Will you be terminated today?
Wendy M. Stewart, PMP, Senior Partner, PMAT Inc.
Peter W. Sheremeta, PMP, Senior Partner, PMAT Inc
Project terminations are decidedly unplanned, often unexpected, and always traumatic. Although some failing projects are beyond salvage, many of those that are terminated could have had a chance at survival if the Project Manager had been able to anticipate the termination decision and taken the appropriate action to forestall the event.
Projects fail for many reasons. Significant research, particularly on high-technology projects, has been done on the causes of these failures. Among the top reasons for project failure are poor or incomplete requirements, unrealistic expectations, lack of management support, inadequate resources, and poor project planning.
But not all failing projects are terminated. Some recover while the more unfortunate ones limp along to an inglorious and ignominious end. Those that are terminated suffer one of four fates: extinction, addition, absorption, or starvation. Yet the literature on project terminations is sparse and very few Project Managers are willing to talk about their project failures. Regrettably, even fewer are prepared to share their knowledge and the insights gained through their experience with others who may unknowingly be about to experience a termination at first hand.
The purpose of this paper is to outline an approach for analyzing the potential for termination of projects in trouble. Armed with this information, Project Managers can then take the appropriate measures with respect to the termination decision, i.e., hold it off, recommend it, or make the necessary preparations to accept its consequences.
Before looking at ways of predicting project termination, it is appropriate to establish the framework within which this look at project termination will be viewed. This paper offers some definitions and postulates the questions that will lead to an understanding of the underlying structure of a termination decision.
Project termination is an unplanned, yet definitive cessation of project activities short of the initial objective. It is occasioned by a conscious decision, executed in a deliberate manner and usually with good knowledge of the resulting consequences. This differentiates it from project closure, which is taken to be the planned conclusion of the project's activities in accordance with the project plan.
Although many visualize project termination in terms of a swift, dramatic, and final ending, this characteristic typically describes only one type of project termination, that of project termination by extinction. However, there are four fates that a project about to be terminated can experience, and project termination by addition, absorption or starvation are just as final, if perhaps not as dramatic, as project extinction.
In termination by project addition, the terminated project is made part of a larger project. Although project resources usually remain to support the larger enterprise, the original project objectives are subsumed by the larger project. The project may retain an element of its former identity but it has lost its autonomy.
In the case of termination by absorption, the project destined for termination is either integrated into other larger projects or becomes part of the ongoing operation of the enterprise. Project resources are redistributed and the project loses both its purpose and identity.
Finally, with termination by starvation, a project is deprived of the necessary resources to sustain its ongoing activity and inevitable ceases to function. Termination by starvation on the part of one stakeholder can precipitate termination by extinction by another.
Although extinction is by far the most dramatic of the four fates, each is as lethal to the continuation of the project as a drop of the guillotine blade. To be able to anticipate a termination decision or perhaps to even recommend one, a Project Manager should have a means of evaluating his project to determine the likelihood of it being terminated.
To provide a basis for an analysis of termination decisions, we ask and then attempt to answer the following questions:
• Who are the stakeholders that can directly terminate a project?
• Why would a stakeholder terminate a project?
• When will a stakeholder terminate a project?
Project termination does not just happen; it is inevitably the result of a calculated decision by a key stakeholder. Although the announcement of the decision to terminate a project may come as a surprise, often there are warning signs, as the affected stakeholder will endeavour to forestall the fateful decision. Human nature being what it is, there will usually be some attempt to salvage the project, if for no other reason than selfish self-interest. How close to the termination threshold the project is and what the perceived chances are for project recovery will all determine if the termination will indeed occur.
Project stakeholders are numerous and varied. Each project brings its unique combination of individual interests, objectives, and agendas. Despite this diversity, the following class/group of stakeholders are considered to be the most significant in terms of having the means, opportunity and motive to terminate a project. All can do so directly or indirectly by creating conditions that would cause another key stakeholder to make the termination decision, e.g., a client refusing to approve a Change Proposal, causing the project to miss key milestones and fall irretrievably behind in its schedule to the point where Senior Management is unprepared to accept the resultant costs; the project is terminated by Senior Management.
Client. The client figures prominently in the list of key stakeholders because of the recent attention to quality and customer satisfaction that has developed in most commercial ventures. However, the client is no more anxious to terminate a project than any other stakeholder and, in some respects, because of his or her vested interest in obtaining the project deliverables, may actually stick with a doomed project well beyond the point at which it should be terminated. Nevertheless, with a primary focus on Objectives, and to a lesser degree, depending on the contracting vehicle used, Financial, the client remains a key stakeholder to watch for signs of termination preparation.
Senior Management. Because of its central role in either initiating a project or accepting a project through a contract with a client, Senior Management plays a pivotal part in the termination decision process. Focused on Objectives, Financial and ROI as the factors of most significance, Senior Management is also very susceptible to pressure for the other three key stakeholder groups (client, investor, society). It is indeed ironic that Senior Management, which is usually the stakeholder closest to the project, is often the one most difficult for the Project Manager to reach.
Investor. Although not applicable to every project, an investor, such as a venture capitalist, wields considerable influence and oftentimes casts the deciding vote in a termination decision. Concerned primarily with ROI, the investor is acutely risk-conscious and has no connection to the project beyond its role as an investment. Consequently, thresholds are lower and termination decisions may come quickly and unexpectedly as fortunes and priorities for the investor change.
Society. Built and managed by people for people, projects are social constructs. They become an integral part of our environment, oftentimes delivering change to a change-resistant client. Inevitably, the project environment, driven by political, legal, regulatory, moral and social considerations will impact the very existence of the project. Society's representatives, who have their own agendas, may act directly or bring sufficient pressure to bear that other key stakeholders exercise their termination authority. A classic example was the cancellation of the Canadian SeaKing helicopter replacement program by a newly elected government at a cost of $50M in termination fees and penalties. For the society stakeholder, the key termination factor is project Objectives.
Stakeholders, as their name so accurately describes, have a vested interest in the success of the project. Consequently, any reasonable plan to salvage a project will receive a fair hearing and have a reasonable chance at implementation providing that termination threshold has not been crossed. Timely, effective communication with all stakeholders, including those who represent society, be they politicians, lobbyists, or the media, is essential to not only help define those threshold tolerances but to get early warning of termination intentions. Communications Management, one of the A Guide to the Project Management Body of Knowledge's nine Knowledge Areas, plays a key role with all four key shareholders in ensuring that any decision taken is done so with all the appropriate data, analysis and commentary that a Project Manager can muster.
A project termination decision will not be taken solely because a project is experiencing programmatic difficulties—difficulties in schedule, quality, or resource staffing. These difficulties only serve to draw stakeholder attention to the project and a reassessment of their commitment. The termination decision, when it does come, will be taken when a stakeholder, with the authority to terminate the project, has determined that the project no longer meets the minimum threshold in an area that is considered “vital ground.” Consequently, if certain key factors can be monitored, particularly during times when a project may be in difficulty, then the likelihood of a termination decision coming as a surprise is greatly reduced or perhaps obviated altogether.
But what is a stakeholder's vital ground? Vital ground comprises those core interests, values, ideals, and objectives that justify and sustain the project's existence. Removal, reduction, or significant restructure of any one of the variables that help define and shape the shareholder's vital ground will cause the fundamental raison d'être for the project, along with the stakeholder's support, to evaporate. As each project is unique, the vital ground will invariably vary from project to project and stakeholder to stakeholder. However, there appears to be a commonality among projects that points to a few key factors as the principal sources for occasioning a termination decision. These key factors provide a logical grouping of variables and allow us to focus attention on a core list of factors that play a critical role in forming and shaping the termination decision.
These factors and variables are identified in Exhibit 1.
A project's Risk Management Plan remains the best vehicle for identifying, monitoring, and addressing project risks. However, depending on how project risks are identified or even described, the seeds of project termination may be germinating without the necessary attention being paid to their removal or mitigation. Having a listing, such as that provided in Exhibit 1, provides a valuable checklist against which to compare a project's risks and focus the Project Manager's attention.
No discussion of thresholds can be had without establishing a basic premise: it all boils down to money! People may get upset when the project does not meet their expectations; but they get even and terminate the project when they learn what has been spent to date and how much more will be required to “set things right.” Therefore, regardless of how difficult it may appear at first, all factors should be quantified in monetary terms.
A stakeholder will terminate a project when a project exceeds a threshold in any one of the above factors—Financial, ROI, Time-to-Market, or Objectives. The terminating stakeholder will be different for different projects. The terminating factor will be different for different projects. To complicate the situation further, the threshold will vary from project to project and stakeholder to stakeholder. However, there are four common thresholds referred to as the “Four P’s” that can be monitored by the Project Manager in his or her attempt to anticipate and mitigate the termination decision.
Profit. Many projects are undertaken with the expectation that the organization will realize a profit—either immediately or in the near future. Stakeholders will reluctantly accept some deviation in actual versus budgeted costs as long as they remain confident that some profit will be realized and the final product will still be delivered as expected. But, at some point, runaway costs will create an unbearable situation for the stakeholder and termination will ensue. When will this happen? Senior management can be expected to trigger the termination decision when the project has consumed all of the expected profit and is now being supported by corporate funds. External forces driving the project's expected ROI below a corporate standard will also force a termination decision by either senior management or the investor. The client will terminate the project when cost-plus projects consume the client's contingency and he or she is faced with diverting funds from other projects.
Performance: Projects are initiated with an expectation of the final result. These expectations are translated into requirements and a delivery time frame. For example, the project will make the organization more efficient or will introduce a new product to the market. All stakeholders recognize that change is inevitable and projects are rarely implemented in exactly the same manner as originally planned. Accordingly, stakeholders will accept some deviation in performance as long as they believe the essence of the project will be delivered in a time as close to the original time frame as possible. Many projects fail and are terminated because the affected stakeholder no longer believes the project will deliver on its promises. When will this happen? The client or senior management will trigger termination when the project has taken so long to deliver that other, more feasible alternatives are now available, a new technology has emerged that will achieve requirements or Earned Value Analysis reveals significant variances that can not be recovered. Given problematic requirements and a slipping schedule, the Project Manager must ask, Can someone else deliver what we said we would in less time than we will? If the answer is yes, the project can expect termination.
Exhibit 1. Key Factors and Variables
Purpose. All projects have a purpose in life. The purpose is usually expressed in the project objective(s) and it is this purpose that gives value to the project. A stakeholder will terminate a project when he or she believes that a project no longer has a value worth the investment. When will this happen? A project's loss of purpose is usually attributed to a significant change in the environment and manifests itself in realigned corporate priorities, reduced senior management support or interest, divergent technology, or societal pressures. The Project Manager can expect termination when senior management loses interest in the project, resources become increasingly difficult to acquire, funding sources evaporate, related projects assume responsibility for bits and pieces of the original project and society exhibits its displeasure. The Project Manager must constantly monitor the environment and be attentive to changes that could affect his or her project.
Predictions. Projects are delivered at some time in the future thus all projects begin with a set of initial predictions or assumptions. These predictions and assumptions are incorporated in the project plan. Project implementation is increasingly difficult when these initial predictions and assumptions become invalid. Exchange rate fluctuations affect costs, economic downturns affect the ROI discount rate, market conditions change and the project is no longer desirable. Essential third-party products may never become available from their vendors or may be incompatible with existing products or skilled resources may not be available when required. A change in predictions will cascade and ultimately affect profit, performance and purpose, or any combination thereof. Project viability becomes questionable and termination looms on the horizon. The Project Manager must continuously revisit these original predictions to determine their continued validity.
Exhibit 2. Process Wheel
Exhibit 3. Process Sequence
Having identified potential stakeholder terminators, highlighted the most likely termination factors and variables, and postulated possible termination thresholds, it is now time to bring all these elements together in such a way as to assist Project Managers in reducing their vulnerability to a termination decision. These elements are depicted in Exhibit 2.
Since Project Management is not only a science, but also somewhat of an art (mixed, arguably, with a touch of magic), it is not possible to provide one single prescriptive formula that can be used to evaluate the termination variables and provide a foolproof indicator of a forthcoming termination decision. There is no “silver bullet” and no substitute for thinking through the problem. Nevertheless, what can be provided is a process, which, if applied intelligently and with due regard for the uniqueness of every project, will provide a means of focusing attention on the factor that is most likely to cause a termination decision.
This approach is classic Risk Management, where risk is a function of uncertainty and the negative effect it entails. However, in assessing risk under the shadow of a termination decision, the total risk picture must be taken into consideration. This implies that one must consider not only the severity of the risk, but also the cost of developing the risk response to offset or mitigate that risk. Consequently, the following formula provides a better view of the true costs of a risk:
Risk Cost = Impact (in $$$) x Probability + Mitigation Cost x (1 – Probability)
where Impact is the monetary equivalent of the consequences to the stakeholder should the predicted risk occur, Probability is the statistical likelihood of the risk occurring, and Mitigation Cost is the monetary estimate of what it would cost to preclude or minimize the effect of the risk.
For each termination variable, two elements need to be determined: What is the probability that this variable will have a negative impact on the project? And, What is that impact to the stakeholder in financial terms?
Admittedly, quantifying some termination variables in terms of monetary values can be difficult and certain assumptions may need to be stated and some innovative approaches applied. Perhaps even more difficult will be the challenge to determine for each project the value of the threshold that will make the project a termination casualty. In the worst case (or perhaps in the best approach), the Project Manager should sound out the affected stakeholder and determine directly what is the threshold value that the stakeholder has established for the project. Notwithstanding the answer provided or deduced, it is important to remember that the threshold is a time-sensitive quantity and the value today may not be valid tomorrow.
Each termination variable assessed as having a potentially negative impact for a particular stakeholder must be quantified to establish its Risk Cost. They then must be viewed through each stakeholder's threshold perspective to assess whether each remains within acceptable limits or has already exceeded the threshold. The key is to focus the cost-benefit analysis on the Risk Cost and to evaluate the Risk Cost of each termination factor against the threshold for each stakeholder, recognizing that each stakeholder will have a different threshold value that will trigger a termination decision. In summary, the process, triggered by the realization that a project is in trouble, consists of the steps shown in Exhibit 3.
Once Risk Cost values are established, it becomes a matter of monitoring, mitigating, and managing the variables as the project progresses. Constant attention to all the termination factors and variables is essential so as to preclude any one variable from becoming critical due to a change in the project environment. Eternal vigilance is not only the price of liberty, but also the potential salvation of a troubled project.
Project termination is never easy, neither for the stakeholder making the decision nor the project team affected by that decision. Sometimes it is inevitable; more often than not, preventable. From the four fates of project termination, to the four key termination factors, to the four key stakeholders who are most likely to make a termination decision, the termination “Rule of Four” provides a guide to assist Project Managers in forestalling a termination of their project. However, like the fine print in a mutual fund offering, there are no guarantees in this method and the best that can be expected is that Project Managers recognize their vulnerability to a termination decision, identify from where that decision is likely to come, analyse their options and act aggressively to present the facts, alternatives and recommendations to the stakeholder before anyone else does.
When it becomes evident that a key stakeholder's termination threshold is about to be reached, a Project Manager should reassess the continued viability of the project in light of the termination factors and variables identified in this paper. In the end, it may mean a recommendation to terminate the project. Undoubtedly, this is a difficult yet courageous decision. This is not an easy thing for a Project Manager to recommend—his or her pride, emotional investment, concern for the team and concern for his or her own record will make it difficult. However, it is much preferred to the alternative of having the termination decision taken entirely out of the Project Manager's hands or, worse yet, come as a complete surprise.
No project has an inalienable right to exist. All have a critical termination threshold. By maintaining an awareness of and a sensitivity to the variables in the termination factors outlined in this paper, a Project Manager with a project in trouble may be in a better position to rescue the project from failure or salvage what remains after a termination decision is taken. It's all part of being the master of your own destiny rather than a slave to someone else's agenda.
Proceedings of the Project Management Institute Annual Seminars & Symposium
September 7–16, 2000 • Houston, Texas, USA