Succeeding in business is often about having a never-give-up attitude, so it should come as no surprise that business leaders who make it to the top aren’t conditioned to pull the plug on projects that aren’t going as expected. Canceling a project can be seen as admitting failure. But in fact, clinging to sunk projects opens the door to true, catastrophic failure. A willingness to kill unsuccessful projects helps organizations remain focused on achieving their strategic goals.
But how do you know when it is time to cancel a project? Is it when fiscal conditions suggest a problem? Or when the project no longer seems to be aligned with the strategic goals of the organization, perhaps because changes in business conditions have forced priorities to change?
A combination of financial and strategic considerations help determine where and how resources are best committed. In turn, this determines if (and when) to consider the discontinuation of an existing project. This will be considered whether a project can maintain “health,” as defined by the organization’s criteria for that project.
The Project Portfolio Governance Model
For a project cancellation process to function smoothly, organizations need a sound project portfolio governance model.
Organizations cannot reliably identify which projects to divest from until they have the following key attributes in place:
- Stages and gates are well-defined, broadly adopted, and consistently followed.
- Each project has a detailed project plan or work breakdown structure aligned with these well-defined stages and gates.
- There is a rigorous approach to project execution that requires timeliness and accuracy when evaluating key performance indicators (KPIs).
Establishing an effective portfolio governance model within an organization creates an objective and optimal process for evaluating projects within the portfolio. It also provides ongoing opportunities for the organization to enrich the portfolio with new projects that better meet organizational goals as conditions change.
Stages and Gates
An effective portfolio governance model first defines standard stages for each type of project within the portfolio. Stages may include:
- Project Definition
- Project Approval
- Product or System Design
- Build Prototype
- Project Pilot/Test
- Product Scale-up or Deployment
- Product or System Launch
- Support
Clearly defined stages serve as standardized checkpoints that a project must reach in order to continue. These stages should be tailored to the different categories of projects within an organization, such as new product development, application development, construction management, new business initiative, and Six Sigma implementation.
Key Performance Indicators
Within each of the established stages, the portfolio governance model should then identify KPIs to determine the decision criteria—or gates—that a project must pass to proceed to the next stage. These predefined metrics are critical when executives must decide whether a project should continue or be stopped because it does not meet the established criteria for projects within the portfolio.
This is an opportunity to establish quantitative measurements for defining, approving, planning, analyzing, tracking, revising and reporting on the status of all projects across the enterprise. These clearly defined metrics may include the following:
- Schedule and budget variances
- Risk, or probability of success
- Return on Investment
- Market fit
- Project priority
- Competitive landscape
- Defect identification and reduction
These KPIs may be the product of several inputs. For example, return on investment may be determined by tracking metrics such as Net Present Value (NPV) and Internal Rate of Return (IRR).
By reviewing project portfolios frequently and evaluating performance based on well-defined KPIs at specific checkpoints throughout each project, the portfolio governance model allows executives to identify when a project is misaligned with any of the predefined dimensions required for it to continue.
Of course, these indicators will only be as reliable as the data informing them. A rigorous approach to project execution that delivers credible, up-to-date, and readily accessible project data is a prerequisite for everything discussed in this article. The portfolio governance model works best when executives can make necessary decisions confidently and objectively, using accurate, real-time information based on the KPIs of all active and proposed projects.
The Decision Makers
Once an organization has established the stages and gates, along with objective standards for determining which projects should continue, it must also clearly define who makes these decisions. A portfolio governance body should meet regularly to review the status of all active projects in the portfolio and make decisions that affect the overall portfolio composition. Additionally, it should ensure that existing projects and programs remain aligned with the organization’s strategic goals.
With the timing, standards, and decision makers in place, the organization has an impartial means of making a determination that can otherwise be difficult: deciding when a project should be abandoned. The ability to manage risk improves as project parameters become more concrete, allowing organizations to eliminate unsuccessful projects and programs earlier in the project lifecycle.
Ultimately, the greatest value of an effectively run portfolio governance model is that it allows organizations to focus resources efficiently on the projects that are best aligned with their strategic priorities.
