It's a nightmare scenario for any chief executive: A long-term project turns out to be so far over budget and behind schedule that some stakeholders are threatening to go to the media. The second CIO since the project began has quit, and the contractors involved are running amok, each pursuing its own distinct strategy.
Sadly, this scenario is real: It happened at the FBI, as I noted in my blog last week. And it continues to happen in various forms to many large enterprises.
Another case in point: BlackBerry (Nasdaq: RIMM; Toronto: RIM), plagued by executive turnover, falling market share, and skepticism from press and analysts, is nevertheless pressing on with a staged rollout of its latest smartphones, despite their 2013 ship date.
Another instance: Yahoo has hired a high-profile (and expensive) CEO, despite internal and external problems that are severe enough to have observers calling "Time!" for the beleaguered portal provider.
All of which prompts questions: How can an enterprise leader decide when to pull the plug on a costly project? And what are the signs that it may be time to consider doing so?
In the case of the FBI, we can see that the warning signs were legion. But so much had been invested in the project by the time it went off the rails, and the ultimate goal was considered to be so vital to national security, that the decision to press on seemed to make sense. Whether it could have been handled differently is open to question.
Determining when to end any project may involve comparing losses so far to potential future losses, then choosing the path of lowest risk. This technique can be the smartest way to go, especially in the case of technology projects, where failure can be massive. In a September 2011 article, Bent Flyvbjerg and Alexander Budzier write:
Any company that is contemplating a large technology project should take a stress test designed to assess its readiness. Leaders should ask themselves... is the company strong enough to absorb the hit if its biggest technology project goes over budget by 400% or more and if only 25% to 50% of the projected benefits are realized?... These numbers may seem comfortably improbable, but, as our research shows, they apply with uncomfortable frequency.
In the case of RIM, and also of Yahoo, the evaluation of risk is massive and many-faceted, extending way beyond a single project. This can make it even tougher to know when to pull the plug on the business as a whole. Adding to the difficulty are the personal feelings of board members, executive management, and staffers who may not want to see their work sold off or declared a failure.
Knowing when to end a project or terminate a business is never easy. It requires the utmost dedication to objectivity in assessing whether it's wiser to cut present losses or to forge on in the hope of greater ultimate gain.
— Mary Jander , Executive Editor, Internet Evolution