In this article, let’s discuss how and why a project that any company undertakes may fail. More importantly, how do the project managers decide about taking up a project and whether they keep on investing in a project that may be a very risky investment, highly prone to failure.
In a few of my previous articles, I’ve talked about the personal psychological biases that individuals have in their minds. These biases act when the individuals take financial decisions, shop around, behave in a social network and basically, in all situations. The same goes true for financial managers and investment experts.
Do a self assessment: Remember when you’ve bought a stock and it turned out to be a loss making investment for you. Did you sell it off immediately to cut your losses? Did you immediately changed your mind and convinced yourself that this is not a good stock so let’s get rid of it. Most of the times, the answer to the above questions will be NO. The reason is the human nature, whatever we do, whatever we believe, whatever we think, we get possessive about it. In the investments world, it is more common for people to hang on to their loss making stock purchases because they have all kinds of reasoning: “Let me average it out by buying more stocks”, OR “Stocks give better returns in the long run, let me hold onto it”.
The same is true for the investment and project managers also. They take up new projects. These projects are either allotted to them by the higher management or they do their own research and come up with ideas which the higher management approves. Hence, they get possessive about their ideas and the project that they are going to undertake and are willing to risk the money for investing in the project.
It is usually claimed that merely 4% to 5% of the research work actually goes into real production and implementation. The rest 95% of the research work is wasted. That sounds quiet affirmative, because if majority of the research work would have been a success, the world would have become perfect centuries ago.
Now given these kinds of success rates, the projects that managers take up in the company are also prone to high level of failures. Yet the managers risk the money on such projects and go along betting on the success of the project and the product.
Let me take a simple example here. I guess almost all of us should have seen the Cadbury’s Bournvita 5 star ad on the TV, which shows a few kids waking up at midnight, then jumping over the fence to a nearby cricket stadium, then breaking into the electricity control room, studying a complex circuit design and finally lighting up the flood-lights and turning the light panels so that it focuses on their houses or flats. Then, these intelligent smart kids go back to their respective houses and wake up their moms and demands Bournvita 5 star drink, because they have created an effect of daylight using the stadium floodlight. The moms wake up, prepare bournvita, give them to the kids and later discover that it is still midnight, while their kids have done a great job by using floodlights to fool them. They seem to be convinced that they kids are very smart and Bournvita have made them intelligent enough to get up at midnight, break into the nearby stadium, study a complex circuit diagram and fool their own moms for want of Bournvita. :- )
Now, if I look at the entire theme, I get the impression that these “Bournvita” kids are actually the biggest dumb creatures on the planet. They have the intelligence to get up at midnight, break into the nearby stadium, study a complex circuit diagram and fool their own moms, but they don’t have the basic knowledge about preparing a glass of bournvita on their own for themselves. Is that what Bournvita does to kids – making them hardworking fools instead of making them fundamentally intelligent. I’m sure Bournvita didn’t had the idea of creating this kind of impression through this ad. However, the ad is still on air and is telecasted everyday.
Remember, this ad is company from the most popular health drink of the country, and that too from a reputed company called Cadburys, which has presence in majority of the countries across the globe. Before coming up with an advertisement, the advertisement and marketing team does a lot of study and surveys to identify things that will affect customer’s buying decision, they spend millions on producing the ad, then they pay for every second the ad is displayed on various channels. Everything costs money – yet companies do such mistakes. The same goes for investments in risky projects. Whatever ideas managers come up with, they get possessive about it and are willing to take the risk. Though chances of success may be limited, still they bet the money (basically stock investors’ money) on it.
The worst part of the above situation is about identifying the lapses in a project, when it is already sanctioned. A project is sanctioned, budget is allotted to it, the work commences, and then it is discovered that there are some problems. Still the project is taken ahead. The managers try to find some patch-ups to make up for the mistakes and lapses and carry on with the project. The motive behind it is that if the project is successful even with a low success rate, there will be good incentive for the manager.
Continue to Part II of this article
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