Projects - why something so good can turn out bad.

Turnaround Chronicles - Why Businesses Struggle

Why do projects fail?

Let’s face it, they all fail in some way.

There are such high expectations and so many deliverables that something always disappoints.

In my analysis of why companies struggle, we will look at capital projects in a manufacturing setting to highlight the problems with all projects. By understanding how we set ourselves up to fail, we can also understand how to approach the project with a different set of expectations and goals and find the success in any project.

This is part one of our Project focus. Part one will zero in on the scoping and justification portion of the project and Part two will highlight the issues during the implementation.

Academics and those who study project management estimate that 70% of project fail to deliver to the customer’s expectations.

Why is that?

A capital project for a large equipment installation in a food manufacturing plant comes with so many variables that there will be targets not hit in 100% of the projects.

The only decision point that should be assessed is, “did the overall project fail to payback on the investment?”

Within a project of this magnitude, you have facility, electrical, mechanical and equipment estimates that all contain the purchase price of components, installation costs (both materials and labor) and also intersecting and dependent timelines where a delay in one area will delay the next.

You have startup estimates that include timing, training, scrap, product specifications and expectations of getting the line to run up to the equipment manufacturers promises.

Finally, you have financial standards that become the benchmark for deciding success or failure. Is the new production line hitting the financial standards for labor, OEE, yield, scrap, utility usage and capacity that was planned.

All of these factors have been laid out in a series of spreadsheets and project management software and are the subject of endless meetings to fully develop the project plan.

The plan, fully costed and time phased is then presented to the board of directors for approval.

Everything has been presented with a level of confidence and certainty in order to gain support for funding the project when in reality the confidence level is usually very low.

This presents, in most cases as the worst day for an engineer/project manager, when their project gets an approval.

The anatomy of a project approval process (from all of my past experiences and those that I've worked with) goes something like this.

1. Sales presents a great opportunity for either a new product of substantial volume or for existing products that require extra capacity or a new production line. At this point, they usually oversell the opportunity with extreme optimism to get the company to react. They push for aggressive volumes and timelines because the opportunity is very hot.

2. Leadership will direct engineering to scope a project that will deliver for the sales team within the timeline desired. The expectation of how quickly to return with a capital estimate is always short and forces the engineering team to only hard quote the biggest components and using ballpark numbers for the smaller portions of the project. The equipment manufacturers want to make the sale so they will give an aggressive timeline with their own level of optimism built in. Prior to presentation, the engineers will add in contingencies for both cost and timeline. If something is estimated to be $1mm, the estimate will be $1.2mm and if a timeline is 30 days, it now becomes 45 days.

3. Engineering will present the project to leadership with many caveats on risks to both budget and timelines.

The higher risk items drive the larger or longer contingencies and the project, as presented will always be too costly and take too much time.

They will be directed to go back and “sharpen their pencils” and present a more business friendly plan. The contingencies will be stripped, some items that weren’t firm quoted will receive some more scrutiny and a much more optimistic project plan comes back to the table. Usually, this second iteration will be sent back again looking for further revision.

4. Leadership approves the project that has been trimmed down, not because of better knowledge or locked in costs, but due to taking the most optimistic scenario in all cases and planning for those to all occur.

The final project is polished and prepared for presentation to the Board of Directors and now is the time that sales will have likely “sharpened their pencils” and cut back on their volume projections to protect themselves from future risk and accountability.

The project is now presented as something a little less attractive than imagined months ago. During the board presentation there are promises made to manage cost and timelines that are more favorable than in the current plan.

The Board approves the project.

The project has already failed.

Does this sound familiar to anyone?

I recently presented to a large group of engineers at a conference in Europe and as I scanned the crowd when discussing the anatomy of a project, every single head was nodding and there were knowing smiles on every face.

I thought this was only a problem in the US.

LOL

Optimism is a topic I’ve written about in another context but it is present heavily in every project.

In an episode of the Freakonomics Podcast, they discuss the Optimism Bias. Optimism presents a healthier well-being. Optimism creates the idea that solutions can be created to problems. Without this bias, we live a pessimistic life of depression.

Without optimism, there is no innovation.

Optimism is great.

Over optimism is what sent Hitler into Russia in WW2. We saw how that ended for him. Thank God he didn't take a more pragmatic approach.

There are two ways to develop a capital project for manufacturing equipment production lines. I’ve had experience with both scenarios. Neither of them makes everyone happy, ever.

1. Fully engineer a project where all drawings are created for electrical, mechanical, facility and other installations to include exact dimensions, specifications and costs. All materials are hard quoted with firm costs and delivery expectations. These would then be tied up with contracts penalizing any delivery delays, startup expectation in order to pull out any possible variables.

Firm quotes with penalties are very difficult to get without the cost of the penalties being built into the cost estimate.

Engineers would prefer to go through this process prior to presenting all projects.

The problem with this is the work to increase the accuracy by increasing the known and firm costs will take about a year on most large projects.

2. The alternative method is to quickly firm quote the largest portions of the project and use history, experience and other less scientific methods to estimate the softer costs and timelines. Engineers protect their estimates with contingencies.

The outcomes of both processes usually give the same final result in both cost and timeline.

Why?

Because to complete a large complex project, the end results arrive up at the same point, therefore the individual steps, costs and timelines will tend to be the same along the way.

Avoid the blame game at the end of the process by building your large capital investment with contingencies, options and multiple scenarios from the beginning.

I recently watched a great show on the Science Channel called, “What If We Built it Now?” They postulated the rebuilding of the Empire State building. That building took 410 days to complete. It came in under budget and 12 days early. It was a design-as-you go project where they innovated as they went forward. Many skyscrapers are done the same way.

Let’s use this example as we think about large projects. Envision the outcome and plan on the steps needed to achieve the outcome. As a team, discuss the possible pitfalls, milestones, risks and general cost and timeline.

Decide whether enough scenarios provide financial benefit to the company with multiple timelines, cost profiles and revenue models to justify the spend.

As a team, decide whether to go or not.

At the end, do the postmortem as a team to figure out where better analysis could have led to more informed decisions and how to be better next time.

No blame, no finger pointing and no career ending conversations. Celebrate the accomplishment.

Remember, the entire organization is accountable for the project success, not just the engineering and project teams.

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