Project Management Risks and Strategies

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Questions and Answers

What is one major vulnerability associated with certain projects, as discussed in the provided content?

They always exceed budget limits.

They are generally too small.

They are prone to erroneous abandonment. (correct)

They fail to deliver expected benefits.

Why may managers become more risk-seeking rather than risk-averse?

When projects are too small to matter.

When catastrophic losses are imminent.

When faced with the potential for overrun losses. (correct)

When facing challenges of budget renewal.

In what way can sacrificing benefits be seen as advantageous for managers?

It helps avoid budget renewal challenges. (correct)

It allows them to gain financial reward.

It eliminates all forms of dissent from stakeholders.

It guarantees project success in the long term.

What is recommended as a preventive measure to avoid value-destroying abandonments?

Refusing to acknowledge budget overruns. Signup and view all the answers

What was one of the benefits that were postponed instead of exceeding budgets and timelines?

Access to service records. Signup and view all the answers

What might managers avoid by sacrificing certain benefits?

Challenges and resistance from stakeholders. Signup and view all the answers

What is the focus of the countermeasures discussed in the provided content?

Avoiding erroneous abandonment. Signup and view all the answers

According to the content, what does the loss of benefits represent?

Gains forgone. Signup and view all the answers

What is the potential benefit of applying the 'one good reason' heuristic in decision making?

It reduces reliance on target setting. Signup and view all the answers

How can managers avoid overvaluing alternatives when considering switching from a current strategy?

By adopting the Janus face approach. Signup and view all the answers

What does the phrase 'burn the boats' imply in the context of decision making?

Eliminating alternatives to ensure commitment. Signup and view all the answers

According to the content, which factor can lead to systematic overvaluation of alternatives?

Intolerance of failure. Signup and view all the answers

What is one recommended strategy for managers to break negative connotations?

Focus on positive aspects and statements Signup and view all the answers

What is indicated as a way to address lingering uncertainty in decision making?

Heeding intuition as a valuable tool. Signup and view all the answers

What does an option in the context of project management confer?

The right but not the obligation to act in the future Signup and view all the answers

What does the concept of 'lock-in' refer to in the context of management?

Becoming publicly committed to specific limits. Signup and view all the answers

What can the abandonment of a troubled software project result in?

Loss of potential option values connected to the project Signup and view all the answers

What advantage does taking an external perspective provide for managers?

It allows for a more robust challenge to risk assessment. Signup and view all the answers

What is often a misconception about managing uncertainty in decision-making processes?

Only data-driven approaches can yield successful outcomes. Signup and view all the answers

Why is it important for managers to consider potential options before abandoning a project?

To assess the potential for future endeavors Signup and view all the answers

What is indicated by the act of flying in top technical experts during a project faltering?

A demonstration that problems are being taken seriously Signup and view all the answers

How can negative language affect project outcomes?

It can contribute to self-fulfilling failures Signup and view all the answers

What is a potential consequence of selling off adjoining land to a factory?

The option for future construction on that land is lost Signup and view all the answers

How can symbols be utilized effectively in management?

To manipulate perceptions toward a more positive outlook Signup and view all the answers

What effect can adversity have on individuals according to the insights provided?

It can potentially lead to greater achievements. Signup and view all the answers

What does the text suggest about changing project managers as a measure to curb escalation?

It may increase the risk of erroneous abandonment. Signup and view all the answers

Why may conflicted managers struggle according to the insights on escalation?

They may become trapped between admitting failure and avoiding increased loss. Signup and view all the answers

How does the text perceive the decision error associated with persistence versus abandonment?

Both persistence and abandonment can be seen as costly decision errors. Signup and view all the answers

What should managers be aware of when they impose control and make changes?

Potential side effects of their decisions. Signup and view all the answers

What consequence does the text imply about persistent but misguided reinvestment in doomed projects?

It often results in a significant increase in losses. Signup and view all the answers

According to the provided insights, what can doubts and second thoughts lead to in decision-making?

They can disrupt and ruin effective decision-making. Signup and view all the answers

What is a general characteristic of managers who stall or persist halfheartedly in their decisions?

They are likely to prolong psychological pain and deepen losses. Signup and view all the answers

What is the primary focus of Keil and Robey's 1999 study?

Strategies for turning around troubled software projects Signup and view all the answers

Which of the following variables is associated with project completion in Keil et al.'s 1995 research?

Sunk cost Signup and view all the answers

Which phenomenon is primarily discussed in the context of managerial perspective in the studies referenced?

Escalation of commitment Signup and view all the answers

What unique aspect does the 2009 study by Kelman et al. highlight?

The collaboration between the UK’s Ministry of Defense and EDS Signup and view all the answers

What does McAfee et al.'s 2010 study primarily investigate?

The importance of sunk costs in decision-making Signup and view all the answers

What finding is associated with Moon and Conlon's 2002 research?

Person sensitivity decision bias Signup and view all the answers

In the 1986 study by McCain, what concept is explored in relation to investment decisions?

The dynamics of failure and investment continuation Signup and view all the answers

Which author discussed the limits of escalation in 1986?

McCain Signup and view all the answers

What research topic is primarily discussed in the findings of Staw and Ross?

Escalation of commitment to a chosen course of action Signup and view all the answers

Which of the following theories is mentioned as being related to escalation in decision-making contexts?

Prospect theory Signup and view all the answers

What is one of the potential unintended consequences of supervisor participation in hiring decisions according to Schoorman?

Escalation bias in performance appraisals Signup and view all the answers

What does the 'Rosencrantz and Guildenstern effect' pertain to?

Entrapment in waiting situations Signup and view all the answers

Which aspect of organizational behavior does Staw explore in his 1997 update on escalation research?

The update and appraisal of escalation findings Signup and view all the answers

In which publication series are Schoorman, Mayer, and Douglas's findings presented?

Research in Organizational Behavior Signup and view all the answers

What is the focus of Staw and Fox's 1977 study mentioned in the content?

Determinants of commitment to a chosen course of action Signup and view all the answers

What is indicated as a solution to escalation situations according to studies in organizational behavior?

Recognizing prior investments as non-recoverable costs Signup and view all the answers

Study Notes

Escalation of Commitment: When to Stay the Course?

Organizations may face dilemmas when a venture falters, choosing between persistence and abandoning a project.
Escalation of commitment, a costly mistake, involves reinvesting in failing projects beyond economic viability.
Organizations may continue despite losses, such as Sony's electronics business, despite a decade of losses totaling $8.5 billion.
The opposite error, abandoning a viable project, is also a concern, as demonstrated by Pepsi abandoning Pepsi Raw after two years in the UK.
Overconfidence, sunk costs, and self-justification are key drivers of persistence.

Forces for Persistence

Overconfidence: Decision-makers overestimate their abilities and the project's success, evident in Tesco's United States venture.
Sunk Costs: Past investments make quitting seem costly, even if irrelevant to future outcomes, as in the London Stock Exchange's IT infrastructure project.
Perceived Need for Self-Justification: Managers may persist to justify past decisions to themselves, as seen in the decision to continue with the Taurus project.
Denial: Managers might dismiss negative feedback or focus on positive aspects, obscuring the project's difficulties.
Social Costs: Admitting failure carries social stigma for organizations and individuals.
Completion Effects: Completing the project, even when unprofitable, may be prioritized.
Exit Barriers: Organizational structures or vested interests hinder abandonment of a project.

Forces for Abandonment

Aversion to Loss: Avoiding further losses can outweigh potential gains from continuing.
Opportunity Costs: The potential gains forgone by continuing with a failing project can be significant, as in the UK's superfast rail project (HS2).
Perceived Risk: Continued persistence raises the risk of greater losses.
Intolerance of Failure: Managers might be unwilling to tolerate further setbacks or failure.
Publicly Stated Limits: Limits on budgets or timeframes can pressure for abandonment.
Shifting Tides of Organization: Changes in organizational leadership can affect attitudes toward a project.
Lingering Uncertainty: Uncertainties about future benefits or costs can deter continued investment.

When to Stay the Course

A project might be economically reasonable to continue even with present cost overruns (with a benefit projection offsetting it).
Abandonment should be considered when major objectives are unmet, and costs exceed expectations, as seen in the examples of the Sidney Opera House, the refurbishment of London's Savoy Hotel, and Amsterdam's new subway system.

Avoiding Value-Destroying Abandonments

Keep Project on Track: Maintain project progress to avoid further potential issues in the future.
Sacrifice Benefits: Prioritizing project survival over perceived benefits.
Keep Two Sets of Books: To ensure clearer perspectives of reality, rather than perceived reality.
Don't Let Failure Become Self-Fulfilling: Avoid self-defeating expectations that can drive down investment/interest.
Evaluate Alternative Investment Opportunities: Assess and consider different options to counteract loss perspective.
Weigh Hidden Benefits of Persistence: Weigh investment from hidden, yet potentially lucrative, future possibilities.
Apply the "One Good Reason" Heuristic: Focus on one main rationale to help justify investment in troubled projects.

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Description

This quiz explores major vulnerabilities in project management, the tendency of managers to become risk-seeking, and the implications of sacrificing benefits. It discusses countermeasures to avoid value-destroying abandonments and considers the impact of decision-making heuristics such as 'one good reason.' Test your understanding of these critical concepts in project management.