Critical Discussion On Project Failure And The Dangers Of Optimism Bias In Project Planning With Real-life Examples

Introduction and background

1. Critical discussion on project failure and how it can be avoided- with real life EXAMPLE.

2. Critical evaluate the dangers of optimism bias in project planning-with real life EXAMPLE.

3. Critically evaluate the role of project feasibility in ensuring that only.

In this competitive world, when companies are growing at a fast pace it is very important for any organization to keep a tab on all the parameters. A single flaw in any parameter may lead to the entire project to failure (Gilb, 2005). If  gone through the various instances that have happened in the past, one can get an idea that every project had a certain setback which led to its debacle. In such situations, comes the importance of risk management (Dionne, 2013). There are several  factors that may have an impact on the project. All such issues need to be critically analyzed before the project execution.

There are several causes of project failure and each failed projects will have its own set of issues that led to its debacle. Sometimes it may be a single trigger event which leads to failure, but mostly it is the set of various problems that leads the project towards failure. Broadly it can be bifurcated in two parts efforts that was not taken to overcome the failure or efforts were taken but not in an adequate manner to overcome the failure.

Risk management is an integral part of any project and can be done in four stages. They are:

Risk Identification – It is important to recognize the risk only after that prior action can be taken.

Risk Analysis – In this part of risk management the risk is scrutinized about what actions could be taken.

Prioritizing Risk – It is arranging the risk in a sequence so as the fatal ones are taken care first and the rest later.

Action Taken – In the last part of risk management all the actions that could be taken are evaluated and the best solution is selected.

There can be several reasons related to project failure and hence it is very important to carry out the risk management exercise.

There are various aspects of project failure. One needs to keep a tab on each and every aspect where there are chances of project failure (Baillie, 2004). Few of the leading reasons for project failure are as follows:

Poor Planning  – It is one of the vital reasons why projects fail. Poor planning may lead to several repercussions which result in disaster. One of the best examples of poor planning is the case study of the “British Petroleum oil spill at Gulf of Mexico”. It was a very poor planning without any foresightedness that resulted in 11 deaths, loss of gallons of oil and lots of criticism of the company.

Planning should be adequate for any project. It should be more extensive and profound depending on the complexity of the project (Kwan, 2015).

Poor Vision – The aim and objective of the case should be very clear. Any flaw in the vision would result in failure of the project. One best example of poor vision can be “NASA’s Mars Climate Orbiter Project”. There was no clarity about funds which resulted in inadequate funding in defining outcomes. There were no teamwork and communication was badly lacking. The staffing was also inappropriate. No risk evaluation had been done, resulting the project into a disaster.

Project failure and how it can be avoided

Clear vision is very important in lieu of any project launch. The idea and the objectives should be well defined from the very beginning of the project.

Improper workforce – Staffing is one of the most important part of any new project. A perfect balance of skilled and unskilled staff as  per the requirements of the project need to be strategically evaluated. Any imbalance in this criteria may be catastrophic for any project (FILIPOVICH, 1999).

Lack of communication among stakeholders – There should be proper communication between all the stakeholders of the company as they are the ones who would be most affected by any fallback. This would also lead to clarity in vision and ideas.

Inadequate controls – Power has to be divided hierarchically and strategically. This would result in a proper control on each and every section of the project. It would also result in genuine decision making (Tishchenko and Kurilov, 1977).

Circumstantial changes that rule out the intention of the project – There may be certain circumstantial changes that may not have a positive outlook for the project. The project’s incapability to deal with such situation may lead the project to the debacle.

A back up plan should be always there while launching any project as there are high chances of project failure if any such changes occur.

Lack of appropriate technology used – This can also result in disastrous result as updated and up to the mark technology is the need of the day. One such example can be of “Denver Airport Baggage System”. Improper evaluation of complexity resulted in failure of the entire system. It was a complex architecture which was not paid much importance and the end result was a debacle.

Financial returns not clear –  It is a vital part of any project evaluation before its launch. Inefficient calculations in expected financial income and expenses may lead to project failure. One suitable example, can be of “London Olympic 2012”. The finances were not calculated effectively at the planning stage resulting in rise of finances, which brought a lot of criticism along with it (Terborgh, 1974).

Unexpected social, political or climatic changes – There may be certain social or political changes for which the project is not prepared. Again, this would lead to an unsuccessful project.

External factors like weather, vandalism, etc.  – Factors like weather and vandalism may be hazardous for any project as they are unexpected. Any public outrage resulting in vandalism also brings financial losses to the project (Boehm, 2000).

All the external factors must be efficiently evaluated before the launch of the project.

‘Optimism bias’ is a situation where a person is less of a risk of believing about the negative aspects as compared to others. In the words of “Tali Sharot” a ‘Cognitive Neuroscientist’ it is a condition of over estimating the good aspects and underestimating the bad aspects (Sharot, 2011). For example – In west out of five marriages, two are prone to divorce. However, all the five couples are positive about their marriage and are sure that there would not be any problem If these couples are questions about their probability of divorce, the obvious answer is 0%. This is known as ‘optimism bias’.

Dangers of Optimism Bias

According to risk matrix, higher severity may lead to both higher and lower probability of survival depending on innumerous other factors and vice versa.

There are several dangers associated with ‘Optimism Bias’ (Ehrlich and Ehrlich, 1981). They are:

Ignoring negative aspects – This may lead to absence of risk assessment exercises and hence not being prepared for any future problem that may come. While evaluating any project it is very important to have a comprehensive overview of the project. Inefficient risk analysis may be fatal.

Encourage magical thinking – This results in unjustified thinking and evaluation, which is not in compliance with the actual facts and figures. In an optimism bias phase, the concern only assesses the positive aspects of the organization and negative aspects are ignored. This can be disastrous for the organization.

Illusion regarding control of the situation –  There is a misconception that the organization has a proper control over the situation and is prepared for all hassles that may come, which is actually not true.

Fostering complacency – There is a false belief that even in case of any mishap, there will be no harm to them.

An apt example of optimism bias can be a case study of “Sydney Opera House”. In the year 1957, the estimated cost was $7 million and was expected to open in 1963. However, by the end of the project the cost rose to a whooping $102 million and was finally opened in 1973.  (Hall, 1980, as cited by Buehler, Griffin and Ross, 1994; 2002).

Optimism bias can turn out to be a big problem for the organization. Overconfidence about any decision is always fatal. All the negative and the positive aspects must be evaluated for any project. Negative aspects need to be given special attention and a backup plan must be prepared. There are many examples in the corporate world where optimism bias has proved to be disastrous. Hence, it can be said that optimism bias is very dangerous for a project as the organization would not be prepared with the back up plan which may lead to project failure (Boehm, 2000).

Project feasibility is an important aspect of project evaluation (Dingle, 1985). The simplest way of explaining feasibility is in terms of cost and value. The two criteria to judge feasibility are the cost required should justify the value added. There are certain questions that needs to be answered before starting a project. They are:

Can the project be done

The cost required

Value for money

Time required

Other requirements

Return on investments

In case there is a positive feedback of all the questions, the project can be continued else a re-evaluation needs to be done.

Project feasibility may depend on various factors and hence it must be analyzed on following parameters(Jaafari, 1990)

Economic Analysis – It refers to a comprehensive, cost benefit analysis where all the financial obligations are calculated and the return on investments are foreseen. All the tangible and intangible cost and benefit are inspected and then properly utilized (Jian, 1993).

Technical Analysis – It refers to various aspects of technological requirements, from infrastructure to expertise and testing. All these requirements should be fulfilled before the beginning of the project (Baloch and Khan, 2013).

Operational Analysis – It refers to all operational issues that may arise during the project. The stakeholder’s response to changes in management or clientele are a few examples of operational feasibility (Tukel and Wasti, 2001).

Scheduling Analysis – It refers mainly to the time allocated to the project and expected completion time. The other possibilities that may delay the project are also kept in view (Ismail, Sulong and Mat Yatim, 1989).

Legal Analysis – It refers to laws and regulations associated with the project. The project is in line with all the legal requirements. In case the project is to be launched in a host country, all the minute details of their legal requirements should be fulfilled (Hakki, 2007).

Political Analysis – It refers to the political impacts for the project. There can be several political aspects that may affect the project. Some of them are the type of government and their support towards new entrants, their cooperation or their bias etc. (Kilby, n.d.).

Hence, Project feasibility forms an integral part of risk evaluation. It becomes even crucial while  starting a new venture.Feasibilty was started to avoid any decisions of bad investment, prohibiting businessmen to target any non existent market and preventing them from any pitfall. However, problem begins when there is a wrong feasibility analysis. Thus it becomes very important to have an efficient project feasibility analysis.

For example – In our day to day routine also, a feasibility analysis can be done. Before any purchase a feasibility analysis may be conducted. This will result in preventing unplanned purchases, which are not important.

Conclusion and Recommendations

It is very important for any project to have an appropriate risk management exercise. It should start from the initial stage before the project execution. All the aspects that may lead to failure of a project should be critically analyzed. All the factors influencing the project must be properly scrutinized. These factors can be poor planning, lack of vision, improper workforce, lack of communication among stakeholders, inadequate control, circumstantial changes, lack of suitable technology, unclear financial returns and various political, social or weather change. All these factors need to be critically evaluated with a back up plan before the project execution.

Also, there can be a negative impact of optimism bias. It is very important to evaluate the project with a pessimistic approach as well. This would help in the preparation of any unexpected reasons that may lead to project failure.

Here the role of project feasibility cannot be neglected. It also forms the vital part of risk assessment. Various factors that may lead the project to failure are analyzed. These factors can be economic, technical, operational, scheduling, legal or political.

Hence, these are a few techniques to evaluate risk associated with any project and it becomes mandatory for any organization to follow these guidelines for success of any project.

References

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