Pull the plug
Half of the projects companies launch end up failing, according to a 2004 PricewaterhouseCoopers global survey of 200 small and large companies.
By putting a halt to projects on the path to failure, organizations can divert resources to more valuable endeavors. Yet most companies don't have a process for shutting down projects before their scheduled demise—and that's proving to be a costly mistake. Xiaojin Wang, Ph.D., PMP, of Yunnan University in Kunming, China, and Lonnie Pacelli of Leading on the Edge International, Sammamish, Wash., USA, discuss the ins and outs of early project termination.
illustration by Rich Lillash
How do you know when it's time to pull the project plug?
Dr. Wang: It's more a matter of expert judgment than quantitative and accurate analysis. At any point in a project life cycle, technical, managerial, financial and administrative experts may suggest that the project is not worthy of continuing. In that case, the project needs to be judged against the project termination checklist prepared during the planning phase. The examination should be conducted by a group representing the key project stakeholders. The results then should be reviewed by a change control board. A decision to terminate the project must then be submitted to the management who issued the project charter. As soon as the management approves the decision, the project goes into the closing process.
To terminate a failing project in a smooth and timely manner is an essential—but currently overlooked—skill in project management.
—Xiaojin Wang, Ph.D., PMP, Yunnan University, Kunming, China
Mr. Pacelli: The primary indicator comes when you are confident that the net benefit the project originally justified cannot be met within the desired timeframe. This is either because project costs are higher than planned or the anticipated return to the business is lower than planned.
While they may exist and function well in some organizations, I've never seen as regimented of a process as outlined by Dr. Wang. If the termination is sought by the project team, the project's management team concurs on termination then recommends termination to the project sponsor and steering committee, if it exists. If the sponsor and steering committee concur then the project stops. If termination is called for by the sponsor or steering committee, then the project pretty much stops as soon as the sponsor says to stop.
What are the most common reasons for early project termination?
Dr. Wang: The project may be terminated for technology reasons—a new, innovative technology is impossible or the project team doesn't have the expertise to reach the project's technical requirements. Another reason is an unacceptable benefit-cost ratio or a fund requirement beyond the organization's capability.
Also, critical changes in the external environment—marketing conditions, political and economic conditions, technical innovation, competitive developments—often have critical impacts on projects.
The driving force for terminating the project also may come from the organization: strategy change, management change, financial situation, resource availability and restructuring.
The project also may kill itself—that is, its performance is so poor that it must be terminated.
Mr. Pacelli: One reason for early termination is a conscious decision by the sponsor, stakeholders and project manager or team that the anticipated net benefits are no longer attainable. Another reason is there are more important projects that need to be completed, thus requiring the termination of the less important one. A third reason is there's a more important need for funding or resources earmarked for the project.
Do most companies have a set process for terminating projects? With all the focus on success, is this an overlooked skill?
Mr. Pacelli: I wouldn't characterize terminating projects as a “skill” per se. It's a process that needs to occur should the project sponsor decide to terminate the project. Generally, most companies don't have formal termination procedures for projects not brought to conclusion.
Dr. Wang: To terminate a failing project in a smooth and timely manner is an essential—but currently overlooked—skill in project management. While most companies have a formal process for closing out completed projects, they don't have formal processes for terminating projects that don't reach their planned ends. The process is usually more difficult. Most companies need a set of formal processes that specify how to judge, evaluate and approve a termination proposal, and how to plan and execute the termination work after the decision is made.
Here are some key indicators it may be time to call it quits:
Xiaojin Wang, Ph.D., PMP
• Change in organizational strategy. Shifts in organizational strategy usually make some important projects invalid.
• Loss of critical expertise. On highly innovative projects, a small number of key team members may be irreplaceable due to their expertise. If they leave, the project will be forced to stop.
• Excessive estimate to completion. If an excessive amount of cost or time for completion is anticipated—compared to the planned amount—the project may become commercially impossible.
• Stakeholder disagreement. Although the stakeholders usually agree to project objectives and deliverables at the beginning of the project, they may disagree during the planning or execution phases. That may be because the original description of project objectives or deliverables is problematic or because of a change in the stakeholders' needs, wants or expectations.
• Sliding schedules. Due dates are chronically missed.
• Lack of project sponsor interest. The sponsor no longer considers the project a high-enough priority to spend time on it.
• Fuzzy scope. The project scope either continues to change or is chronically questioned by stakeholders.
• Diverted funding and resources. Money and/or people are diverted from your project to other, more important ones.
• Failure to meet acceptance criteria. The project deliverables are significantly out of spec relative to the acceptance criteria.
Is project termination the same as project failure?
Mr. Pacelli: No, the action is generally proactive. Project failure is a reactive event where a project that should have been terminated at an earlier point is allowed to proceed. For example, if warning signs went unheeded and the project was not able to complete successfully when it could have terminated earlier, then failure has occurred.
Dr. Wang: A project terminated before its scheduled completion is not necessarily a complete failure. A terminated project is a failure from the project product perspective because it doesn't deliver the desired end result, but is not necessarily a result of poor project management. Because uncertainties and risks are inherent in all projects, terminating a project before its planned end should be regarded as a normal and acceptable practice. If terminated projects are seen as complete failures, then project managers and project teams will be tempted to continue projects that should die.
points of view
Lonnie Pacelli is president of Leading on the Edge International, a leadership development consultancy in Sammamish, Wash., USA. He is the author of numerous books including The Project Management Advisor: 18 Major Project Screw-ups and How to Cut Them off at the Pass [Prentice Hall, 2004].
Xiaojin Wang, Ph.D., PMP, is an associate professor at Yunnan University, Kunming, China, and was the first non-North American winner of PMI's Educational Foundation International Student Paper of the Year Award. He also is author of Realizing Your Objectives: Project Management as Methodology and Values/Beliefs [People's Publishing House, 2003].
What problems can not terminating a failing project create?
Dr. Wang: To continue a failing project is to waste your efforts. By not pulling the plug you invest time and money into an undertaking with a benefit-cost ratio of less than one. Other possible problems include: preventing new projects from starting, damaging the morale of the project team and staff within the organization, and further damaging the reputation of the project manager, project team or organization.
Mr. Pacelli: Not pulling the plug means lost time and money and the delayed progress of other projects that could have used the resources from the failed project.
Does terminating projects make room for new ones?
Mr. Pacelli: Terminated projects free up resources to work on whatever is a priority to management. It doesn't necessarily have to be a project.
Dr. Wang: It depends on why the projects are terminated. Although in some cases terminating projects will make room for new ones, terminating projects and starting new ones are two independent matters with no inherent cause-effect relationships.
There are always new projects that seem better than existing ones, but terminating a project to make room for a new one is dangerous and will cause many projects to be killed off unreasonably. New projects may seem better, but they usually have more uncertainties simply because they're in the very early stages of the life cycle.
Is there a certain point in the project life cycle when termination is easiest? Or most difficult?
Mr. Pacelli: The best terminations are those in which an “off ramp” is designed into the schedule. Good project schedules build in decision points when the sponsor, stakeholders and project manager objectively look at the anticipated net benefits and decide if proceeding is a good business decision. The earlier you make this determination in the project life cycle, the less time and money is dedicated to the project.
Difficult terminations are those that are unplanned or don't occur in an “off ramp” checkpoint. This is true regardless of whether it is due to internal project issues or external factors.
Dr. Wang: It's easier to terminate a project at the end points of project phases when the project status is reviewed and the deliverables are checked and accepted. If the deliverables can be integrated into other projects or organizational operations, the loss caused by the termination will be minimized.
Who should be involved in making the call? What role do executives and the project management office (PMO) play?
Mr. Pacelli: The decision-makers include the project sponsor, critical stakeholders that will be impacted by the termination, the steering committee—if it exists—and the project manager. The PMO—if it exists—can provide a recommendation to the sponsor, but in the end, the ultimate decision rests with the sponsor.
Dr. Wang: Every key stakeholder should be involved in making the call: the management and executives, project sponsor, project steering committee, project change control board, project customer, project manager, functional manager, project team member and PMO. Each stakeholder may review a termination proposal from its own perspective.
Management must not order the project to be terminated simply because of their subjective judgment, except in a state of emergency. It may be that the organization is experiencing an urgent and major financial difficulty or that a sudden unexpected event is happening in the project's environment. For example, many projects were stopped by governmental authorities and/or companies' management for the sake of human safety during the 2003 SARS crisis in China. In these cases, we don't have time to consult every key stakeholder and have to depend on the management's authoritative instructions about terminating the project.
Not pulling the plug means lost time and money and the delayed progress of other projects that could have used the resources from the failed project.
—Lonnie Pacelli, Leading on the Edge International, Sammamish, Wash., USA
What's the role of the project manager?
Mr. Pacelli: The project manager is responsible for presenting factual, non-emotional information to management and recommending whether or not the project should be shut down.
Dr. Wang: The project manager plays a very important role in making the call because he or she is close to the project issues. He or she may propose a termination or contribute to the evaluation of a termination proposal. Once a termination decision is made, the project manager is obliged to formally plan and execute closing processes for the project and ensure a smooth termination.
How should the project team be informed?
Dr. Wang: Once the termination has been authorized by management, the project manager should inform the team quickly, directly and completely. He or she should also explain why.
This decision will certainly cause some emotional problems within the project team—fear of unemployment, loss of team identity, loss of interest in the remaining work, and loss of motivation and morale. It's best for the project manager to actively confront the problems by giving team members ownership of the termination process and providing feedback about their performance.
Mr. Pacelli: Tell the team as quickly, completely and transparently as possible. Do it face-to-face if at all possible. It's important for the project manager to be very honest as to why termination occurred and to accept his or her share of responsibility.
A terminated project is a failure from the project product perspective because it doesn't deliver the desired end result, but is not necessarily a result of poor project management.
Once the decision has been made, what's the best way to officially close out the project?
Dr. Wang: The project should immediately and formally go into the closing process. Termination plans must be prepared, approved and executed. Close out all the work authorities and contracts, review all the completed deliverables for their possible usage, update and archive project documents, and release project resources.
Mr. Pacelli: Make the shut-down process as quick and painless as possible. Ensure project documentation is archived, any project team member performance appraisals are completed and any open work is brought to a brisk conclusion. Remember to thank the team—take them out to dinner or some other gathering.
Is it helpful to conduct a post-mortem on what went wrong?
Dr. Wang: Yes. After the termination has been executed, a post-mortem should be held among the key stakeholders. It is very important for a company to accumulate lessons learned and to update its organizational process based on the experience. Because people are reluctant to face the problems causing the termination of the project before its planned end, the post-evaluation of the uncompleted projects is often overlooked in many companies.
Mr. Pacelli: It is important to not only capture what went wrong on the project, but also what went right. Do the post-mortem as soon as you can after the project has ended to capture things while they are fresh and before team members get deployed to other projects. PM
PM NETWORK | JUNE 2006 | WWW.PMI.ORG
JUNE 2006 | PM NETWORK