Management — 5 Frequent Causes of Cost Overruns and Failures



Extensive research shows how and why corporate projects result in cost overruns and failures. The academic study is entitled, “The Pitfalls of Project Status Reporting.”

The research reported rampant misreporting of project statuses at all levels of the companies. Causes range from cultural predispositions and career aspirations to overconfidence.

“Overconfidence is an occupational hazard in the executive suite,” said Charles Iacovou, vice dean and professor of management at Wake Forest University School of Business.

More on overconfidence later.

In all, there are five reasons for ballooning costs and failed projects.

The paper was co-authored with Mark Keil at Georgia State University, Jeff Smith at Miami University in Oxford, OH, and Ronald L. Thompson at the Wake Forest University School of Business.

Their conclusions were presented in the Spring 2014 edition of MIT’s Sloan Management Review. The findings are based on insights from 14 previous investigations conducted over 15 years.

ID-10046973The five causes:

1. Employees don’t accurately report when projects are failing.

Many employees put a positive spin when they report to senior management, due primarily to their being on the weaker side of a power relationship. Also, when the organizational climate is not receptive to bad news, truthful reporting can be inhibited.

“An executive should ‘trust, but verify,’” said Professor Thompson. “Instead of taking an employee’s status report at face value, an executive should solicit the opinions of others who are close to the project, obtaining views from different levels within the organization.”

2. People misreport for many reasons – and those reasons matter.

While executives tend to attribute misreporting to poor ethical behavior on the employee’s part, individual traits, work climate, and cultural norms all play a role. For example, some workers may just be optimistic about a fledging project. Others may be risk takers. Still other employees may have cultural backgrounds that traditionally reward individualism above collectivism.

“Executives should spend more time considering the composition of their project teams, especially project manager positions,” said Professor Iacovou. Of particular note are personality traits, employees’ perceptions of their work climate, and employees’ cultural backgrounds. Be especially wary of optimists and risk takers.”

3. Audit teams help to proliferate misreporting.

In one study of state government managers who reported to an IT oversight board, the researchers discovered several cases in which the use of an audit team led to growing distrust and deception in the audited unit.

Individuals reporting project status information reacted to some auditors’ queries by trying to thwart the auditors.

The auditors, in turn, concluded that the project participants were either incompetent or deceptive, and they increased their scrutiny, which led to more defensiveness and an even greater degree of misreporting.

4. Putting a senior executive in charge of a project may increase misreporting. 

Conventional wisdom tells project managers to appoint a senior executive to oversee all major projects, thus providing visibility and organizational support to marshal resources.

But research suggests that the stronger the perceived power of the project leader, the less inclined subordinates are to report accurately. In short, the career aspirations of project managers and senior executives often skew results toward the positive.

“This is a situation where having a Project Management Office can help,” suggested Professor Thompson. “The PMO can provide a trained leader that helps mentor other project mangers. It provides a resource for project managers to turn to if problems arise instead of running that information up to a supervisor.”

5. Executives often ignore bad news.

A number of the authors’ studies found situations where employees went to share concerns about a project with powerful decision-makers, who had the ability to change the course of the project (or stop it), but such attempts were unsuccessful.

“Overconfidence and other reasons can lead to a situation where executives continue to escalate their commitment to a project, despite negative news. In many of the corporate disasters of the past 20 years, overconfidence or overcommitment almost always played a role,” he explained.

“Executives should not only listen to a variety of stakeholders, but they should take the warnings they receive seriously, or they risk creating a climate of silence in which employees grow even more reluctant to report bad news,” he added.

From the Coach’s Corner, more project-management tips:

Leadership and Planning Tips for Successful Project Management — In truth, projects fail because they’re not managed. Yes, there are varying degrees, but in reality they’re either managed or they’re not. The project manager must possess 11 leadership attributes to manage the team, stay on track and keep within budget.

To Win in Project Management, Tap Emotional Intelligence— Automated project-management models might be popular, but they don’t lead to the championship-quality results. Project managers achieve greater success and long-term sustainability by leveraging emotional intelligence. Yes, mastering emotions makes it possible to motivate employees to higher performances. There are two types of emotional intelligence.

Project Management — 7 Keys in Handling Change Requests — Project managers must know how to deal with change, if they want to successfully complete their projects. So, the consideration and implementation of requested changes need to be properly controlled.

4 Ways to Solve 6 Uncertainties in Project Management — Seemingly negative surprises have often been perceived as insurmountable, but that’s not always the situation in project management. By innovatively spotting opportunities in uncertainties, the results often exceed initial expectations in budgeting, quality and scheduling.

6 Types of Ineffective Project Managers — Poor performing project managers generally have one of six traits, according to technology author Phil Simon. Actually, his insights are applicable for any type of manager.

“Arrogance is being proud of ignorance.”

-Peter Drucker


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Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.





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Seattle business consultant Terry Corbell provides high-performance management services and strategies.