Proactive response how financial services firms deal with troubled projects

Proactive response How mature financial services firms deal with troubled projects A report from the Economist Intelligence Unit Sponsored by Oracle Proactive response How mature financial services firms deal with troubled projects Contents Preface Executive summary The benefits of early response are clear Apathy leads to trouble Formal response: too little, too late Few companies hit time or budget goals Mature project management drives regulatory optimism 10 Conclusion 12 Appendix: survey results 13 © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Preface Proactive response: How mature financial services firms deal with troubled projects is an Economist Intelligence Unit research report, sponsored by Oracle The findings and views expressed in the report not necessarily reflect the views of the sponsor The author was Sarah Fister Gale and the editor was Brian Gardner July 2011 © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Executive summary T ighter rules and greater regulatory oversight are a major outcome of the financial 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 financial 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’ profitability 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 flourish 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 financial services organisations deliver projects on time—and only 20% deliver projects on budget—at least 90% of the time To investigate how financial services firms 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 financial services industry The key findings are highlighted below About the survey The quantitative findings 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 financial 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 AsiaPacific region, and the remainder from the Middle East, Africa and Latin America © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects The benefits of early response are clear A lthough many financial services firms 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 shows, they rank the key benefits 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%) Chart 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) Better use of limited resources 61 Better on-time and on-budget project success rate 40 Ability to gain a competitive advantage over their peers 37 Better evaluation of opportunity costs 28 Improved customer confidence and loyalty 25 Ability to deliver more projects with the same budget 23 Ability to invest in riskier projects 17 Avoidance of regulatory compliance issues 16 Ability to extend their reach into new geographic or product markets Other Source: Economist Intelligence Unit survey, 2011 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 not fully recognise the longer-term strategic benefits that such methods can provide For example, only 6% of firms 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 benefits of delivering projects successfully According to Brett Pitts, senior vice president and group manager for internet portfolio management © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects 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 financial services firms (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 Chart In your organisation, what are the most common reasons for project failure? Select up to three (% respondents) Unrealistic project goals 40 Poor alignment between project goals and organisational goals 38 Inadequate human resources 34 Lack of strong leadership 32 Unwillingness among team members to point out problems 21 Ineffective risk management 19 Inadequate financial resources 17 Change in oversight and governance 15 Business case is no longer justified 13 Regulatory compliance issues Discontinued partnerships Source: Economist Intelligence Unit survey, 2011 Economist Intelligence Unit, Pre-emptive action: Mitigating project portfolio risks in the financial services industry, February 2011, sponsored by Oracle © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Apathy leads to trouble P oor leadership, ineffective risk management and a culture in which people are unwilling to point out problems create additional challenges in managing projects successfully These flaws 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 difficult than it needs to be, diverting time and resources away from more beneficial opportunities Chart In your organisation, at what point executive stakeholders get involved in bringing a troubled project back on track? (% respondents) They participate in regular progress reviews, and get involved if a problem arises that the project leader cannot solve 45 They get involved only when the project is in serious trouble, and other attempts to solve it by the project team have failed 28 They closely monitor project progress and milestone reviews, getting involved as soon as trouble arises 20 They 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 Source: Economist Intelligence Unit survey, 2011 © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Formal response: too little, too late A long with poor leadership accountability, many financial services firms have inadequate response mechanisms for dealing with troubled projects As Chart 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 officially missed Another 20% say senior executives in their organisation 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 significant toll, causing these firms to show the lowest project success rate—only 8% deliver projects on time and on budget 90% of the time or better Chart In your organisation, which of the following events trigger processes to address project failure? Select up to three (% respondents) When pre-established targets for time and budget are not met 47 When project team members and/or key stakeholders identify potential problems during planning that could interfere with success 41 When signs of trouble arise, during early project reviews, but before the project goes over time or budget 39 When regular portfolio or stage gate review meetings are held 28 When the project is nearing its delivery date and obviously going to fail 20 When the project manager requests additional resources 17 When the sponsor requests a reassessment of project viability 14 There are no formal processes to address project failure 15 Source: Economist Intelligence Unit survey, 2011 Financial services firms 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 firms—wait until a project is more than 25% behind schedule before they react, at which point it is very difficult to bring an initiative back on track © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Interestingly, the organisations with the most rigour in their project portfolio management process tend to be firms with annual revenue of less than US$500m As demonstrated in Table 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 Table 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% Source: Economist Intelligence Unit survey, 2011 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 firms that are often hindered by the complexities of global collaboration and widely dispersed teams © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Few companies hit time or budget goals T he 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 firms again deliver better rates of success, bringing projects in on time and on budget more frequently than larger firms, as demonstrated in Table below Table 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 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 efficient, giving them an advantage over their competitors © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Mature project management drives regulatory optimism F ailure to deal with troubled projects early has the biggest impact on implementing regulatory initiatives, which are of central importance for financial 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 flounder, 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 confidently deliver projects on time and on budget, so they are less burdened by regulatory demands As a result, respondents who rank their firms in the top two tiers of project portfolio management efficiency are more likely to say that regulatory projects are a necessary step in achieving business efficiency (51%) In comparison, those who rank their organisations in the bottom three tiers of project portfolio management efficiency are more likely to view these projects negatively: 40% of these respondents say that regulatory projects require more financial 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 Chart In your opinion, what are the impacts of compliance projects on your company’s overall portfolio management process? (% respondents) Top two tiers Bottom three tiers They ensure the efficient functioning of our business 51 31 They reduce our ability to invest in our growth and success as we are forced to carry out more regulatory projects 30 38 They often require more financial resources than are originally allocated to bring them in on time 29 40 Source: Economist Intelligence Unit survey, 2011 10 © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Good response mechanisms reduce the stress of regulatory projects on organisations and give businesses greater confidence 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 confidence in how these projects can benefit their business 11 © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Conclusion F inancial services executives understand the financial 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 benefits 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 efficiency to deliver more projects with fewer resources, and enable them to take on higher-risk projects with the confidence that they are able to deal with whatever problems that may arise 12 © Economist Intelligence Unit Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects Appendix: survey results Percentages may not add to 100% owing to rounding or the ability of respondents to choose multiple responses In your organisation, who is held and who should be held accountable for the success of a project? At what point does excess cost or time trigger processes to address project failure? (% respondents) (% respondents) Who is held accountable? When costs exceeds by: Who should be held accountable? When time exceeds by: Up to 10% Project manager 23 38 18 26 11-25% Project sponsor 44 26 27 36 25-50% Business unit manager 19 17 26 15 50-99% Steering committee 12 11 23 100% or more Vice president Not applicable Other 7 2 On a scale of 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? In your organisation, which of the following events trigger processes to address project failure? Select up to three (% respondents) (% respondents) When pre-established targets for time and budget are not met 47 When project team members and/or key stakeholders identify potential problems during planning that could interfere with success 1-Extremely effective 41 When signs of trouble arise, during early project reviews, but before the project goes over time or budget 39 32 39 When regular portfolio or stage gate review meetings are held 28 When the project is nearing its delivery date and obviously going to fail 19 5-Not at all effective 20 When the project manager requests additional resources 17 When the sponsor requests a reassessment of project viability 14 There are no formal processes to address project failure 15 13 © Economist Intelligence Unit Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects In your organisation, at what point executive stakeholders get involved in bringing a troubled project back on track? (% respondents) 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) They participate in regular progress reviews, and get involved if a problem arises that the project leader cannot solve 45 They get involved only when the project is in serious trouble, and other attempts to solve it by the project team have failed Better use of limited resources 61 Better on-time and on-budget project success rate 28 40 They closely monitor project progress and milestone reviews, getting involved as soon as trouble arises Ability to gain a competitive advantage over their peers 37 20 Better evaluation of opportunity costs They not get involved when projects start to fail, leaving it entirely to the project team to deal with the problems that occur 28 Improved customer confidence and loyalty 25 Don’t know/Not applicable Ability to deliver more projects with the same budget 23 Ability to invest in riskier projects 17 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 100% of projects Avoidance of regulatory compliance issues 16 Ability to extend their reach into new geographic or product markets Other 90-99% of projects In your opinion, what are the impacts of compliance projects on your company’s overall portfolio management process? 14 18 (% respondents) 75-89% of projects 37 25 24 19 They reduce our ability to invest in our growth and success as we are forced to carry out more regulatory projects 12 13 35 0-24% of projects 15 Don’t know/Not applicable They often require more financial resources than are originally allocated to bring them in on time 36 25-49% of projects They ensure the efficient functioning of our business 39 50-74% of projects They lead stakeholders to be more risk averse when it comes to other project opportunities 20 They lead stakeholders to be less risk averse when it comes to other project opportunities 19 They distort our allocation of human resources 16 14 © Economist Intelligence Unit Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects In your organisation, what are the most common reasons for project failure? Select up to three Approximately how often does your organisation communicate that business goals were attained? (% respondents) (% respondents) Unrealistic project goals Always 40 Poor alignment between project goals and organisational goals 14 Most of the time 38 50 Inadequate human resources Sometimes 34 29 Lack of strong leadership Rarely 32 Unwillingness among team members to point out problems Never 21 Ineffective risk management Don’t know 19 Inadequate financial resources 17 Change in oversight and governance 15 In your opinion, what are the most important tools or strategies for identifying project failure early? Select up to two Business case is no longer justified 13 Regulatory compliance issues (% respondents) Discontinued partnerships Clearly defined roles and responsibilities for project delivery 48 Regular communication between the project team and key stakeholders 45 In your organisation, who is primarily responsible for examining and communicating if the business case goals were attained? (% respondents) A formal governance process that regularly evaluates project progress against goals 39 A corporate culture that encourages employees to point out problems when they arise 35 Manager of business unit 24 Leading stakeholders who are willing and able to make critical decisions to get projects back on track 14 Project sponsor 23 Project manager 22 In which country are you personally located? Steering committee overseeing governance of all projects 22 (% respondents) Vice President United States of America Other 23 Canada No one is responsible 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 15 © Economist Intelligence Unit Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects In what subsector of financial services does your organisation primarily operate? What are your main functional roles? Choose up to three (% respondents) (% respondents) Finance 38 Commercial banking 25 General management 35 Investment management 22 Strategy and business development 22 Risk 33 Capital markets 29 Insurance Marketing and sales 15 16 Retail banking IT 13 11 Other Operations and production 10 Information and research What are your company’s annual global revenues in US dollars? Customer service (% respondents) Legal $500m or less 32 R&D $500m to $1bn 13 Human resources $1bn to $5bn 20 $5bn to $10bn 11 $10bn or more 24 Procurement Supply-chain management Other In which region are you personally located? (% respondents) Which of the following best describes your title? North America (% respondents) 31 Asia-Pacific Board member 30 Western Europe CEO/President/Managing director 27 23 Latin America CFO/Treasurer/Comptroller 11 Eastern Europe CIO/Technology director Middle East and Africa Other C-level executive 10 SVP/VP/Director 22 Head of business unit Head of department Manager 10 Other 16 © Economist Intelligence Unit Limited 2011 Cover: Shutterstock 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 LONDON 26 Red Lion Square London WC1R 4HQ United Kingdom Tel: (44.20) 7576 8000 Fax: (44.20) 7576 8476 E-mail: london@eiu.com NEW YORK 750 Third Avenue 5th Floor New York, NY 10017 United States Tel: (1.212) 554 0600 Fax: (1.212) 586 0248 E-mail: newyork@eiu.com HONG KONG 6001, Central Plaza 18 Harbour Road Wanchai Hong Kong Tel: (852) 2585 3888 Fax: (852) 2802 7638 E-mail: hongkong@eiu.com GENEVA Boulevard des Tranchées 16 1206 Geneva Switzerland Tel: (41) 22 566 2470 Fax: (41) 22 346 93 47 E-mail: geneva@eiu.com [...].. .Proactive response How mature financial services firms deal with troubled projects Mature project management drives regulatory optimism F ailure to deal with troubled projects early has the biggest impact on implementing regulatory initiatives, which are of central importance for financial services executives Missing these targets can cause a bank... Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects In your organisation, at what point do executive stakeholders get involved in bringing a troubled project back on track? (% respondents) In your opinion, what are the greatest benefits that financial services organisations derive from identifying and dealing with project failure early in the... carry out more regulatory projects 30 38 They often require more financial resources than are originally allocated to bring them in on time 29 40 Source: Economist Intelligence Unit survey, 2011 10 © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Good response mechanisms reduce the stress of regulatory projects on organisations... Ireland, Malaysia, Mongolia, Nigeria, Philippines, Taiwan, United Arab Emirates 1 15 © Economist Intelligence Unit Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects In what subsector of financial services does your organisation primarily operate? What are your main functional roles? Choose up to three (% respondents) (% respondents) Finance... our allocation of human resources 16 14 © Economist Intelligence Unit Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects In your organisation, what are the most common reasons for project failure? Select up to three Approximately how often does your organisation communicate that business goals were attained? (% respondents) (% respondents)... whatever problems that may arise 12 © Economist Intelligence Unit Limited 2011 Appendix Survey results Proactive response How mature financial services firms deal with troubled projects Appendix: survey results Percentages may not add to 100% owing to rounding or the ability of respondents to choose multiple responses In your organisation, who is held and who should be held accountable for the success of... opportunity costs They do not get involved when projects start to fail, leaving it entirely to the project team to deal with the problems that occur 28 Improved customer confidence and loyalty 7 25 Don’t know/Not applicable Ability to deliver more projects with the same budget 2 23 Ability to invest in riskier projects 17 In your estimation, what percentage of projects has your organisation delivered on... 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 confidence in how these projects can benefit their business 11 © Economist Intelligence Unit Limited 2011 Proactive response How. .. 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 efficiency to deliver more projects with fewer resources, and enable them to take on higher-risk projects with the confidence that they are able to deal with whatever problems... their executives have less confidence in how these projects can benefit their business 11 © Economist Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Conclusion F inancial services executives understand the financial and strategic value that successful project execution brings to their organisations Yet many organisations have yet to optimise ... Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects Preface Proactive response: How mature financial services firms deal with troubled projects is an... Limited 2011 Proactive response How mature financial services firms deal with troubled projects Formal response: too little, too late A long with poor leadership accountability, many financial services. .. Intelligence Unit Limited 2011 Proactive response How mature financial services firms deal with troubled projects The benefits of early response are clear A lthough many financial services firms have immature