Should your Project Continue?

Companies that rely on innovation for growth, viewing the development of new products and services as their strength, must learn to live with failure.

Be Prepared for Failure
Even with all the effort put into developing and marketing fresh ideas, many projects, particularly the bold ones, are likely to fail. They are unlikely to achieve commercial success or emerge as major growth drivers. Indeed, studies have shown that it takes as many as 3,000 raw ideas to result in one commercial success. Have you got the nerve and stamina, not to mention the backing, to stay the distance.

Keep your Failures Cheap
If you have the backing, failure and lack of commercial success is not always seen as an unexpected and disappointing result. If you keep your disappointments cheap, you can afford a lot of them but first you have to be able to establish th ecriteria that allwos you to separate and nurture the winners, whilst distancing yourself and your investment from the losers.

What you need to do this is a “simple” net present value (NPV) calculator that assesses such factors as launch time, ramp-up time, competitive response, total investment, and projected annual costs and sales.

NPV Analysis

This NPV analysis is essential and it needs to be revisited repeatedly during a project’s development. It provides a simple and repeatable way to compare 'innovative initiatives' in an organisation. If a project consistently produces a negative NPV, then you will be justified in reducing or terminating the funding, on the grounds that it can no longer be justified and a managed closure is implemented.

Good Pruning means strong growth

This process is sometimes referred to as, “pruning” projects. The aim is to focus valuable resources away from unproductive activities to higher-priority, more attractive opportunities.

We are all aware that a great deal of effort is required to get a project started, therefore companies are often tempted to hang on to them and keep going, even after the project’s early promise has deteriorated. This leads to th e'gamblers' dilemma' whether to stay in the game and win the money back or to withdraw and cut your losses. The smart move is to withdraw and write off the loss to prevent further loss.

The Living Dead

The wrong path leads to an escalation of costs that cannot be recouped. As the investment of time, energy, and resources increases the probability of making a gain decreases. The tragedy with this, is that the energy and morale of good people and the effectiveness of the organisation can be completely compromised, when innovators become trapped in what venture capitalists call the “living dead” projects.

Project Escalation

Project escalation is emotive, and almost always appeares with the best of intentions but can conceal a number of negative human frailties. Researchers have identified three major sources of entrapment in a failed initiative:

• Psychological entrapment, in which team members feel personally committed to staying the course;
  
• Rationalised entrapment, in which team members feel that success is just around the corner; and
  
• Social entrapment, in which team members are reluctant to withdraw from a project because of commitments they have made to one another and to outside parties.
  

How do you question this?

A simple way to determine if the team is trapped is to ask each person in the group to anonymously agree or disagree with a series of statements. These statements can explain why smart, successful people might consciously or unconsciously have continued committing their talent and resources to projects that reasonably should have been shut down. They could include:

• I feel I will lose self respect and the respect of others if this project is shut down.
• Stopping this project would have a negative effect on my self esteem, my career and my ability to work with other teams.
• We made a public commitment to this project, and it would look bad to break it.
  
• We’ve made commitments to outside parties (investors, suppliers, distributors, customers) and inside parties (directors, management, other divisions, employees). We cannot or should not break them.
• We have had some good results and are at a turning point; it would be crazy to stop now.
• At this point, it would cost us more to stop than it would to finish.
• The people who want us to fail (rivals, competitors) will gloat.

If most of the group’s members agree with about a third or more of the statements, the team is at risk of escalating their commitment.

Breaking the news

You need to have a heart to heart discussion with team members about the various pressures that have little to do with the commercial promise of their project, and anything else that may be clouding their judgment. You know that tough decisions need to be taken and you need to tell them that. Be direct, but assure them that any decision that is taken will based on sound business strategy and will be the conclusion of a lengthy and thoughtful discourse.

Disengagement the people first

Disengaging from a failed project is not easy. You cannot simply hang a “closed” sign on a door and walk away.

It requires balancing the emotional commitment that team members have to a project, with the business logic behind the decision, in such a way as to a) salvage their pride, energy and motivation, b) show respect for their involvement and hard work to this point, c) help the organisation learn important lessons about project management, and d) maintain the reputation of the company and its' place in the market.