News flash: effective project management is not a solved problem, and both the government and private corporations continue to lose billions of dollars because of difficulties with project management!
This last week has brought fresh reminders that both the government and private corporations continue to incur massive losses because of difficulties in ensuring that projects meet their goals and are delivered on time.
The U.S. Department of Homeland Security has scrapped its electronic border fence project after concluding that $1 billion in taxpayer money was wasted on a project that didn’t fulfill its intended goals. Couldn’t they have figured this out after spending only, say, $500 million and avoided wasting the additional $500 million thereafter? $500 million spent wisely can do a lot more good than constructing a non-working virtual fence in the middle of an empty desert.
I speak as an experienced expert on fence construction project management, by the way. When we replaced the fence in my backyard, we had about a $250 cost overrun on a $10000 project due to an unexpected need to route the replacement fence around a growing tree and a change in plans along the way on how to do that. But we got it done on time and approximately on budget, and seven years later the fence is still in place, it looks great, and it keeps the neighbor’s children from coming into my backyard, although not their tennis balls or frisbees.
Meanwhile, in the private sector, Boeing Corporation has announced a new delay and target delivery date for its long-awaited Dreamliner jet, which is now more than three years late. Marketwatch notes that Boeing had four more net cancelled orders than new orders last year, and that “With a price tag of about $200 million apiece, losing just four 787 orders represents an $800 million hit. That doesn’t begin to count concessions they’ve had to make to suppliers or customer penalties for deferred deliveries.” It’s safe to say that the delays in the Dreamliner project have already cost Boeing well over a billion dollars in revenues compared to what it could have earned had the Dreamliner shipped by its originally committed date.
There’s a critical difference in how much money can potentially be squandered on a poorly managed project in the public sector rather than the private sector. A private company’s ability to spend money on a project is limited by its ability to obtain money. If a company wastes enough money on a major failed project, its stock price will collapse and investors will be unwilling to purchase newly-issued equity, and its bond rating will collapse and will be unable to issue new debt. Ultimately, the discipline of the free market will drive a company that poorly manages major projects into bankruptcy, preventing further losses.
Government doesn’t face these limits. When the United States federal government mismanages a project, it can raise taxes, or it can issue almost unlimited new debt (which implicitly levies taxes on future taxpayers, who will have to repay the interest and principal on the debt). Therefore, the potential for wasteful projects is infinitely greater because the threat of bankruptcy doesn’t exist or impose any discipline. To cite a few well-known historical examples, the FAA wasted about $1 billion on a failed attempt to rewrite control tower air traffic control software, and the FBI wasted about $1 billion on a failed rewrite of internal records management software. When the federal and state governments combine their talents, the potential for delay and waste is even greater. The notorious Big Dig in Boston and the reconstruction of the Bay Bridge between San Francisco and Oakland both ran billions of dollars over budget.
Interestingly, the prime contractor on the failed border fence project was Boeing. It sounds like this would be a good opportunity for whoever runs the Boeing program management office to take some time and have the company reflect on what it can learn from these experiences.
The main takeaways from this week’s expensive fiascoes in project management?
- Project management is really hard and is an unsolved problem.
- If you REALLY want to waste a lot of money, manage public sector projects. The sky’s the limit there on potential cost overruns.