Big Projects, Big Problems

A recent article in CFO states that schedules on capital budgeting projects are missed by an average of 55 percent and budgets are missed by 33 percent. One potential problem for capital budgeting is that most projects are evaluated by project advocates within the company, who are often biased in favor of the project. For example, a financial services company found that the initial cost projections for its projects were off by a factor of 2.37, meaning that for every dollar originally projected to begin the project, it actually cost $2.37. A second problem is that small and large projects are evaluated the same way, especially in regards to timing. For example, consider you and three friends are going to dinner together, each from a different starting location. Each of you has a 50 percent probability of arriving on time. What is the probability that you will all arrive on time for dinner? While you might think that it is 50 percent, it is actually 6.25 percent (.50 × .50 × .50 × .50)! In a large project, with intermediate tasks that are dependent on preceding tasks, it is easy to get behind schedule very quickly.