When it’s Time to Kill a Project – Part 1

I have a friend who took a director of engineering job with a company that was struggling to launch new products. He rolled his eyes when he told me he inherited a situation where there were more active projects than engineers working on them. This particular company never saw a project it didn’t like and the end result was a lot a great ideas in the pipeline, but not much coming out the pipe.

Project portfolio management is really about prioritizing your projects so you can allocate your limited resources on the right projects. In a perfect world, you would never start “the wrong” project and no project would ever run into trouble midway through. But, in the real world we sometimes have to admit we are on the wrong track and a project should be killed.

We have a hard time admitting failure. In a sense, pulling the plug on a project requires us to admit we made a mistake. Either we let the project get off track or we shouldn’t have approved it in the first place.

Economists refer to the money you have already spent as “sunk costs”. Once you’ve paid the price of admission for a lousy movie, that $10 becomes a sunk cost. The sunk costs are not coming back to you no matter how much longer you sit in the theater. Jason Cohen posted a great article on his Smart Bear blog recently about sunk costs.

Ok, so we get it. Sunk costs are not coming back and it is really bad to keep putting good money into bad projects. But, how do we know when a good project has gone bad? I mean, every project was once viewed as important and worthy of your company’s limited time and money at some point early in its life – right? What changed, and how do you recognize it?

Let’s look at a simple example of portfolio management and a project heading south. In this example, we are measuring projects on four dimensions: 1) five year gross profit; 2) development cost; 3) the ratio of gross profit divided by development cost; and a strategic score (0 – 100 scale) that captures more subjective things like the strategic importance of the project, the product's alignment with our sales channel, etc.

In our first review (we'll call it Q1) we decide project Alpha looks like a winner. It will give us $5M in gross profit over 5 years and development costs are $800K. Furthermore, it tops out in our strategic scorecard with a score of 85. We only have resources to do one new product development project at a time, so project Alpha is approved and we schedule our next portfolio management review for Q2.

In Q2 it is evident things are a bit off track for project Alpha. Marketing reports that their original estimates of the market were too optimistic and R&D reports the project is going to cost more than they originally planned. Five year gross profit estimates are down 50% and development costs are up 50% from when the project Alpha was approved. Project Alpha drops to 4th place on the project list.

Had we known in Q1 what we know now, we would have approved project Beta instead of Alpha. So, should we kill project Alpha at the Q2 review? There are no simple answers. I am going to take the next couple of posts to explore this question.