Hewlett-Packard was abrubt in parting company with its long-serving CEO, Carly Fiorina. One factor to count against her tenure was surely the catastrophic failure of HP\u2019s Enterprise Resource Planning (ERP) implementation in spring 2004.<\/p>\n
Hewlett-Packard\u2019s ERP project went horribly wrong and the firm attributed losses of $400 million due to delivery and logistics failures as a result. Additional costs \u2013 in stock price markdowns, management distraction and damage to brand and reputation \u2013 must be incalculably higher.<\/p>\n
HP is not alone. Even when projects do not result in catastrophe, a typical company spends 30 per cent of its IT budget on strategic projects, yet 40 per cent of IT projects fail to deliver their intended return. If anything, we believe these numbers to be an understatement. Nor is the problem confined to the IT world; recent scandals in the pharmaceutical industry, for example, point to failures of project governance in new product development projects. These failures are having multi-billion dollar repercussions.<\/p>\n
In our experience, at any moment, companies are spending between 20 and 50 per cent of their total available resources on projects. Sometimes even more \u2013 we once helped a client to work out that its project commitments required 1,200 person-years\u2019 of effort \u2013 this was a pity, as the company only employed 800 people.<\/p>\n
Project working has so exploded across the business world in the past 25 years that projects now comprise a significant part of business activity. Companies may, simultaneously, have projects running in IT, supply chain, operations, risk, organisational design, new product development, sales, marketing, back office operations \u2013 and anywhere else that change is needed in the business. As we have seen, one effect of this panoply of projects is to place the business proper at increased operational risk.<\/p>\n
This issue falls squarely in the domain of the board \u2013 especially when one considers the increased demands of regulatory frameworks such as Sarbanes-Oxley in the US and Turnbull in the UK. Section 409 of Sarbanes-Oxley, for example, requires US-quoted companies to report \u201c\u2026material financial events immediately\u2026\u201d instead of waiting for quarter-end. As HP found, the foundering of a major project certainly qualified as a \u2018material financial event.\u2019 The project went wrong; it had to report it \u2013 and the stock price tumbled 16 per cent.<\/p>\n
In the UK, the Turnbull Report places a similar onus on the board: \u201cThe Board of Directors is responsible for the company\u2019s system of internal control. Executive management is responsible for managing risks through maintaining an effective system of internal control, and the board as a whole is responsible for reporting on it.\u201d<\/p>\n
Most companies address this requirement in two related ways. The first is through their systems of management and financial reporting; the second is through the organisational structure.<\/p>\n
Look at most company reporting at the board level, however, and as far as projects are concerned one would be hard pushed to find evidence of either. It is difficult to see how board members find out what they need to know about the projects in the company from standard internal reports. And it is rare to have anybody in the executive suite responsible for project oversight (except in the case of major programmes, perhaps, but these are only a proportion of the company\u2019s total project activity). In practice, everyone knows projects are happening, but no-one knows quite how many. The only times the board normally becomes aware of a project are when it requires significant spend or strategic commitment, or when it crashes.<\/p>\n
In other words, most companies lack a systematic, consistent and transparent way to report on projects, their initiation, their progress and their risks. This leaves the company, and the board in particular, exposed in more ways than one.<\/p>\n
When a company\u2019s share price goes south because a project fails \u2013 how long will it be before we see directors being sued by shareholders on charges of criminal negligence \u2013 is it because the board lacked the reporting or financial controls to limit and manage the company\u2019s exposure to reasonable and predictable project risk? This is not a trivial matter.<\/p>\n
The problem arises because projects are, naturally, different from \u2018normal\u2019 or \u2018line\u2019 working. Everyday line working is what companies do. So the reporting, organisational, budgeting and planning processes the board relies on as evidence of internal control are based on line working. As we have seen, however, some 20 to 50 per cent of a company\u2019s resources and attention may well be consumed by projects. Under the line management model the board has little way of knowing about this commitment, and hence is unable to understand, less still manage, the risks to which these projects may have exposed the company.<\/p>\n
So how does a board know when it has control of its project exposure? When it can answer, quickly and consistently, the following questions:<\/p>\n
The answers may lie in a programme office. They may entail creating a Chief Projects Officer. They could result in installing a standard project management process. They might conceivably involve software (but beware \u2013 software can only be part of the answer; it will never be the whole solution). They should certainly include a \u2018projects\u2019 heading in any management report that the board sees.<\/p>\n
We used to live in a stable world but change is now the norm. Projects are how companies plan and execute such change. By the same token, projects are also how companies expose themselves to self-inflicted risk. There is now no excuse for the board not to accept the project challenge: projects are a significant, potentially dangerous part of business life \u2013 it\u2019s time we managed our businesses to reflect this.<\/p>\n","protected":false},"excerpt":{"rendered":"
Hewlett-Packard was abrubt in parting company with its long-serving CEO, Carly Fiorina. One factor to count against her tenure was surely the catastrophic failure of HP\u2019s Enterprise Resource Planning (ERP) implementation in spring 2004. Hewlett-Packard\u2019s ERP project went horribly wrong and the firm attributed losses of $400 million due to delivery and logistics failures as […]<\/p>\n","protected":false},"author":8,"featured_media":38092,"template":"","white-paper-type":[],"class_list":["post-38091","white-paper","type-white-paper","status-publish","has-post-thumbnail","hentry"],"acf":[],"yoast_head":"\n