Financial services companies that identify failure early in the project development process and respond to problems as they arise can invest in higher-risk initiatives without threatening their bottom lines or their reputations, says a new study by the Economist Intelligence Unit and sponsored by Oracle.
The study, Preemptive Action: Mitigating Project Portfolio Risks in the Financial Services Industry, finds that financial services companies that excel in executing projects, especially those that involve regulatory compliance, can gain a competitive edge by embracing opportunities unavailable to peers with a constrained appetite for risk. It adds that in today’s environment, where markets are volatile, demand weak and regulatory scrutiny intense, no organisation has much room for error on new initiatives. Those with mature project management practices are able to spot failure before it becomes too costly, and leverage it to improve future performance.
This proactive approach, which requires both a rigorous project management practice and intrepid executives willing to make difficult decisions, is unusual in the industry, says EIU. Where it exists, it allows companies to mitigate project risks and use resources more effectively to propel growth. In its absence, companies become more risk-averse, focusing on low-risk projects that merely protect assets and meet regulatory requirements.
According to the study, dismantling the culture of blame allows companies to accept failure and use their resources more effectively. By encouraging team members to communicate concerns, publicly acknowledging those who identify problems and showing over time that teams will not be punished for failure, companies help their project teams focus on finding solutions and learn from mistakes.
The study also says that managing must-do regulatory projects requires a balance between flexibility and adherence to process. Because these initiatives cannot fail, some organisations pour an endless stream of resources into them when they founder. Mature project management organisations are better able to refocus scope and add or adjust resources as needed to keep their projects on track.
"Executives must be held accountable for project failures. When the final responsibility rests with them and their success is tied to the success of their projects, executives will deal with problems as they arise in order to deliver the expected ROI," says the study.
Assessing risks in the planning stage is a crucial factor of success, but ongoing progress reporting, milestone review and risk assessment are also essential, says the study.
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