Project Cancellation – How Come and Why?

Projects fail, and very rarely they do so on their last day. They very rarely fail suddenly but still organizations as well as their employees have a hard time canceling them, either because they fear damage to the company’s reputation or financial losses. But why is that? Where do these fears stem from, at which point during the project does its cancellation make sense and what factors need to be considered when cancelling projects?

Troubles Expected When Cancelling a Project

If you had to choose between a project manager that until now has completed all of his projects and one that had to cancel two important projects in his career, you probably would pick the first one. Past successes hint at future success, and cancelled projects are no successes. Targets and goals have been missed, and experience with failure is not a part of any CV.

But how would you decide if you knew that the second project manager was able to save millions and to realize other successful projects by reassigning resources from the cancelled project? It seems failure can be seen from two different angles.

Cancelling a project is difficult for organizations because it is an admission of defeat and shows that they do make mistakes, that they are not perfect. The same applies to individual employees, teams or project managers. In spite of experiences gained and lessons learned, cancelling a project is a flaw.

In addition, there is always a temporal component when dealing with the cancellation of projects. In the planning phase of a project a damaged reputation is very unlikely, but the longer a project lasts the more extensive the expected or actual damage will be. If the project is cancelled towards its end damaged reputation is sure to be the result. Maximizing the damage is also possible, e.g. by completing the troubles project and delivering product or service that does not work properly.

Damage to reputation over time

Damage to reputation over time

Sunk Cost Fallacy

“We have already invested 10000 man hours, it is impossible to cancel the project now! All the work would have been for nothing!”
“The project already cost 2 million; we just have to finish it!”

Utterances like these are common when a project does not go as planned and cancellation is to be avoided at any cost (literally). They are based on a fallacy; money has already been spent is now used as justification for carrying on and spending even more money.

This phenomenon is called Sunk Cost Fallacy or Concorde Effect. The Concorde is a prime example of state-aided mismanagement. Even after both of the partners France and England were made aware of the fact that operating in order to the Concorde would never be profitable, the continued to spend vast amounts of money in order to save face. Giving up would have been seen as capitulation.

The belief that nothing remains of aborted projects but futile efforts and money spent is wrong, ofcourse. Maybe new software features were developed, features that can be reused elsewhere. Maybe a certain approach has proven useful, an approach that can be applied to other projects. During the course of project all kinds of experience are made and these experiences can indeed be very useful and valuable.

New ideas, new approaches, refined goals and conceptions, all these things cannot come to life in ideal projects. The difficulty of quantifying the value of these things lets us look back to the future, towards the work already invested and the money already spent.

There are many reasons to invest in project in spite of problems, but the decision to do so or to cancel the project should be made by taking a close look at the future, not the past.

Will further investment be profitable or will it lead to even more losses? How can the goals be reached? Or is the cancellation of the project inevitable?

A Structured Approach to Project Cancellation

Are executing multiple projects of the same type similarly in your organization? Are there project types that are planned, controlled and managed based on a common approach? If so, chances are good that you will find a structured approach to the cancellation of projects. If not, good luck.

Defined processes for initiation, planning and execution of projects are the prerequisite for organizational standards for the controlled cancellation of projects. Thus, before thinking about the best ways to abort a project you should think about your general approach to them.

Many business processes, standards and methods know specific times designed to make decisions on the continuation of a project. The British project management method PRINCE2 has the Stage-Gate Concept, the German V-Modell XT defines Decision Points.

These so-called Quality Gates have one thing in common; a person or a group of persons evaluates the results and decides whether a project is to be carried on or cancelled. Changes to boundary conditions, new requirements or newly acquired insights on issues it may be possible to continue with a slightly altered business case. Ideally, the next project phase, required resources and financial means are released. Alternatively, the cancellation of the project can be agreed on.
At least that is the theory; in practice the design of the project cancellation lies with the affected project participants themselves.

The process of cancellation may look like this:

Process with optional project cancellation at phase clearance

Process with optional project cancellation at phase clearance

Indicators for Cancellation and Post-cancellation Perspective

If looking to the past does not help, how can you decide whether cancelling a project is the right thing to do? Well, it depends.

If an important stakeholder was to change is or her mind, if new laws or norms are introduced, if goals are redefined, if suddenly resources are missing and deadlines are in danger, if a project sponsor withdraws his support – there are many indicators that may have an impact on the decision.
You have no influence on legal requirements but there are companies that prepare for different draft bills. When the new law takes effect they only need to pick one of the pepared options.

Of course, such an approach requires that the necessary financial means and resources are available. For many projects this is not doable, but what is doable is the definition of boundary conditions and essential factors of a specific project; which can then be reviewed at the aforementioned quality gates.
Who decides if your projects are aborted? Is it the project manager, the management office, the steering committee or the program manager? Is it the same person, regardless of type, scope and volume of the individual project? For organizations it is essential to agree on responsibilities.

It is vital to have all information relevant for decisions on the continuation available. It must be clear who collects this information how and until when. Defining these aspects helps companies develop their own way of reaching a decision on the continuation or cancellation of projects. At the same time they increase their competence in managing these projects, which helps to reach the ultimate goals connected with every project, successfully completing projects with regards to stakeholder goals, content, dates, resources and budgets.

Two more aspects to consider when cancelling a project:

  • Communication about the cancellation
  • Steps following the cancellation

Both aspects increase the transparency within your company. If there are reasons to cancel a project they need to be communicated. Sometimes project teams try to achieve too much or are assigned too many tasks to be completed in a specific time frame. These kinds of situations are not beneficial; but it is even more important how you deal with these kinds of insights.

What measures does your company take to counteract these kinds of situations? How do you react if you realize you have neglected an important stakeholder? What is your approach to a scenario in which the planned effort has been calculated based on user stories that turn out to be much more complex?

Open communication about the cancellation of a project increases trust within the team. Identifying mistakes and the willingness to eradicate them is the basis for an improved image of the company.

Conclusion

Project cancellation is always a possible scenario, and for every project there is a fifty-fifty chance to success or cancellation. You may say that a structured approach to planning and execution, definition of goals and content, provision of the right resources and effective assignment of tasks help to increase the chances for success of a project.

Well, you are right. Still, many studies say that more than every other project fails. Ideally, project managers incorporate the possibility of a project cancellation right from the beginning. What is more, they should have made up their minds about criteria, transparency, lessons learned and a sensible internal and external communication.

Some say that each cancelled project is an opportunity, and they are right. It is always possible to do better next time. Still, it is far better to bring a project to its intended and successful end and create stakeholder benefits. The ultimate goal must be to plan and execute a project successfully. In other words, success is the goal while the cancellation is an option that aims at avoiding wasted manpower, money and risking a damaged reputation.

My name is Michael Schenkel – and I believe in tools, if they are useful. Tools that support users in their work, tools that provide a common working environment for all types of roles in a project.

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