Projects fail. Big projects, arguably, fail more often and with bigger consequences. The more projects in the hopper, the more failures you will see, in absolute if not percentage terms. Government, by its very nature, has thousands of projects underway at once. Back in the 2000s when I worked on mission critical projects with the good folks at Number 10 and (Sir) Peter Gershon, I think we had 120 or so in the first list we came up with. I would be surprised if the count is any smaller now.
Venture capital (VC) investments fail. Perhaps big investments fail more often. The important differentiator is that VC investments are usually made little and often – projects receive small amounts early on (usually from Angel investors which precede VCs) and then more money is gradually invested at higher valuations, as the company/idea grows and reaches various proof points. The last few years have seen this model strained as huge investments can be put into late stage companies (think WeWork … or maybe not).
This is quite different from how most projects are run. Projects go through lengthy due diligence phases up front, sometimes lasting a year or more (longer still when the project concerns physical infrastructure – railways, bridges, nuclear power plants etc). The output of that DD is a business case – and then the go button is pressed. Procurement is carried out, suppliers are selected, contracts are signed and govenrnment is on the hook, for 5, 10 or even more years.
Agile projects can be different in that contracts are shorter, but the business case generally supposes success (hence “optimism bias” as a key metric – if it goes wrong, then it just needs more money). But they can still carry a momentum with them which means that they carry on long after failure was inevitable.
VC companies are more ruthless. They know, after years of meaurement across the industry, that only one or two of their investments in any given period will count for the vast bulk of their returns. They call this “the hit rate” (Fred Wilson writes brilliantly about this, and many other things). Poor performers are culled early on – they don’t get additional funding. Sometimes the investment is in the team, and they are able to change their business idea (that is, “pivot”) and get to continue, buf often the company is shuttered and the team scatter and move on to new ideas.
This brings a tendency to look for huge winners (or the potential for them) – the VC knows that they need to win big, so they look for ideas and teams who will produce those big returns. If they strike out, well, perhaps 8 out of 10 were going to break even or lose money anyway.
- Data from Correlation Ventures suggests about half of investments made by VCs fail, and about 4% generate a return of 10x or greater
Is there, then, a case for treating government projects the same way. Perhaps we could back multiple, competing projects in the same space, and fund the ones that were proving the most successful? We would have to change the contracting model and include break clauses (not termination clauses as that, in the current vernacular, implies failure – we know that projects are going to fail, we just don’t know which ones).
Sure, we would “waste” some money doing it this way. But we already do – we think we are wasting it right near the end when the project has consumed all of its budget and has nowhere left to go, but, in reality, we’ve been pouring money into something that wasn’t going to success for months or years beforehand.
We could also copy the way some VCs back teams – that is, find teams who have successfully delivered and work to keep them together, moving them onto the next idea, because it may just be that success breeds success. Teams who have proven capable at £10m of project spend should get to play with £50m. or £100m and £200m. We could rotate new team members in to give them exposure to what success looks like, before splitting successful teams and giving them more to run.
The current model, even with all the agile changes in the last decade, isn’t working as well as it could. There’s a reason that VC companies manage a portfolio – they know that they have to spread their capital quite wisely. Our project management approach feels more like passive investment in an index, rather than active management of a portfolio. We need to make some changes.