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From sunk costs to smart choices: “Why leaders must kill failing projects”

by editor
February 4, 2025
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By Victor S Mutonga

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Across many industries and geographies, organizations tend to find themselves stuck with projects that are no longer aligned to their organizational strategic objectives.

This is despite warning signs such as rising costs, shifting business priorities and market disruptions, organizational leaders oftenly hesitate to pull the plug on such failing initiatives. The Result? Wasted resources, missed opportunities and weakened competitive edge

Why do organizations find it difficult to cut their losses and move on, and how can they break free from such outdated commitments?

The Sunk Cost Fallacy “We have already invested so much”

One of the most common reasons why organizations keep investing their limited resources on outdated or rather non-aligned projects, is the sunk cost fallacy – the notion that because the organization has already invested significant amount of financial resources, time and effort, they have to keep going as abandonment would be a waste.

•               Some executives feels that cancellation of such an effort will reflect bad on their leadership.

•               Execution team gets reluctant to admit that misallocation of resources took place

•               There is also fear of public or shareholder backlash, which prevents decisive action

Yet, the reality is stark: throwing more money at a failing project does not make it successful—it makes the loss even greater.

When Project Portfolio Governance fails, Bad Projects Survives

•               Many organizations do not have clear Project Portfolio Governance Structures to provide oversight on the Portfolio of projects and programs, and perform regular strategic alignment of these projects and programs against the organizational strategic objectives.

•               Who is responsible to cancel non-aligned projects? Is there any regular project reviews against existing or new strategic objectives? Or is there criteria in place for determining when to kill a project?

Simply put, without a proper structured Project Portfolio Management processes in place, bad projects or non-aligned projects will continues draining organization’s limited resources.

Fear of Internal Politics and Stakeholder Push back

Projects and programs do not exist in a vacuum, they all have sponsors, executives and functional departments that benefits from their existence

Example:

•               MD, CEO or most Senior Head of Government institution’s pet project is rarely questioned, even when its failing

•               Departments fear losing funding, influence or jobs if the projects are cancelled.

•               Internal Project Champs guard their projects and programs even when numbers no longer make sense.

And the result of this, is Politics determines which projects are funded and which ones are terminated, instead of Business Logic.

Strategic Drift: When organizations fail to Adapt

Organizations exists in a dynamic business environment where change is constant and rapid, however organizations still find themselves failing to realign their project initiatives to the new priorities

Projects that began 5 years ago, may no longer match the current organization strategic objectives. A digital transformation project initiative that once made a huge positive impact to the strategic objectives may now be obsolete to due AI advancements. Consumer behaviour, Government Policies or regulatory changes can render projects or programs irrelevant overnight.

However, Organizations still choose to remain locked into old commitments instead of pivoting or cutting.

How can organizations let go of non-aligned projects?

Projects do not exist in an environment of infinite resources, therefore to avoid wasting these limited resources, organizations should adopt a disciplined approach to Project Portfolio Management by doing the following:

Portfolio Strategic Alignment

•               Perform quarterly project portfolio strategic alignment against the existing business goals, to ensure project alignment

•               Framework development to assess project viability

•               Develop Early warning Indicators to detect misalignment before key resources are committed.

Leadership and Project Portfolio Governance Board

Establish and empower the Project Portfolio Governance Board with the responsibility to oversee the selection, prioritization and governance of projects within the organization’s portfolio to ensure alignment with strategic objectives. This board will define a transparent criterion for project continuation, realignment or termination.

Let’s normalize the idea that stopping non-aligned projects is not failure but rather a smart business.

Redirect resources to what really Matters

When projects are no longer aligned to the current business goals, reallocate funding, talent, and technology to high priority projects in the portfolio. Develop a culture where project teams are rewarded for their strategic agility not only project completion

High performing organizations understands that not every project within the portfolio deserves to be completed. These organizations make tough decisions, cut losses and redirect efforts to aligned, and high impact projects.

*Victor S Mutonga is certified Portfolio, Program & Project Management Subject Matter Expert working for Debmarine Namibia. The views expressed herein, are his, not that of the employer.

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