…a Case Study showing one approach to evaluating whether a project should be cancelled or completed.
First, some context…
Some years ago I was managing a project to design and manufacture about 20,000 pieces of equipment for a household name client (let’s call them ClientCo) of the engineering manufacturer I was working for (we’ll call them MyCo).
MyCo’s project costs were to be factored into the selling price of the units (rather than invoicing ClientCo as we went along), and it was crucial to the financial stability of MyCo that we would sell the units at the end of the project.
Part way through the project, ClientCo restructured. Budgets were revisited, and question marks appeared over my project that was a “nice to have” for ClientCo but a “must have” for MyCo.
The challenge I was set by MyCo was to demonstrate to ClientCo why they should continue with the project and make their cuts elsewhere.
We needed them more than they needed us
Design-and-manufacture Projects deliver the benefits right at the end. There’s nothing to be gained from owning component tooling and assembly jigs – you have to make, and use the finished product in order to realise the benefits.
Calculate cost:benefit of completion vs. exit
I laid the finances on the line, preparing a breakdown of the cost to complete the project with a statement of the benefits to be gained, vs. the cost to exit the project early (comprising remaining project costs, plus costs to make the tooling for component manufacture, which had already been contractually committed to). I added this cost information to my (weekly) Project Status Reports.
Let the Client decide (after all it’s their money…)
Initially, the exit cost was considerably less than the completion cost, but exit would have been embarrassing for my customers at ClientCo as it would entail expenditure without benefits. I explained my ClientCo customers that as the project progressed, the completion cost would decrease in relation to the exit cost, and benefit realisation would draw closer. The project remained in funding limbo for a couple of months (with my ClientCo customers explaining the journey towards benefit realisation to their own Sponsors), but it soon became apparent to ClientCo that it was better to complete (and realise the benefits) than it was to exit, and the project continued right through to manufacture.