I listened to one of my favorite podcasts yesterday, EconTalk. The episode was a discussion about credit
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default swaps and more generally about the financial woes we have gotten ourselves into. Then this morning, I read this article in the New York Times, “U.S. Shifts Focus in Credit Bailout to the Consumer“.
[Editor: Digressing so early in the post?] My first impression was that we gave the Treasury Department a check for $700 Billion without any real plan for what they would do with it. You could argue that they are being adaptive and changing their scope and method of execution in response to new information. Personally, I think they just had a bad plan to begin with, and now that has fallen through they are shooting from the hip.
What I would really like to discuss is the necessity of failure (don’t worry, I’ll tie this into project management at some point)! In the EconTalk program, Arnold Kling brought up an excellent point. During the internet bubble, did we go bail out all of the internet start-ups that went belly up? No.
Companies who operate in such a way that leads to failure should be allowed to fail. Otherwise, you create an implicit risk-reducing factor in the markets which leads to even more problems in the future. You also prop up organizational structures and models of behavior that are not self-sustaining otherwise. What does not fail on its own merit is what is working. What works should persist until it ceases to work. Others see what is working and adapt it for themselves. (for instance, I just adapted the [Editor:] style in this blog from Andy Meyer! This is evolution, and this is why systems improve when they are not artificially “helped”.
In projects this happens all the time. Companies keep pouring in good money after bad into projects that should have never been funded in the first place, or should have been evaluated to discover they are no longer viable. This is a key reason why organizations need portfolio management which is somewhat detached from the functional and project departments. Sponsors, stakeholders, and the project manager are unlikely to press for the termination of their project. Their incentives are likely to be aligned with the project’s continuation. If it costs more, they get a bigger budget to work with. When they are given more money not tied to scope increases, there is an implicit precedent put in place that failure to plan well is OK. It’s not OK, regardless of whether you do waterfall, spiral, lean, agile, whatever. With known high-level scope a project manager should be able to give a decent estimate with a +/- range, even though the detailed requirements and features are defined later.
Another point Arnold brought up was the fact that many analysts and “geeks” in these organizations knew the risks and what was going on, but their voices in the organizations are not heard or disregarded by top management. This is another excellent lesson for project managers. Your staff and stakeholders collectively know much more about how things are going and the risks involved than you, your sponsor, or any one person. Find ways to make communication easy and transparent and leverage collective knowledge. Recommended reading: Two Great Wastes at ReformingProjectManagement.
I’d love to hear what you think about all this. Leave a comment below!
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Josh, I think your comments are right on and quite timely! I think you really hit on the crux of a major issues: balancing between doing and evaluating. You framed it around a project that should be cut, but I would even go so far as to point out a project that was worth while but needed to consider another approach.
In modern corporations, and perhaps the market place at large, we have become so obsessed with tactical performance, that we are missing the big picture. Tactical performance could be progression along a project plan, delivery of iterations of work, quarterly results (think “alternative mortgages” a couple years ago), that we frequently fail to see larger patterns unfolding which have the potential to wipe away whatever ephemeral gains we are struggling so hard to preserve.
I think a good deal of this is cultural. Many organizations communicate an expectation that failure is not acceptable. In most cases “failure” would be defined as a project that is not brought to conclusion. Once that mental model is in place, you will see all sorts of strange behaviors play out. Project budgets will increase, tasks will be crashed, and additional risk assumed all in the name of “saving” a project. I have seen numerous coworkers heralded as heroes for ultimately completing projects that hemorrhaged money, took too long and ultimately didn’t deliver the value promised. Going back to your original point about some of these financial institutions, I think the fact that many of them are now dependent upon government funds and loans would argue that they have already “failed” from the perspective of a for-profit corporation. Now we’re just arguing about what to do with the remains.
Josh, I think your comments are right on and quite timely! I think you really hit on the crux of a major issues: balancing between doing and evaluating. You framed it around a project that should be cut, but I would even go so far as to point out a project that was worth while but needed to consider another approach.
In modern corporations, and perhaps the market place at large, we have become so obsessed with tactical performance, that we are missing the big picture. Tactical performance could be progression along a project plan, delivery of iterations of work, quarterly results (think “alternative mortgages” a couple years ago), that we frequently fail to see larger patterns unfolding which have the potential to wipe away whatever ephemeral gains we are struggling so hard to preserve.
I think a good deal of this is cultural. Many organizations communicate an expectation that failure is not acceptable. In most cases “failure” would be defined as a project that is not brought to conclusion. Once that mental model is in place, you will see all sorts of strange behaviors play out. Project budgets will increase, tasks will be crashed, and additional risk assumed all in the name of “saving” a project. I have seen numerous coworkers heralded as heroes for ultimately completing projects that hemorrhaged money, took too long and ultimately didn’t deliver the value promised. Going back to your original point about some of these financial institutions, I think the fact that many of them are now dependent upon government funds and loans would argue that they have already “failed” from the perspective of a for-profit corporation. Now we’re just arguing about what to do with the remains.
Well put, Josh!
Well put, Josh!
Excellent analysis.
Our quandary; not being able to fire these poorly trained, project managers that lead our country. Headed by Nancy Pelosi and her cronies, they use our tax dollars to purchase votes under the guise of saving the automotive and financial institutions from failure.
This is just wrong, and the senators and congressmen (our country’s project managers) in Washington need to be fired. Replaced by some excellent portfolio managers who understand risk analysis and how to use it!
Ron Zimmer
Project Manager
Excellent analysis.
Our quandary; not being able to fire these poorly trained, project managers that lead our country. Headed by Nancy Pelosi and her cronies, they use our tax dollars to purchase votes under the guise of saving the automotive and financial institutions from failure.
This is just wrong, and the senators and congressmen (our country’s project managers) in Washington need to be fired. Replaced by some excellent portfolio managers who understand risk analysis and how to use it!
Ron Zimmer
Project Manager
Hi Ron, I like your sentiment, but wasn’t it those sophisticated portfolio managers that loaded upon mortgage backed securities in the first place? I’d love to find a few people to blame, but I think our economic woes can be blamed on the public and private sector.
Hi Ron, I like your sentiment, but wasn’t it those sophisticated portfolio managers that loaded upon mortgage backed securities in the first place? I’d love to find a few people to blame, but I think our economic woes can be blamed on the public and private sector.
One of the difficulties of “let them fail” is how much the financial world is built on trust. If you let one institution fail, all of a sudden all those sales they made have disappointed a buyer, and all their buys hurt a seller. Delays in settling their trades start to cascade through the system, and pretty soon institutions and individuals who were behaving responsibly are also hurt.
That said, Wall Street has always taken care of itself in the past. Companies merged, bailed each other out, and did odd transactions to avoid a meltdown. Seeing the US Federal government doling out money to these companies seems like a bad answer to me. Perhaps the government and regulators should be insisting on structural changes, instead of handing out money and guaranteeing loans.
In a project failure, companies kind of do that. They do not fire everyone involved in the project, but they look at the outcome of the project and figure out what changes they want to make in the way they do business. I wish the companies were taking a more responsible approach to their problems.
The financial crisis is also so different from a project failure because it is much less concrete. Some of the “failures” are due to paper losses on loans and instruments that were always difficult to value. On our projects we usually can touch and feel our failures more directly. We do not discover them through accounting audits!
It will be interesting to see what happens next. Will the automakers be bailed out too? Will the relief fund need to grow? Who knows.
–Alex
http://www.alexsbrown.com
One of the difficulties of “let them fail” is how much the financial world is built on trust. If you let one institution fail, all of a sudden all those sales they made have disappointed a buyer, and all their buys hurt a seller. Delays in settling their trades start to cascade through the system, and pretty soon institutions and individuals who were behaving responsibly are also hurt.
That said, Wall Street has always taken care of itself in the past. Companies merged, bailed each other out, and did odd transactions to avoid a meltdown. Seeing the US Federal government doling out money to these companies seems like a bad answer to me. Perhaps the government and regulators should be insisting on structural changes, instead of handing out money and guaranteeing loans.
In a project failure, companies kind of do that. They do not fire everyone involved in the project, but they look at the outcome of the project and figure out what changes they want to make in the way they do business. I wish the companies were taking a more responsible approach to their problems.
The financial crisis is also so different from a project failure because it is much less concrete. Some of the “failures” are due to paper losses on loans and instruments that were always difficult to value. On our projects we usually can touch and feel our failures more directly. We do not discover them through accounting audits!
It will be interesting to see what happens next. Will the automakers be bailed out too? Will the relief fund need to grow? Who knows.
–Alex
http://www.alexsbrown.com