How to Manage Project Risks, Part 5: Leading Indicators of Failure
- 30 October, 2007 11:31
The Project Sponsor was most surprised when his project was found to be a 'disaster'. His monthly reports had shown a predominantly 'green' status with some 'ambers'. Basically, his project manager had been lying to him, refusing to allow any items in the monthly report to be rated 'red'.
But the writing was on the wall. If he had paid anything other than cursory attention to his project he would have seen it was 'off the rails'.
- The technical and change project managers were at loggerheads and had not got on from day one, actively subverting each other's efforts.
- The project staff were disillusioned with the fact that they could see management was being misled by the project reporting
- The systems implementer was ready to walk away from the project
- The business staff had lost complete faith in the project as none of their questions got sensible answers. And so on.
A quick walk down the corridor to where the project team was or into some of the impacted business areas and the Sponsor would have learned very quickly that his project was not as it seemed.
Too many Sponsors and governance committees rely just on standard project reporting to gauge the status of their project. This is too risky.
Project reporting only reports on progress and, usually, immediate issues and risks. The problem is less with what the project reports cover than with what they don't report at all. This is not a case of 'hiding' things or misleading the governance team, but that this is not what project reporting is intended to report.
When I am Sponsor of a project, I want to monitor what is going on (through reporting) but I also want to monitor the leading indicators of failure. This is part of making sure my project succeeds. Just saying, as in the example above, "I didn't know" is of no use when the evidence was clear if only you had looked.
Some leading indicators of failure that all project parties - project and governance teams - should periodically monitor include:
- Progressive scope change. Is this the project we started out with? Some changes to scope may be necessary, but it is not unusual for the project to gradually veer off in a very different direction to that originally envisaged.
Every quarter, you need to go back to the original scope and compare it to the current agreed scope - are we still delivering the same project?
- Progressive staff change. As a project progresses, especially longer projects, people will leave. Some of this is planned but other departures are not. Each person leaving takes with them knowledge of the project, the rationale for decisions and other vital items of information. Every staff change therefore represents significant knowledge loss. Areas of the project can be put at risk, decisions may be revisited as no one knows why the original decision was made, and so on - all extra time and cost with no increased value.
Each quarter you should look at the team, what is the turnover rate (vis-a-vis the planned rate). What critical resources have left? How many of the project leadership team that started the project is still here? Are there signs of 'rats deserting a sinking ship'?
- Cash burn rate. Firstly do you know your weekly/monthly cash burn rate? If not, you should find out fast. This tells you quickly the financial impact of potential delays and overruns. While the financial budget may look satisfactory, the alternative measure is the actual cash burn vis-a-vis the planned burn. Under spending is as much a leading indicator that something is wrong as over spending. Changes in cash burn rate can be fully explainable and acceptable. Alternatively, they can be a leading indicator of failure.
Full risk management requires that all of the leading indicators are known, monitored and acted on when necessary.
Click here for the first in this series How to Manage Project Risks
Or to read Jed's previous column, How to Manage Project Risks, Part 4: Corporate Risks click here
Jed Simms is CIO magazine's weekly project management columnist. Simms, founder of projects and benefits delivery research firm Capability Management, is also the developer of specialized project management and project governance Web site www.project-sponsor.com