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1 August 2006

Projects are NOT investments

By Andrew Clifford

Projects are not investments, and "project portfolio management" is nonsense. Misunderstanding this leads to serious problems.

The word "investment" has two meanings.

  • The act of investing money. A transaction.
  • The property in which money is invested. An asset.

Projects are transactions. Projects are not assets.

We often use the phrase "projects are investments", but in which sense?

In the sense that projects are transactions that acquire assets such as IT systems, there is no problem in viewing projects as investments.

But without realising it, we are confused by the ambiguity of the word "investment". We see projects themselves as assets.

This leads to serious problems.

Thinking of projects as investment assets over emphasises the characteristics of the project.

Often we put systems live because of project pressures, even though they are not complete, untested, full of bugs, unusable, and fail to comply to even basic standards. The transaction has been a success, but has not delivered an asset and has not delivered value.

Thinking of projects as investment assets under emphasises the value of existing systems.

Existing systems are significant assets because they underpin business activity. Managing them proactively and extending their useful life improves their value and reduces costs significantly. But when we think of projects as assets, we blind ourselves. We embark on huge, risky, new system implementations, rather than manage what we have.

Thinking of projects as investment assets stops us managing IT investments properly.

Within IT, our main job is to supply IT. We have a vested interest in securing funding for our work. We need to be aware of this conflict of interest. When we advise our non-IT colleagues, we need to push against the pressure to oversell IT.

But thinking of projects as investment assets can blind us to this conflict of interest. We confuse project spend (which is a transaction cost) with asset value. In good faith, we put too much emphasis on justifying IT spend as an investment, and too little into reducing its cost.

The confusion about the term "investment" is reinforced by project portfolio management (PPM).

PPM is all about co-ordinating multiple projects, and ensuring they meet business priorities. PPM is an excellent idea. But the name is nonsense. A portfolio is a set of assets, but PPM deals with a set of transactions. Our use of the term "project portfolio" perpetuates the misunderstanding that projects are investment assets, and reinforces the problems above.

I am not attacking project management or the idea of PPM. But we have to be clear.

  • Projects are transactions. Of themselves they have no value. Their only purpose is to deliver.
  • Existing systems are assets. With better long term management, including system governance, we can improve the business value of these assets and reduce costs.
  • We need to manage IT investment properly. We need to be alert to the pressures to oversell IT projects. We must never confuse project spend with value. We need to learn to be better advisers of our non-IT colleagues.

When we say that projects are investments, we need to be crystal clear what we mean.

Next: IT managers - stick to what you know


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