Client Journey: Big Project failure

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Big projects fail at a phenomenal rate — in fact, they fail more than half the time. Consider, for example, the Inland Rail Freight Link project between Brisbane and Melbourne: When the Government committed to the project in 2017, the estimated cost was $9.3bn. By 2020, the  estimated cost had blown out to $16.4bn with a  projected completion date of 2026-27. 

For an international example, consider the case of the Berlin Brandenburg Airport — opening 9 years later that projected (and 30 years after initial conceptions) at a total cost of €6.5 billion, significantly higher than the initial estimate of €2.8 billion.

While a big project failure is never a good thing, it is an even bigger problem for small businesses than it is for large businesses or Governments — they cannot easily recover and pay for cost overruns. Add this to the list of reasons why it is harder to run a small business than a big one. 

Big Project failure has been consistently noted by major commentators, such as John Argenti in Corporate Collapse: The Causes and Symptoms, as a significant cause of business failure. 

Here we look at how big projects can lead small businesses to the point of insolvency, and what small businesses can do about it. 

What is a big project failure?

For small businesses, a big project is one that is broad in scope or complexity, is significant in the resources used, is large in impact, or carries significant risk. For a small business, common examples might include opening up a new physical site, launching a new product or service line, or a rebranding of the company. 

The project could fail for multiple reasons: It could massively overrun its delegated budget; a new product/service/re-brand could fail to sell; the project could draw so significantly on company resources that the efficiency of its core service is affected. 

What are the causes of big project failure?

A big project fails where those running the project fail to effectively anticipate the outcome. Why might this happen?

• Optimism bias. Excited by a new project, sometimes project owners can underestimate the potential risks, ignore negative information and be overconfident about positive outcomes. Arguably the failure of many crypto businesses in recent years are an example of this (optimism bias meaning project owners expected cryptocurrencies to continue to rise in value). 
• Autocracy. The author noted earlier, Argenti, suggests that businesses which are ran in an autocratic manner are more prone to grandiose projects that can sink a business (p135). Obviously, in the micro-enterprises that dominate the Australian economy (1-5 employees), the risk of autocratic behaviour is increased. 
• Poor project management methodology. Neglecting to adequately plan and supervise a project significantly increases the risk of failure. To address this, using an Agile or Scrum project management methodology can be helpful to break large projects into smaller iterations or sprints and therefore get early feedback on any problems. 
• Inadequate funds. Where insufficient financial resources are devoted to a project, this can lead to compromised quality and an inability to deal with unforeseen expenses. 
• Bad luck. Through no fault of their own business owners can get caught out. They may finish their project at a time when there is a macro-economic crisis for example during COVID-19.

How to avoid a big project  failure

What steps should a small business take to avoid a big project failure? We suggest the following:

• Realistic planning. Big projects need significant runway. If margins are tight, for example due to a recession, big projects may need to wait.
• Appropriate accounting tools. How are the ongoing costs of the project being monitored? Accounting software can be set up to automatically indicate to the business owner as soon as cost overruns are occurring. 
• Corporate structure. For asset protection purposes, it can be smart to run risky big projects through a special purpose vehicle — a subsidiary spun off from the company specifically for this purpose. A famous recent example (though not a small business) is Facebook. Facebook restructured its parent company into ‘Meta’, and then has several more experimental subsidiaries Oculus VR and Reality Labs. This means that any failure in those projects won’t be sheeted back to Facebook — both in terms of assets and in terms of reputation. 
• Guardrails. Have controls in place to quickly identify when a large project is starting to become a liability. The right project methodology, milestone reviews and quality assurance checks could all be part of this.  
• Exit strategy. You should have contingency plans in place for quickly dealing with failing projects. This should include how to reassign staff to core business/redeploy resources quickly, as well as reputation and risk management. For a recent example, one of the world’s largest eCommerce brands ‘WooCommerce’ has recently announced that after changing its site from woocommerce.com to woo.com, it is now reverting back to its original domain name. While the original change in domain will have cost the company millions, they will likely save money in the long run by admitting the failure and reverting. The key is to have a plan in place before insolvency or small business restructuring become real possibilities. 

Preparation is key to avoiding big project failure 

Few business owners succeed with every project or pivot that they put in place. The key to surviving through those individual project failures is having structures in place to identify the problem early on, and to quickly terminate projects with poor prospects. No business wants to throw good money after bad.