The Financial Impact of High-Risk Project Failures

Financial Impact

High-risk, high-visibility projects typically pay off with high rewards, but before you begin one of these strategic efforts, it’s crucial to understand the far-reaching financial repercussions of project failure. When a critical project falls short, it’s not just a matter of a single setback. The financial impact of high-risk project failures can trigger a ripple effect throughout the business that puts everything from productivity to workforce management to revenue generation in jeopardy.

Identifying at-risk projects and quickly getting them back on track is key to long-term success. Consider these five financial challenges that could result from just one project failure.

1 – Fewer opportunities to generate revenue.

Strategic projects frequently deliver critically important capabilities and efficiencies that will either help the company make more money to fund future projects or save money the organization can then direct toward other pursuits. For example, a project that increases the firm’s manufacturing capacity will enable it to generate more revenue over time. However, if that project fails, the additional dollars the company counted on to finance the next initiative won’t exist. Without the expected revenue increase, the project pipeline can quickly stall as the financial engine behind project development reaches a crisis point.

2 – Tighter access to capital and other funding vehicles.

When the wheels fall off a strategic project—particularly one that’s highly visible—it could spook even the most loyal investors and creditors. If doubts among these critical partners cause them to step back, the business might discover it doesn’t have as many ways to raise funds as it used to. There could also be less access to loans and other capital necessary to keep core operations going or to pursue opportunities to expand and grow the organization’s ability to make money.

3 – Loss of key senior leaders.

An executive involved in a failed project may exit the company, creating a C-level opening that’s time-consuming and expensive to fill. Salaries are just one cost of finding the best successor. The remaining executives must take on additional responsibilities until a replacement comes on board, potentially creating a significant burden for them in the meantime. The business may also need to retain an executive search firm to identify and woo candidates with the right blend of experience and expertise. The process can easily consume many months (or more) plus require a significant financial outlay along the way.

4 – Reduced worker productivity.

Failed initiatives usually hit project team members hard. Most project professionals are self-motivated and demand a lot of themselves, and a project that doesn’t reach a successful completion often feels like a personal failure for those who fought to keep everything on track. Maintaining good performance in this environment is extremely difficult. This becomes particularly troublesome for teams already suffering from burnout, declining psychological health, and stress. As morale drops, employee productivity also falls,and inefficiencies and the risk of costly errors grow.

5 – Difficulty hiring and retaining the best workers.

High-performing people want to work for high-performing companies. A failed project could impair your ability to attract and retain the types of standout candidates that help make strategic initiatives successful. Reputational damage may result in longer hiring cycles and the need to invest in new or expanded recruitment efforts. Costs to address retention challenges might include developing programs aimed at reassuring wary employees that the failure isn’t the start of a trend, boosting salaries and other perks to keep current staff happy, providing more career development training to ensure ongoing commitment, and switching up or expanding the project team’s leadership structure to give employees more opportunities to grow within the organization.

PMAlliance, Inc uses a team of highly experienced and certified professionals to provide project management consultingproject management training and project portfolio management.