Misreporting of project statuses, at all levels of the company, is often to blame for corporate projects failing or ballooning in cost, according to a new study published in MIT’s Sloan Management Review.
Executive SummaryMisreporting of project statuses can cause corporate projects to fail or balloon in cost, according to a new study. But changes in organizational structure and climate can go a long way in mitigating the problem.
The study, conducted by a team of researchers from the business schools at Wake Forest University, Georgia State University and the Miami University of Ohio, determined that everything from cultural predispositions to career aspirations motivate people to misreport.
#1: Employees don’t accurately report when projects are failing. Many employees put a positive spin when they report to senior management, due primarily to their being on the weaker side of a power relationship. Also, when the organizational climate is not receptive to bad news, truthful reporting can be inhibited.
“An executive should ‘trust, but verify,'” said Ronald L. Thompson, professor of management at the Wake Forest University School of Business and one of the study’s authors. “Instead of taking an employee’s status report at face value, an executive should solicit the opinions of others who are close to the project, obtaining views from different levels within the organization.”
#2: People misreport for many reasons—and those reasons matter. While executives tend to attribute misreporting to poor ethical behavior on the employee’s part, individual traits, work climate and cultural norms all play a role. For example, some workers may just be optimistic about a fledgling project. Others may be risk takers. Still other employees may have cultural backgrounds that traditionally reward individualism above collectivism.
“Executives should spend more time considering the composition of their project teams, especially project manager positions,” said Charles Iacovou, vice dean and professor of management at Wake Forest University School of Business and one of the study’s investigators. Of particular note are personality traits, employees’ perceptions of their work climate and employees’ cultural backgrounds. Be especially wary of optimists and risk takers.”
#3: Audit teams help to proliferate misreporting. In one study of state government managers who reported to an IT oversight board, the researchers discovered several cases in which the use of an audit team led to growing distrust and deception in the audited unit. Individuals reporting project status information reacted to some auditors’ queries by trying to thwart the auditors. The auditors, in turn, concluded that the project participants were either incompetent or deceptive, and they increased their scrutiny, which led to more defensiveness and an even greater degree of misreporting.
#4: Putting a senior executive in charge of a project may increase misreporting. Conventional wisdom tells project managers to appoint a senior executive to oversee all major projects, thus providing visibility and organizational support to marshal resources. But research suggests that the stronger the perceived power of the project leader, the less inclined subordinates are to report accurately. In short, the career aspirations of project managers and senior executives often skew results toward the positive.
“This is a situation where having a project management office can help,” said Thompson. “The PMO can provide a trained leader who helps mentor other project managers. It provides a resource for project managers to turn to if problems arise instead of running that information up to a supervisor.”
#5: Executives often ignore bad news. A number of the authors’ studies found situations where employees went to share concerns about a project with powerful decision-makers who had the ability to change the course of the project (or stop it), but such attempts were unsuccessful.
“Overconfidence is an occupational hazard in the executive suite,” said Iacovou. “Overconfidence and other reasons can lead to a situation where executives continue to escalate their commitment to a project, despite negative news. In many of the corporate disasters of the past 20 years, overconfidence or overcommitment almost always played a role. Executives should not only listen to a variety of stakeholders but they should take the warnings they receive seriously, or they risk creating a climate of silence in which employees grow even more reluctant to report bad news.”
These findings were presented in the Spring 2014 edition of MIT’s Sloan Management Review. The paper was co-authored with Mark Keil at Georgia State University and Jeff Smith at Miami University in Oxford, Ohio.