Enterprise projects fail at an astonishing rate of 70% or more – and financial institution projects are no exception.1 Banks, credit unions, and non-bank financial institutions with a track record of project management success have one thing in common: they have robust structures and processes in place to increase their odds of success. In this article we offer key insights and recommendations to ensure successful project outcomes.
Community Banks have limited resources and know that an ounce of prevention is worth a pound of cure. Project governance starts at the beginning with choosing the right project – and once a project is selected, good governance includes knowing when to stop spending and walk away.
Projects may fail fast or fail slow, but all failures represent risk. The fallout when institutions are unable to deliver on critical enterprise projects has not gone unnoticed by regulators, and they are demanding that financial institutions create a meaningful structure to govern all projects and all pieces of the project life cycle.
A SLOW BURN
Regulators’ attention to project management risk has been slow in coming. The US Federal Financial Institutions Examination Committee’s Information Technology Examination Handbook provides guidance relating to project management within the Development and Acquisition (D&A) Booklet. First published in 1996, the D&A Booklet was last updated twenty years ago and while the Booklet provides some worthwhile guidance, it approaches project management purely from an IT perspective, focusing primarily on the work of a central information technology function.
Clearly, the scope of enterprise projects has changed considerably over the past two decades. Banking has become ever more focused on distributed applications and software. As a result, project scopes have expanded to include the management of front-line originations, whether deposit or lending, back-office management for deposit and lending services, payment processing for credit cards, wire transmission and financial accounting.
Projects have also expanded to activities that are historically less directly dependent on technology applications such as marketing or risk management. Today’s enterprise projects also include what an institution previously viewed as niche or non-core operational activities such as a trust department or trading activity – and that list continues to grow.
A SHARPER REGULATORY FOCUS
As banking has grown more app and software dependent, and processes become more complex, financial institutions have come under pressure from regulators to develop and implement formal project management processes. More recently, this has turned into explicit criticism specifically targeting high-level project management processes that were previously deemed acceptable.
Recent exams and regulatory comments have highlighted areas for improvement, specifically related to project cost, budget management, resourcing, testing and overall governance. If those considerations are not appropriately managed by an experienced team, projects initially considered great ideas – and which may be truly needed by the Bank – can go off the rails to the point where remediation is required to maintain the Bank’s safety, soundness, and reputation, as well as the retention of customers.
Among other elements, this boils down to getting basics right, including:
THE RISK CHALLENGE
Project leaders are challenged in a number of ways. They are expected to identify and manage key risks – whether related to assumed outcomes or the effective use of resources. At the same time, they are expected to deliver a successful project, even in institutions with a weak track record of mitigating risks, solutioning obstacles, and getting projects over the finish line.
Without a structured project management process, projects may be initiated without first clearly identifying the desired outcomes – and also the inherent risks. Risks include the assumed benefits of the project (the justification for choosing this project) and the successful implementation of the project. If one or more critical assumptions – such as attracting 500 new customers or that real estate prices will remain constant – are overly optimistic or unachievable, the project benefits may be undelivered.
Risks also come in the shape of assumptions about the resources and time required to implement the project. Project management implementation failure is a key operational risk – a failure of the Bank’s people, process, and technology to deliver as expected.
A PROACTIVE APPROACH TO PROJECT MANAGEMENT
A proactive approach to revamping the structure and governance of project management will go a long way toward improving project success rates, mitigating risks, and minimizing regulatory criticism. A clear definition is an important starting point:
Projects are more likely to fail if the employees involved in delivering them are unaware of the factors that will increase the likelihood of success. How can the parties tasked with a role in project management (both leaders and participants) come together and communicate effectively? Below we set out three principal steps to enhance the management of projects and provide a foundation for success.
1. Identify and track project outcomes and risks
When considering a new project, begin with a clear business case. This does not have to be a difficult or time-consuming step, and it is where the project initiator identifies the assumed project outcomes and risks.
This ‘business case’ will set out why the organization wants to pursue the desired outcomes, and how much of an investment in time and money it is willing to make. The business case will also include assumptions about project outcomes and risks. Once the project rationale is established, the business case will require approval from all appropriate parties, including those who will benefit from a successful outcome and the individuals expected to deliver a successful implementation.
When writing the business case, important questions to ask include:
Assume that all lists of project risks, and any anticipated mitigation elements, are written in pencil and can be altered and reprioritized as the project progresses. Assumptions outlined at the start of the project may prove to be faulty as you proceed with project design and implementation.
Prioritization of project elements is driven by project deadlines – hard stops that cannot be changed. Flexibility in scheduling, and addressing issues or changes as they arise, while still staying on track is expected. Examples of risk would be if the project budget is not reviewed up front to ensure it is realistic and reasonable; or if it is not monitored or updated when project changes are made.
Any review of anticipated risks should assess how they might result in:
Weekly tracking of project requirements as well as clear and regular communications with relevant stakeholders instils the discipline required to balance activities and resources while also being proactive and looking forward.
2. Create a consistent, repeatable process
Consistency is the key to creating a repeatable process. Start with a simple workbook of templates that all project owners will use to make the initial project business case, establish a budget, gain approvals, and monitor its progress. Design the workbook once and use it over and over again. Share it widely and make sure all potential users know what is expected of them.
A consistent, repeatable process ensures that all project initiators, whether Bank employees or suppliers, are asked the same questions, and your institution also has a record of what was agreed to and when. When something changes – and it will – the template allows all stakeholders to gain the same understanding of a project’s status. When the project is completed, deferred, or abandoned, the project workbook will serve as the official record of all the major decisions.
Some technology providers may come to you with their own project management approach. While that may be a tempting offer, the outsourcing of project management presents risks, the biggest of which is they expect you to perform tasks and make decisions that you may not fully understand or be prepared to own. The supplier may get what they need, but you may not.
Documents and templates provided by a third party are an option if – and only if – you can demonstrate that they allow you to fully capture everything needed to let your board and leadership monitor your progress. Ultimately your project management workbook must provide assurance and transparency.
3. Identify and track project metrics
To effectively understand and document your objectives, get specific during the project approval process about what success looks like in terms of expected outcomes. Look at metrics related to assumed benefits, as well as those that indicate if the project is no longer on track.
All too often the basics are ignored or not adequately tracked, and assumptions about the benefits of a project go unchallenged, undocumented, and untested. Specific and measurable success data points and targets (metrics) will provide validation that a project is (or is not) on track to achieving the promised goal. Two types of metrics are particularly valuable: those that measure the specific outcomes that signal success; and those that flag project completion risks – the key risk indicators that provide early warning that desired outcomes may not be achievable.
CONCLUSION
There is a definite and achievable path to improving your project success rate. As project management internal governance and external critique continue to evolve, focusing on these three easy steps will start you down the right path and very likely help you identify additional project management weaknesses you can easily remedy.
Want to improve your project success rate? If you are a smaller financial institution, you don’t need a dedicated project management function. What you need is a process and a playbook. Capco helps Community Banks beat the odds and deliver successful projects. Contact us to find out more.
REFERENCES
1 https://hbr.org/2023/11/why-big-projects-fail-and-how-to-give-yours-a-better-chance-of-success