What are the short and long term consequences of a disappearing project management layer?
When the economy is soft or business finds itself looking for the opportunity to cut costs, many organisations stop investing in new projects and people or they reduce support teams without looking far enough to see the consequences of how it will impact the success or failure of the project.
There is a price to pay in terms of customer loyalty, heightened risk, deferred costs and future profitability. We often see senior (the more expensive resources) people being cut in favour of cheaper BAU resources.
The Harvard Business Review wrote in 2011 that one of the biggest mistakes companies can make during financial downturns is to make mass layoffs of people in order to cut costs. McKinsey reported that cost cutting initiatives don’t stick as they rarely address the true drivers of costs.
Businesses need to analyse the long-term impact before making short-term cuts to the project slate. Why is it that people are usually the first impact of cost cutting and what are the consequences to an organisation’s strategic change agenda when project teams are substantially restructured?
Do the Right Things at the Right Time with the Right People
When it comes programs and projects, Quay is very much in favour of doing the right things at the right time with the right people. We are also advocates of stopping projects that have no chance of success.
However, we do see clients that when faced with the need to drive down costs, do so seemingly without thought as to the deferred costs, the loss of IP and future profitability especially when reducing the project spend.
Short Term Gains Long Term Pain
McKinsey has shown the stats on cost cutting initiatives to be damming, with only 25% of businesses having sustained the cost cutting over a 3-year period.
By slashing roles without looking at the individuals, critical IP can leave the building without handover. This then takes time and cost to build up again, is often diluted, and can lead to single points of knowledge and consequently failure.
The immediate cost benefit may look good to the bottom line, but long term is often outweighed by the loss of project and system knowledge. The impact to the project or program can be substantial.
Running with BAU Teams
When project teams are cut and the business delegates the delivery to BAU teams, there is an inherent expectation that more can be delivered with less. Delivery without the critical competencies that drive real benefits for projects create a high level of risk of failure.
Senior project and change practitioners provide experience and bandwidth to do more with less, providing the line of sight that anticipates unexpected challenges, build robust, success-focused teams that are capable of implementing the change and benefits that are required.
Often BAU teams do not have the experience and expertise to lead projects and asking technical resources to step up to this level is often fraught with challenges and sets up individuals for failure.
Morale & Trust
Organisations that regularly cut and cut deep can often cut “muscle”, losing some of what makes them great.
In environments that constantly change their teams and cut due to cost drivers, trust becomes eroded. The collective knowledge of the team can be eroded too, particularly if the cuts affect a high performing team then there can be a significant loss of productivity.
A Better Approach to Cost Management
McKinsey and Harvard Business Review have published articles outlining that looking at different ways to cut costs (instead of just people) can deliver real competitive advantage.
For example, a key recommendation is to improve the measurement and monitoring of operational and project or capital costs that lead to well planned and strategically aligned projects being delivered on time and on budget. Poorly planned and reactionary projects are inevitably poorly costed and come in over budget and over time.
In times of commercial uncertainty, cutting people is the lowest hanging fruit because they form a significant part of the P&L and provide an immediate cost reduction. The downside of these types of cuts is that it doesn’t solve the root cause of the problem and can instead lead to longer term pain. If the organisation must cut, then it’s better to focus on how to cut, not just where.
Building cultural and leadership changes into managing costs can lead to systemic improvements in behaviour as well i.e. video conferencing vs travelling, planning your book of work well in advantage and with rigour. Improving corporate delivery DNA over the midterm will not only enable greater success of projects but ultimately provide a competitive advantage as you will be able to efficiently deliver more for less.
Quay’s Project Management practice provides clients with real-world, relevant knowledge to help create project delivery environments aligned to their capability and specific project demands. For an independent perspective, please contact us on 02 9098 6300.