Hello readers and welcome back to our project management series. In our last article, we explored the just in time production system where we focused on the application, benefit and disadvantages of just in time production. In this article we will be analyzing the high cost of low performance on projects.
When it comes to project performance, there is no universally acceptable way to judge a project’s success as no two projects are the same. A project is; however, said to be successful when it is completed within the triple project constraint (cost, time and quality) as defined by the project document and the project was also in line with the organizational’s goal.
There are various reasons why projects fail and these have been discussed in one of our previous articles as can be seen here.
In this article, we will be focusing on the cost and effect of low performance on a project.
Identifying low performance in organizations – As a project manager, one of our primary responsibilities is to identify the causes of poor performance in organizations. Low performance is often as a result of sub-optimal use of resources, which can be either human resources or machine resources.
Before you begin to spend that huge sum of money and time on getting a consultant to help identify if your resources are performing sub-optimally, here are some tips you can use to identify low performance in projects.
- Team members are unhappy – One of the easiest sign that could help in identifying low performance in a project situation is the team members’ mood. Leading a group of unhappy team members with low morale would lead to low performance. Non-verbal communication is a general way of communicating mood by team members and understanding what a particular team member is saying would help in deciding what strategy is necessary to improve their performance.
- Target and goals not being met – this is arguably the easiest way to determine low performance in an organizations. The problem with this is that it is often too late as deadlines are already missed, products are completed or output is low. There is a need for a critical reevaluation at any point in time once it is discovered that project goals are not being achieved. Waiting till the end of the project can be disastrous that’s if the project survives till the end.
- High rate of team members’ dependence – Another possible pointer to low performance is the high rate of employee dependency on other team members. While the project might get done and goals are met but you realize that some team members depend largely on a few others to get their work done, then they probably are underperforming. These also put the success of the project in the hands of the few performers, leading to a disaster if at any point in time, one of the performers decides to sabotage the organization.
- Team disagreement – Situations exist where the team members are getting the work done, meeting the deadline and are efficient individually. Everything seems to be working fine asides working together as a team. In cases like this, more time is actually spent in getting the team to work as a team than spent in carrying out the project. Teamwork is an important part of the success of any project and it is our duty as project managers to solve any team-related challenge in order to get the best result. It is important to know that good teamwork does not mean that there would be no diversity of opinion; it only means that the team goal is put over individual goals.
While it is not impossible for projects to be completed even when resources have low performance, the cost of completing such projects doesn’t come cheap. For a proper understanding of the high cost of low performances, let’s take a look at the effect of low performance on organizations.
Cost of low performance
A recent statistical analysis by the project management institute (PMI) on the high cost of low performance in one of their articles “The pulse of the profession” details the following:
- As a result of poor performance in organizations, for every US$1 billion spent, US$109 million is wasted. That’s a lot of money to be wasted on poor performance
- As a result of poor performance, 44 percent of strategic initiatives are unsuccessful. This simply means that the probability of success when making strategic decisions is barely over half due to poor performance.
Another statistical analysis by PMI that compared high performing organizations against the low performing ones showed that:
- Strategic initiatives – Generally, the high performers do have twice as many successful strategic initiatives when compared to low performers. This is 76 percent for high performers compared to 38 percent for low performers.
- Organizational agility – Organizational agility is the rate at which a company is able to change and adapt to changes in market. High performers are more than three times likely to have high organizational agility when compared to low performers. This is 31 percent vs. 9 percent for low performers.
- Project alignments with organizational strategy – High performing organizations are likely to have their project goals aligning with organizational strategy twice as much as the low performing organizations. This is at a rate of 57 percent for high performers against the 28 percent for low performing organizations.
- People management – high performers record higher success by effectively managing their project management talent. They also show higher success in organizational change management, which makes them engage with their sponsors twice as much as low performers.
- Project, program and portfolio management maturity – PMI also realized that a high performance organization fully understands the value of project management thus setting up an effective project management office and ensuring the project management standards and procedures throughout organizations. In return, high performing organizations have their project, program and portfolio management 4 times more matured when compared to the lower performers.
- Realization of Benefits – High performing organizations are five times more likely to realize their goals and benefit when compared to low performing organizations.
From the above, it is clear that the cost of low performance is very high and it is not in the interest of any organization to perform below their optimum performance level. Apart from implications of low performance on an organization as has been detailed in the research conducted, here are the other effects of low performance:
Reduced profit – We would all agree that because an organization is of low performance does not mean it would not make any profit, the question is how much profit is it realizing vis-à-vis how much it should be making. While all projects are not profit oriented and profit maximization is not advisable in all project, it is however advisable to reduce the implementation cost of any project.
If profit (P) is revenue(R) minus cost (C) i.e. P = R-C. Assuming the selling price is constant making revenue constant, the only way to improve the profit is by improving the cost structure (reducing cost), which can be achieved by making performance more efficient.
Loss of performing resources – When an organization is under performing, it is not impossible for it to still have some staffs that are performing within it. Performers generally recognize none performing organization but while some would work towards bringing the organization to a performing state, others would find solace by looking for job opportunities within other organizations.
Lack of trust – Constantly producing lower quality products, substandard results and continuously missing project goals and deadlines would make your clients begin to loose trust in you. A dissatisfied customer is a dangerous tool and a bad public relation is a capital NO for any organization. The advent of social media in the world today has made communication easier and faster and it only takes a couple of seconds for a displeased customer to pass the bad news to other existing customers and prospective clients.
Bankruptcy – While this might sound extreme, it’s always the end path for all low performing organizations unless they are able to catch a break before it is too late. Since price is mostly a function of demand and supply, it cannot be changed. Once the operating cost begins to equal the revenue or surpass it, then the organization is headed for bankruptcy.
The cost of low performance is high and goes beyond financial, as we have seen. It affects the company’s reputation, trust and continuity. Also not surprising is that the financial cost of non-performance is very high. While this is not visible sometimes, the research conducted by PMI has shown that performing organizations are more efficient and save more in cost than non-performing companies.
Finally, as project managers, we should always strive for optimum performance. Although some companies hope to maximize profits by maximizing performance, this is sometimes carried out a cost such as employee satisfaction. Resource and performance optimization is what we should always work towards.
That’s all we have for today and once again thank you for reading. Do not forget to drop your thoughts and questions in the comments section. A figure detailing the summary of results of the research carried out by PMI is attached to the end of the article
- Project management body of knowledge (PMBOK)
figure showing a comparison between high and low performance organisation