TOP Ideas

Over the past few weeks we’ve been detailing where and how value is lost and costs are increased on projects. The result on many projects is a net loss of over 50% of the possible value. Frightening!

But, why doesn’t senior management react to this?

One reason is that much of the value loss and cost increase is invisible. What senior management sees is distorted.

To illustrate

Say a project has a estimated cost of $10m with benefits of $6m pa. The project is then delivered for $11m and benefits of $4m are realized. Management sees a 10% cost overrun and a 30% loss of value – “Not too bad”

But, what if the true figures for this project were — optimum cost is $6m and total available value is $10m. Now the cost overrun is nearly 100% and the value loss is 60% – a very different outcome. And this is what is commonly happening on many projects.

Now it can be argued that identifying the true costs and value is not in the project manager’s interests as it reduces the funds available while increasing the value expectations.

So, what this does illustrate is that it is in business and investment committee interests – to deliver the best bang for each buck.

It’s time for the business to correct their prism and see what is really happening and take control of their projects’ value delivery.