Proactive response: How financial services firms deal with troubled projects

Proactive responseHow mature fi nancial services fi rms deal with troubled projectsA report from the Economist Intelligence UnitSponsored by Oracle

© Economist Intelligence Unit Limited 20111

Proactive responseHow mature fi nancial services fi rms deal with troubled projects

Preface 2

Executive summary 3

The benefi ts of early response are clear 4

Apathy leads to trouble 6

Formal response: too little, too late 7

Few companies hit time or budget goals 9

Mature project management drives regulatory optimism 10

Conclusion 12

Appendix: survey results 13

Contents



2

Proactive response: How mature fi nancial services fi rms deal with troubled projects is an Economist Intelligence Unit research report, sponsored by Oracle. The fi ndings and views expressed in the report do not necessarily refl ect the views of the sponsor. The author was Sarah Fister Gale and the editor was Brian Gardner.

July 2011

Preface



T ighter rules and greater regulatory oversight are a major outcome of the fi nancial crisis as regulators are introducing a spate of new rules designed to increase accountability. These new rules, including

Basel III and the Dodd-Frank Act, may reduce systemic risks, but they are also driving up the costs of fi nancial institutions. According to the article, “Chained but untamed”, in The Economist’s May 12th special report on International Banking, new requirements for larger capital cushions could reduce banks’ profi tability by as much as one-third, while pushing up borrowing costs for consumers and businesses.

Financial organisations that can meet compliance requirements while simultaneously providing their customers with new innovative products and services will fl ourish in this environment, while their peers will continue to suffer. Unfortunately, few institutions in this industry have the project management maturity to meet project goals with any level of consistency. An Economist Intelligence Unit survey, conducted in April 2011, shows that only 17% of fi nancial services organisations deliver projects on time—and only 20% deliver projects on budget—at least 90% of the time.

To investigate how fi nancial services fi rms identify and deal with project failure and which strategies help them to achieve greater project success, the Economist Intelligence Unit conducted a global survey, sponsored by Oracle, of 400 senior executives in the fi nancial services industry. The key fi ndings are highlighted below.

Executive summary

About the survey

The quantitative fi ndings presented in this report are based on an online survey conducted by the Economist Intelligence Unit in April 2011. A total of 400 senior executives from the fi nancial services industry participated in the survey, of which 54% are C-suite or

above. Over 270 respondents belong to organisations with over US$500m in annual revenue, including 141 from organisations with over US$5bn in annual revenue. Around 31% of respondents are based in Europe, 31% in the US and Canada, 30% from the Asia-Pacifi c region, and the remainder from the Middle East, Africa and Latin America.



4

A lthough many fi nancial services fi rms have immature methodologies in place, most executives recognise that the ability to identify and deal with the early signs of project failure would be valuable

to their organisations. As Chart 1 shows, they rank the key benefi ts of early action as helping them better use limited resources (61%), improving their on-time and on-budget project success rate (40%), and allowing them to gain a competitive advantage over their peers (37%).

However, although these responses suggest that executives see the value of embracing more mature project portfolio management practices, the results in the chart above show that they do not fully recognise the longer-term strategic benefi ts that such methods can provide.

For example, only 6% of fi rms recognise how such project portfolio management rigour could enable them to position their businesses more strategically through market expansion and new product launches, even though this is one of the long-term strategic benefi ts of delivering projects successfully. According to Brett Pitts, senior vice president and group manager for internet portfolio management

The benefi ts of early response are clear

Better use of limited resources

Better on-time and on-budget project success rate

Ability to gain a competitive advantage over their peers

Better evaluation of opportunity costs

Improved customer confidence and loyalty

Ability to deliver more projects with the same budget

Ability to invest in riskier projects

Avoidance of regulatory compliance issues

Ability to extend their reach into new geographic or product markets

Other

Chart 1In your opinion, what are the greatest benefits that financial services organisations derive from identifying and dealing with project failure early in the project delivery process? Select up to three.(% respondents)

Source: Economist Intelligence Unit survey, 2011.

61

40

37

28

25

23

17

16

6

1



at Wells Fargo in San Francisco, “If you have a mature discipline that is geared towards managing risks and planning contingencies, you don’t have to be unduly conservative in your pursuit of business opportunities.”1

Unrealistic goals are the most common reason for unsuccessful projects in fi nancial services fi rms (40%), followed by poor alignment between project and organisational goals (37%), and a lack of necessary human resources (34%), according to our survey (Chart 2). These are all problems that a rigorous project portfolio management methodology would identify and address during the planning stages of a project.

1. Economist Intelligence Unit, Pre-emptive action: Mitigating project portfolio risks in the financial services industry, February 2011, sponsored by Oracle.

Unrealistic project goals

Poor alignment between project goals and organisational goals

Inadequate human resources

Lack of strong leadership

Unwillingness among team members to point out problems

Ineffective risk management

Inadequate financial resources

Change in oversight and governance

Business case is no longer justified

Regulatory compliance issues

Discontinued partnerships

Chart 2In your organisation, what are the most common reasons for project failure? Select up to three.(% respondents)


40

38

34

32

21

19

17

15

13

9

4



6

Poor leadership, ineffective risk management and a culture in which people are unwilling to point out problems create additional challenges in managing projects successfully. These fl aws can lead

executives to ignore troubled projects until they demand attention, and cause team members to avoid pointing out problems for fear of retribution.

A lack of accountability for project success causes leadership to be apathetic, delaying involvement until cost and schedule overruns drive projects off course. The survey shows that 28% of project sponsors wait until a project is in serious trouble before getting involved, and 7% never get involved, leaving project managers to deal with whatever issues occur. This lack of action makes solving problems far more costly and diffi cult than it needs to be, diverting time and resources away from more benefi cial opportunities.

Apathy leads to trouble

They participate in regular progress reviews, and get involved if a problem arises that the project leader cannot solve

They get involved only when the project is in serious trouble, and other attempts to solve it by the project team have failed

They closely monitor project progress and milestone reviews, getting involved as soon as trouble arises

They do not get involved when projects start to fail, leaving it entirely to the project team to deal with the problems that occur

Don’t know/Not applicable

Chart 3In your organisation, at what point do executive stakeholders get involved in bringing a troubled project back on track?(% respondents)


45

28

20

7

2



A long with poor leadership accountability, many fi nancial services fi rms have inadequate response mechanisms for dealing with troubled projects. As Chart 4 demonstrates, almost one-half of

respondents (47%) say that in their organisation a formal response to failing projects does not occur until time and budget targets are offi cially missed. Another 20% say senior executives in their organisation do not respond until the project is nearing its delivery date and is obviously going to fail.

Even more alarming, 15% of organisations have no formal process whatsoever for dealing with a project in peril. In these organisations, troubled projects are allowed to stumble on, sucking up valuable time and resources while failing to deliver expected results. This lack of response mechanisms exacts a signifi cant toll, causing these fi rms to show the lowest project success rate—only 8% deliver projects on time and on budget 90% of the time or better.

Financial services fi rms respond even more slowly when projects fall behind schedule targets, despite the fact that meeting deadlines, particularly on regulatory projects, is essential to their long-term viability. Well over one-third (39%) of companies overall—and 45% of larger fi rms—wait until a project is more than 25% behind schedule before they react, at which point it is very diffi cult to bring an initiative back on track.

Formal response: too little, too late

When pre-established targets for time and budget are not met

When project team members and/or key stakeholders identify potential problems during planning that could interfere with success

When signs of trouble arise, during early project reviews, but before the project goes over time or budget

When regular portfolio or stage gate review meetings are held

When the project is nearing its delivery date and obviously going to fail

When the project manager requests additional resources

When the sponsor requests a reassessment of project viability

There are no formal processes to address project failure

Chart 4In your organisation, which of the following events trigger processes to address project failure? Select up to three.(% respondents)


47

41

39

28

20

17

14

15

0



8

Interestingly, the organisations with the most rigour in their project portfolio management process tend to be fi rms with annual revenue of less than US$500m. As demonstrated in Table 1 below, these smaller organisations respond to signs of trouble on projects earlier than their larger peers getting involved sooner when projects experience time or cost overruns.

The agility of smaller organisations enables them to create a stronger culture of accountability and a more effective project portfolio management oversight process. This can be more challenging for larger fi rms that are often hindered by the complexities of global collaboration and widely dispersed teams.

Table 1

Project management rigour by company size

Projects exceed their costs by 25% or more before triggering a response

Projects are delayed by 25% or more before triggering a response

Large companies (with over US$500m in revenue)

30% 45%

Small companies (with US$500m in revenue or less)

20% 28%




The discrepancy in optimism between organisations with mature versus immature project portfolio management strategies in this industry is not surprising, as organisations with poor project portfolio

management methodologies have less success in delivering projects. As already highlighted, only 17% of respondents overall say that their projects come in on time 90% of the time or better; the number jumps to 35% among organisations that begin to address troubled projects before they fall behind schedule.

Smaller fi rms again deliver better rates of success, bringing projects in on time and on budget more frequently than larger fi rms, as demonstrated in Table 2 below.

These results show that smaller organisations and those with mature project management methodologies—those that seek out and deal with potential concerns—are more successful than their peers. They deliver more projects in less time for less money and perceive themselves to be more effi cient, giving them an advantage over their competitors.

Few companies hit time or budget goals

Table 2

What percentage of projects has your organisation delivered on budget and on schedule in the last two years?

Project success rates by organisation size 90% or more on budget

90% or more on schedule

Less than half on budget

Less than half on schedule

Small companies (US$500m in revenue or less)

29% 25% 21% 8%

Large companies (over US$500m in revenue)

16% 13% 33% 21%

Overall 20% 17% 29% 17%Source: Economist Intelligence Unit survey, 2011.



10

Failure to deal with troubled projects early has the biggest impact on implementing regulatory initiatives, which are of central importance for fi nancial services executives. Missing these targets can

cause a bank to lose its licence and permanently damage its reputation among investors. “The consequences of failure on these projects are dire,” says Mr Pitts of Wells Fargo, quoted in

the earlier report. “It’s not even vaguely an option.” Consequently, when these projects fl ounder, organisations have no choice but to funnel resources away from other projects to bring them back in line—even if it means pulling people from more successful endeavours that offer better returns.

This is where organisations with mature project portfolio management capabilities have a competitive advantage. These high-performing organisations can more confi dently deliver projects on time and on budget, so they are less burdened by regulatory demands. As a result, respondents who rank their fi rms in the top two tiers of project portfolio management effi ciency are more likely to say that regulatory projects are a necessary step in achieving business effi ciency (51%). In comparison, those who rank their organisations in the bottom three tiers of project portfolio management effi ciency are more likely to view these projects negatively: 40% of these respondents say that regulatory projects require more fi nancial resources than originally allocated to bring them in on time; and 38% say compliance projects reduce their organisation’s ability to invest in its growth and success.

Mature project management drives regulatory optimism

They ensure the efficient functioning of our business

They reduce our ability to invest in our growth and success as we are forced to carry out more regulatory projects

They often require more financial resources than are originally allocated to bring them in on time

Chart 5In your opinion, what are the impacts of compliance projects on your company’s overall portfolio management process? (% respondents)

Top two tiers Bottom three tiers


51

31

30

38

29

40



Good response mechanisms reduce the stress of regulatory projects on organisations and give businesses greater confi dence in their ability to deliver these and all projects more effectively. This ability will be vital in coming years as the industry adapts to re-regulation. Conversely, organisations with less mature project portfolio management practices have lower rates of project success than their peers, and their executives have less confi dence in how these projects can benefi t their business.



12

F inancial services executives understand the fi nancial and strategic value that successful project execution brings to their organisations. Yet many organisations have yet to optimise their project

portfolio management processes, their leadership structure and culture of accountability to realise these benefi ts.

The organisations that are able to implement more rigorous project tracking mechanisms and respond proactively to early signs of trouble can gain a competitive advantage over their peers, from not only a strategic perspective but a regulatory perspective as well. These tools will give them the agility and effi ciency to deliver more projects with fewer resources, and enable them to take on higher-risk projects with the confi dence that they are able to deal with whatever problems that may arise.

Conclusion

AppendixSurvey results


13 © Economist Intelligence Unit Limited 2011

Up to 10%

11-25%

25-50%

50-99%

100% or more

Not applicable

At what point does excess cost or time trigger processes to address project failure? (% respondents)

When costs exceeds by:

When time exceeds by:

23 18

44 36

19 26

6 11

1 2

7 7

Appendix: survey resultsPercentages may not add to 100% owing to rounding or the ability of respondents to choose multiple responses.

Project manager

Project sponsor

Business unit manager

Steering committee

Vice president

Other

In your organisation, who is held and who should be held accountable for the success of a project? (% respondents)

Who is held accountable?

Who should be held accountable?

38 26

26 27

17 15

12 23

6 7

2 2

When pre-established targets for time and budget are not met

When project team members and/or key stakeholders identify potential problems during planning that could interfere with success

When signs of trouble arise, during early project reviews, but before the project goes over time or budget

When regular portfolio or stage gate review meetings are held

When the project is nearing its delivery date and obviously going to fail

When the project manager requests additional resources

When the sponsor requests a reassessment of project viability

There are no formal processes to address project failure

In your organisation, which of the following events trigger processes to address project failure? Select up to three.(% respondents)

47

41

39

28

20

17

14

15

0

1-Extremely effective

2

3

4

5-Not at all effective

On a scale of 1 to 5, how would you rank your organisation’s effectiveness at identifying and dealing with signs of project failure before they impact budget, scope, and schedule? (% respondents)

8

32

39

19

3




They participate in regular progress reviews, and get involved if a problem arises that the project leader cannot solve

They get involved only when the project is in serious trouble, and other attempts to solve it by the project team have failed

They closely monitor project progress and milestone reviews, getting involved as soon as trouble arises

They do not get involved when projects start to fail, leaving it entirely to the project team to deal with the problems that occur


In your organisation, at what point do executive stakeholders get involved in bringing a troubled project back on track?(% respondents)

45

28

20

7

2

100% of projects

90-99% of projects

75-89% of projects

50-74% of projects

25-49% of projects

0-24% of projects


In your estimation, what percentage of projects has your organisation delivered on schedule, or at or below budget, in the last two years? (% respondents)

On schedule At or below budget

3 2

14 18

37 25

24 19

12 13

5 15

6 7

Better use of limited resources

Better on-time and on-budget project success rate

Ability to gain a competitive advantage over their peers

Better evaluation of opportunity costs

Improved customer confidence and loyalty

Ability to deliver more projects with the same budget

Ability to invest in riskier projects

Avoidance of regulatory compliance issues

Ability to extend their reach into new geographic or product markets

Other

In your opinion, what are the greatest benefits that financial services organisations derive from identifying and dealing with project failure early in the project delivery process? Select up to three.(% respondents)

61

40

37

28

25

23

17

16

6

1

They ensure the efficient functioning of our business

They often require more financial resources than are originally allocated to bring them in on time

They reduce our ability to invest in our growth and success as we are forced to carry out more regulatory projects

They lead stakeholders to be more risk averse when it comes to other project opportunities

They lead stakeholders to be less risk averse when it comes to other project opportunities

They distort our allocation of human resources

In your opinion, what are the impacts of compliance projects on your company’s overall portfolio management process?(% respondents)

39

36

35

20

19

16




Unrealistic project goals

Poor alignment between project goals and organisational goals

Inadequate human resources

Lack of strong leadership

Unwillingness among team members to point out problems

Ineffective risk management

Inadequate financial resources

Change in oversight and governance

Business case is no longer justified

Regulatory compliance issues

Discontinued partnerships

In your organisation, what are the most common reasons for project failure? Select up to three.(% respondents)

40

38

34

32

21

19

17

15

13

9

4

Manager of business unit

Project sponsor

Project manager

Steering committee overseeing governance of all projects

Vice President

Other

No one is responsible

In your organisation, who is primarily responsible for examining and communicating if the business case goals were attained?(% respondents)

24

23

22

22

6

2

2

Always

Most of the time

Sometimes

Rarely

Never

Don’t know

Approximately how often does your organisation communicate that business goals were attained?(% respondents)

14

50

29

5

0

1

Clearly defined roles and responsibilities for project delivery

Regular communication between the project team and key stakeholders

A formal governance process that regularly evaluates project progress against goals

A corporate culture that encourages employees to point out problems when they arise

Leading stakeholders who are willing and able to make critical decisions to get projects back on track

In your opinion, what are the most important tools or strategies for identifying project failure early? Select up to two.(% respondents)

48

45

39

35

14

United States of America

Canada

Australia, United Kingdom

India

Singapore

China, Switzerland, Italy

Hong Kong, Sweden, Germany, Russia, Spain, Brazil, Poland

Mexico, Thailand, Greece, Indonesia, Netherlands, Pakistan, Turkey,France, Japan, Latvia, Bangladesh, Bulgaria, Denmark, Egypt, Ireland, Malaysia, Mongolia, Nigeria, Philippines, Taiwan, United Arab Emirates

In which country are you personally located? (% respondents)

23

8

7

6

4

3

2

1




Commercial banking

Investment management

Capital markets

Insurance

Retail banking

Other

In what subsector of financial services does your organisation primarily operate? (% respondents)

25

22

22

15

13

4

32

13

20

11

24

$500m or less

$500m to $1bn

$1bn to $5bn

$5bn to $10bn

$10bn or more

What are your company’s annual global revenues in US dollars?(% respondents)

Board member

CEO/President/Managing director

CFO/Treasurer/Comptroller

CIO/Technology director

Other C-level executive

SVP/VP/Director

Head of business unit

Head of department

Manager

Other

Which of the following best describes your title?(% respondents)

7

23

11

3

10

22

5

8

10

3

Finance

General management

Strategy and business development

Risk

Marketing and sales

IT

Operations and production

Information and research

Customer service

Legal

R&D

Human resources

Procurement

Supply-chain management

Other

What are your main functional roles? Choose up to three.(% respondents)

38

35

33

29

16

11

10

8

8

5

3

1

1

1

5

North America

Asia-Pacific

Western Europe

Latin America

Eastern Europe

Middle East and Africa

In which region are you personally located? (% respondents)

31

30

27

5

4

4

Whilst every effort has been taken to verify the accuracy of this information, neither The Economist Intelligence Unit Ltd. nor the sponsors of this report can accept any responsibility or liability for reliance by any person on this white paper or any of the information, opinions or conclusions set out in the white paper.Co

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Proactive response: How financial services firms deal with troubled projects

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