the enterprise, The company has to work hard for two years or so to see a return. This may also involve some issues on the shareholder side. The financial people are fully aware of the long-term development of the project, but they sometimes ignore this when setting the project budget. A little."

Pitfalls in Project Implementation

Even with professional assistance from the finance department, project implementation can be - and does - struggle. Experts believe that the introduction of e-commerce and business process reconstruction projects are most likely to encounter delays and overruns. Retrofit projects within a company are more prone to problems than projects to improve an external product or service, Pitagorsky said. When a business launches a new product, its revenue depends on the sales of that product, so a clear forecast can usually be made. "When we were working on an internal project, it was difficult to clearly demonstrate the value of this idea from the start," Pitagorsky added. "Internal projects tend to go like this: someone comes up with a great idea, and everyone agrees, because they think it's a great thing."

He believes that in some cases, reality should be used consideration to drive the implementation of the project. For example, if you don't use a business intelligence system, within two years you will be crushed by your competitors. The task of the finance department should be to express every great idea in the form of a return on investment analysis. In this way, project decision makers will have a clear understanding of the extent to which these decisions will affect the business.

Negative attitudes toward budget spending are a common problem in project implementation. "I know a project manager who has a budget of $450,000 a month," Cornfield said. "As long as he spends that money every month, he's done. He argues , because when the finance department made the budget, it didn't say: 'Let's look at the whole project.' And it was a $15 million project, which was a big project, but it was handled in this way in many large enterprises. It is not uncommon in the case of a project."

Sometimes project investors allow the implementation of a project to deteriorate because they feel that they have invested too much time, money and energy into the project. "You'll hear things like: 'We've spent so much money, let's just move on with the project. Otherwise, it's going to be a waste of money,'" Cornfield said. The decision to take the project to the end may be right. But even then, it should never be viewed in this light. I'm going to ask the treasurer how many of their company's projects have been significantly overrun in the past year How many of these projects would have been adjusted -- downscaled or eliminated altogether if they'd found the problem six months ago? It's not that hard to figure out, just ask the right question."

All kinds of red flags

Whether or not to abandon a troubled project, sooner or later, whether it is a project manager or a financial manager, will face this question. Before discussing this, they must know that some overruns are justified and justified. Sometimes external factors, such as the application of new technologies, can multiply the project expenditure, but also greatly increase the project's benefits. "Assessing a project that is over budget is not simply comparing how much we expected to spend and how much we actually spent. The question that should be considered is whether it is worth continuing the project," Pitagorsky said. Cost? The job of the finance department is to figure out if the business is getting a return commensurate with its investment, and then assess the risk of not getting that return."

Deciding to walk away from a project can be difficult. The anticipation of success leads people to invest time and experience in projects and even risk their career prospects. "Once you start a project, people put a lot of passion and energy into being successful," says Cormier. "They put in the hard work and they want to be successful. So when there's a little problem, they always Do your best to overcome the difficulties and move on."

However, you should consider scaling back, delaying, or canceling a project when:

Growing expenses "If every time you receive a progress report, the project manager They'd all say, 'Oh, yeah, there's another $100,000 here.' That's not a good sign," Pitagorsky said. , it would be better to immediately know that the project will be overrun by 50% when it is completed. Once you see that the budget expenditure continues to increase, you should go back and do a full review and summary of the project."

Low morale Cormier said, she In addition to mastering the numbers, watch out for signs of depression among project executives. Are they scratching their heads and unable to do anything? Do they work day and night? Are other parts of the company suffering because this project consumes almost all of the company's resources and energy? "By looking at the performance of project executives, you can detect when the project starts to go wrong," Cormier said. "You also try to draw the attention of the leadership to these clues."

Lack of communication in the operation of the project During the process, project executives should maintain constant communication with other departments of the enterprise. When a department using this business system expresses its desire to make some changes to the project, the project manager should patiently explain how such changes will affect the project budget and deadline. Lack of communication between project executives and the rest of the business can lead to low employee morale and questions about the value of the project.

Frequent Policy Changes Project executives often change policy when they encounter difficulties. If this situation becomes the norm, the overall vision of the project will need to be rethought and redesigned.

It is the responsibility of the finance department to step up and act as the villain and cancel failed projects. However, this unpleasantness would be less of a problem if the finance department were involved early and as much as possible in the project management process.

Translated with permission from the article "A Time to Kill" in Business Finance Magazine, December 2000, page 85 (www.businessfinancemag.com). Copyright 2000 Business Finance Magazine. Translated by Zhu Xiaofan.