Introduction Termination of a project is inevitable, but how it .pdf

Introduction
Termination of a project is inevitable, but how it is terminated and when may have a profound
and long lasting impact on the organization and its employees. The success of future projects
may depend on not only the success of past ones, but also on how unsuccessful projects were
treated by the organization and its stakeholders. Firms have the option of initiating a variety of
entrepreneurial projects with varying degrees of risk. If an organization chooses to accept greater
risks, it should avoid penalizing members of projects that turn out to be unsuccessful. If team
members believe they will be penalized for participating in unsuccessful projects, they will be
less willing to terminate failed projects and may become risk adverse.
This research contains information about the project life cycle and the importance of continually
monitoring a project to determine if it is meeting the objectives established at the outset. We
have identified and categorized external and internal factors that influence the success or failure
of projects. The relative importance of each factor varies by organization and project type.
Organizing a project's termination process is especially important when it has failed, because of
the lasting impact on future projects as well as the organization's image. Including project team
members in the termination process will increase their loyalty and commitment, not only to the
organization but also to the success of future projects. At the end of a project a post-audit report
will be prepared that summarizes the project and provides recommendations for similar projects
in the future. Lastly, as a project is closed down or completed it is important that senior
management recognize the contributions of the project team.
The Project Life Cycle
There are several stages in the life cycle of a project: (1) project selection, (2) planning, (3)
execution, and (4) termination (Ruhl, 1988). The first phase, project selection, will vary among
firms. Each project must be evaluated to determine which is the best use of corporate funds. Each
will have different risks, benefits, and costs, making the selection very difficult. The final
decision should be based on the project's financial return and how well it assists the organization
in achieving its long-run strategic objectives.
Once a selection has been made, formal plans must be developed. The importance of thorough
project planning cannot be overemphasized. The objective of this process should be to develop a

master plan that details how each asset of the organization will be used to accomplish the
project's goals. Thorough and aggressive planning will also increase the team's commitment to
success. The two most important components of the master plan are the project budget and the
master schedule, which are developed from a detailed list of specific project tasks. The master
plan should include measures for evaluating the progress of the project as well as guidelines for
its termination.
During the execution phase, resources are consumed to complete the project. Throughout this
period, the actual progress of the project, in terms of cost, schedule, and performance, is
measured against the planned goals. The results of this monitoring process are assembled into
status reports, which are then distributed to the project team and senior management.
In the end all projects, both successful and unsuccessful, will have to be terminated. During the
termination phase the project's resources are redistributed, financial records are closed, and
project personnel are reassigned. The organization's sensitivity to the concerns of the project
team can have a lasting impact on their commitment and productivity. Lastly, a final report,
which discusses the project's successes and shortcomings is prepared for senior management.
This report can significantly influence how the organization manages projects in the future.
Factors Influencing Project Success
Several factors have a direct influence on the viability of a proposed or ongoing project. They
fall into the following categories (Balachandra & Raelin, 1983, Bard, 1988, Bedell, 1983,
Meredith & Mantel, 1995):
1. Technology
2. Organization
3. Market Forces
4. Planning
5. The Project Team
6. Economic Factors

7. Other
During the life of a project, senior management and the project team must continually reassess
these critical factors to ensure that it can still accomplish the goals set by the organization.
(1) Technology. The technological path of the project can have a major influence on its chance
of success. Senior management and the project team must understand the technological track so
they can (a) measure the progress of the project; (b) have a general idea of when technological
breakthroughs can be expected; and (c) not become discouraged when the pace of development
appears slow. Based on a review of a project's progress, it is possible that the technological
approach used by the project team may be deemed infeasible. It is not uncommon for "leading
edge technologies" to have several false starts, while projects that rely on older more proven
technology remain stable. By keeping abreast of the team's progress along the technological
track, senior management can avoid funding a project that is unlikely to succeed.
(2) Organization. Organizational factors that can influence the viability of a project include
internal competition, management support, and the company's market strategy. The presence of
internal competition, especially for access to important resources or funding, will affect the
project team's motivation. Also, as the number of projects in a firm's portfolio increases, the
more likely it is that one of them will end in failure. This reflects a natural diffusion of
management support. Maintaining management's focused support tends to be the single most
important factor predicting the success or failure of a project. Another extremely important factor
is the compatibility of the project with the corporation's long-term goals. A project that no
longer fits with the organization's objectives is usually slated for termination.
(3) Market forces. The competition a firm faces in the market has a strong influence on the
viability of new or ongoing projects. The value of a project can be diminished by the sudden
availability of alternative or competing technological innovations. Continuing to fund an
obsolete project can be avoided by maintaining communication between the marketing,
manufacturing, and R&D departments.
(4) Planning. Naturally the firm's ability to manage a project will have a significant impact on
its eventual success or failure. Central to this, of course, is the project plan, which should be
exceptionally detailed. Obstacles that could threaten the schedule must be identified so that
workable alternatives can be developed ahead of time. There will always be a basic, inherent

level of uncertainty in every project; however, thorough planning can reduce most of these risks
to an acceptable level. It is also important to note that the quality and level of planning for a
project is frequently related to the level of experience of the project team. More experienced
project teams tend to plan and organize more effectively.
(5) The project team. As would be expected, the team plays a key role in the project's success or
failure. The effectiveness of a team is, in turn, governed by the abilities of its project manager,
the team's overall commitment and enthusiasm, and the synergy of the team as a whole. Of
these, the role of the project manager is the most critical. He or she must be able to coordinate
changing activities, resolve conflicts, and keep management informed and committed to the
project -- while also keeping the project on track. The project team should also be relatively
stable. Changing important team members at critical junctures in the schedule can have a
devastating effect. On the other hand, a new team member, if briefed properly, can provide a
fresh approach to many problems.
(6) Economic factors. These factors may have a significant influence on the project's ability to
generate a minimum acceptable return on the organization's investment. While financial
measures, such as return on investment (ROI), are not the only factors influencing success or
failure, they do provide a measurement tool for evaluation. It is entirely possible that a project,
which is on schedule and well within its budget may be cancelled because of unrelated financial
constraints dictated by the organization. When firms fail to achieve their desired level of
profitability, they always have the option to reevaluate ongoing projects and terminate those that
are less viable or overly expensive.
(7) Other. Miscellaneous factors that influence the success or failure of a project include new
government regulations, problems with patent ownership, or new environmental concerns.
The Termination Phase
Many colorful terms have come into use to describe the abrupt termination of a project.
Unsuccessful projects can be murdered, commit projecticide, or be terminated as a result of a
political assassination. An exploratory study to determine information system project
abandonment indicated that of the 49 acceptable responses, 23, or almost 50%, reported incidents
of abandoned projects within their organization. Of these 23, or almost 70%, abandoned two or
more projects. Anywhere from 10% to over 100% of allocated costs were already spent before
project abandonment took place. According to the survey, 57% of the companies spent 70% or

more of allocated costs before termination. In most cases these funds were not recoverable
(Ewusi-Mensah and Przasnyski). Regardless of whether the death of a project is sudden or of
natural causes, the organization is left with the same set of administrative tasks. Personnel will
need to be reassigned to other activities, and resources, such as material and equipment, will
need to be redistributed according to corporate procedures or prior agreements.
According to Meredith and Mantel (1995), there are three ways to terminate a project:
extinction, inclusion, or integration. Termination by extinction means the project is completed.
For example, the new project has been developed and given to the client, the building has been
completed and accepted by the purchaser, or the software has been installed and is running.
Projects terminated by extinction may have been successful or unsuccessful. In either case, all
meaningful project activities have stopped; actual work has been halted, delayed indefinitely, or
has been reduced to such a slow pace that future progress is not possible.
By contrast, termination by inclusion is a very different process. The complete project team and
its equipment are transferred to a new division. As one might expect, this type of change places
significant additional stress on the day-to-day operations of the organization. Project managers
and team members must be sensitive to these stresses until the organization is able to settle into a
new and more stable routine.
The most common, but also the most complex method of termination is by integration. The
project's resources, personnel, and functions are absorbed as a part of the original organization.
The major problem associated with this termination process is the ability of the organization to
blend technological differences between the project and the organization. Past experience
appears to play a key role in successfully integrating terminated projects.
When to Terminate
While it is important to be committed to the success of a project, it is equally as important to
know when and how to pull the plug. During all phases of the project senior management and the
project manager should monitor the success factors discussed above. Significant changes in the
project's environment may make the decision to terminate a project relatively clear. Conversely,
an accumulation of many minor changes in these factors may make the decision very difficult.
The type of project is an important consideration when determining whether to continue it or
not. "A project that has very little salvage value and high closing costs, which may include

payments to terminate employees, penalties for breached contracts, and losses from the closing
of facilities, will be much more difficult to abandon than a project in which expenditures are
recoverable and exit is easy" (Staw & Ross, 1987). For example, construction projects have high
termination costs. A half-completed building has little or no salvage value and raises the
possibility that the organization may be sued for breach of contract. An R&D project to develop
a new drug, on the other hand, may have significant sunk costs but limited termination costs
(Statman & Sepe, 1989). To reduce the risk of funding a project that should be terminated,
organizations must consistently monitor the critical success factors to ensure that it is still able to
achieve its goals in a timely and cost-effective manner.
The rate of project failures is accelerating, especially for the information technology (IT)
industry. A survey of 500 IT directors by Sequent Computer Systems, Inc., found that 76% had
experienced a major project failure at some point in their careers. "Project failures seem to be a
cost of being in the IT business" (Paul, 1998). The average cost for an IT development project
for a large company is more than $2 million. More than $250 billion is spent in the United States
each year on approximately 175,000 IT projects, of which only 26% are completed on time and
within the budget (Bounds, 1998).
One method to help monitor a project's environment is to periodically survey the project team
and senior management. The survey itself can be made more quantitative by assigning a value to
each response and developing threshold values for each critical area. A substantial change from
one period to the next in a particular category, or in the total score, might indicate a need to
reassess the project's viability. Similarly, a declining trend over a period might also prompt a
reevaluation. When using this method, management should be aware that different team
members will have different perceptions of the project. These differences will be reflected in the
survey results. When the difference or deviation is small, members are generally in agreement,
but increasing differences may indicate that the opinions and perceptions of the team are
changing.
Many mathematical models can be used to assist management in determining whether or not to
continue a project. Some of the more common rely on financial techniques such as payback or
net present value. However, any final decision should take into account other important strategic
factors such as whether the project helps the firm maintain its competitive position or is essential
to its survival.
Two common techniques used to monitor projects throughout their life cycle are cybernetic

control processes and Go/No-Go control processes. The cybernetic control method compares the
project's actual performance path against the anticipated or scheduled path. This makes the
project team aware of schedule deviations so corrective action can be taken. Cybernetic control
processes should not be used as a decision model but only as a tool to keep a project on track (in
terms of performance, time, and cost) so that it is not terminated prematurely because of poor
planning or control (Meredith & Mantel, 1995). "Go/No-Go controls take the form of
[periodically] testing to see if some specific precondition has been met" (Meredith & Mantel,
1995). This technique can be used on many facets of the project as the team finds appropriate. In
addition, specific weights can be assigned to individual measures to provide a more quantitative
dimension to the monitoring process.
How to Terminate
Regardless whether a successful project is completed by inclusion, integration, or extinction, a
plan must be developed to terminate it. An organization that is project-oriented may have a
"termination manager" whose primary responsibility is to effectively and efficiently end
projects. The duties of a termination manager may include the following (Meredith & Mantel,
1995):
* Ensure the project is complete.
* Ensure delivery and client acceptance.
* Prepare a final report.
* Ensure that all bills have been paid and that the final invoice has been sent to the client.
* Redistribute personnel, materials, equipment, and any other resources.
* Determine what records (manuals, reports, and other paperwork) are to be kept and place them
in storage.
* Assign responsibility for product support, if necessary.
* Oversee the closing of the project's books.

It is equally as important that team members not be penalized for participating in what may turn
out to be an unsuccessful project. If team members are penalized, they will be less willing to end
a project or will become risk averse.
This brings us to the human side of the termination process. Senior management and the team
leader must recognize and reward the accomplishments of the project team. Doing so creates a
corporate culture that encourages success and the motivation to do well. Acknowledging the
dedication and achievements of the project team will enable team members to proceed to their
next assignment with a more loyal and positive attitude (Stevens, 1992). Unfortunately, near the
end of a project it is easy to neglect these kinds of important details because most of the team is
looking forward to the next project, or worse, do not want the project to end.
Impact of Project Cancellation
A project may be canceled for a variety of reasons, including lack of funding, technological
obsolescence, changes in consumer trends, mergers and acquisitions, loss of the "champion,"
and negative cost/benefit relationships. Although the reasons may vary, the impact is frequently
the same. Project cancellation can affect employee productivity, the reputation of the firm, and
the value of the firm's stock. Although there is little research on the topic of employee
productivity and project cancellation, what little there is suggests that a project team's
perception of the cancellation may influence their productivity for the next several years.
However, there are guidelines to help soften the impact of cancellation on the team. To begin
with, it is essential that the project team be included in the cancellation process and should be
made aware of the rationale behind the cancellation well before the official announcement.
Moreover, this rationale should be consistent with the perceptions of the project team (Bommer
& Pease, 1991).
A study found eight factors that influenced whether an employee perceived the cancellation of a
project negatively (Bommer & Pease, 1991):
1. The rationale for cancellation.
2. Communication between management and the project team.
3. Careful planning for the cancellation process.

4. Strong management commitment and support for the project from its beginning.
5. Effective planning and leadership of the project.
6. Prompt and comparable reassignment of project personnel.
7. Acknowledgment of the efforts of the project team.
8. Participation of the project team in the cancellation decision-making process.
As might be expected, the output and commitment of team members immediately before a
project is cancelled, and for one or two months after the announcement, will be drastically
reduced. This loss in productivity and commitment will be exacerbated if the project team
perceives the cancellation negatively. Worse, the individual's commitment to the organization
may depend on his or her perception of the cancellation. Employees that view a cancellation in a
more positive light will have higher levels of commitment than do those who view it more
negatively (Bommer & Pease, 1991).
How a project is viewed within the organization is also very important. Because corporate
resources can be very limited, projects that are perceived to be draining scarce resources tend to
undercut morale. Other project teams envy the resources "squandered" on unproductive or
falling projects. This, in turn, leads employees to question the wisdom of senior management
(Mandell & Murphy, 1989), and reduces their productivity and level of commitment to the
organization.
The impact of cancelling a project on the firm's market value can vary. If information on the
project was readily available, and Wall Street already viewed the project as a drain on the
company's resources, then the announcement will tend to bolster the company's stock (Dobson
& Dorsey, 1993, Sleven & Pinto, 1987).
Post-Audit Review
The importance of a final report cannot be overemphasized. An objective review of the project's
successes and shortcomings can provide senior management with insights into how to improve
future projects. The final report is also a valuable tool to help future project managers, since it
includes not only what worked, but also what did not, and recommendations for similar projects

in the future (Ware, 1990).
This report should focus on the following functional areas: project performance, administrative
performance, organizational structure, project and administrative teams, and project management
techniques (Meredith & Mantel, 1995). Each section should compare actual results to the
project's planned objectives. Because an organization's "culture" can have a significant impact
on the efficiency of the project team, the administrative performance section should be written
with an eye toward developing a more effective organizational culture. Reporting how well the
organization's structure helped or hindered the project is also important. Depending on the
firm's experience in managing projects, companies may want to adjust their organizational
structure after each one. Because teamwork is essential to the success of a project, a confidential
section should be included that discusses the team members, their abilities, aptitudes, and
willingness to work as a team. This will help senior management determine which employees
should be made part of the next project team.
Keeping a project on target, within budget, and within required specifications entails accurate
forecasting and control. A thorough analysis of forecasting, planning, budgeting, scheduling,
resource allocation, and control techniques used during the project will help improve the future
projects.
Summary and Conclusion
Projects have a life cycle. They are born from an idea, develop into a finished product or
service, and then terminate. As a project moves through this process, the project manager and
senior management should continually monitor the project's critical success factors to ensure it
is still viable. Although terminating a project is inevitable, the timing and planning of this
termination can affect future projects and possibly the entire organization. Just as successful
projects can have a positive impact on the organization, unsuccessful projects can have the
opposite effect (Stevens, 1992). To minimize this unfortunate side effect, management must be
especially sensitive to the needs of its employees during the termination process. Cancellation, in
particular, can have a profound and lasting affect on the organization and its employees. Lastly,
the final report is the opportunity to reflect on the project -- to document its successes and
shortcomings and make recommendations for the future.
Amir M. Hormozi is a Professor of Operations Management at Texas A&M University-Corpus
Christi. He earned a Ph.D. in operations management and a M.BA. from the University of

Houston. He has extensive experience in training and implementation of manufacturing,
planning and control systems and has authored numerous articles in this area.
Robert D. McMinn is Professor of Economics and Chair of the Department of Finance,
Economics and Decision Sciences Department in the College of Business at Texas A&M
University-Corpus Christi. He is a member of the University Core Curriculum Committee and
Director of the Center for Economic Education. He earned a Ph.D in economics from the
University of Oklahoma and a MBA and BBA from the University of North Texas. He also
serves on the Editorial Review Board for the SAM Advanced Management Journal. Okeleke
Nzeogwu received his Ph.D. in Economics from the University of Missouri at Columbia. He also
received his MBA from the University of Missouri at Columbia. His research interests are in
development economics and economic education.
Solution
Introduction
Termination of a project is inevitable, but how it is terminated and when may have a profound
and long lasting impact on the organization and its employees. The success of future projects
may depend on not only the success of past ones, but also on how unsuccessful projects were
treated by the organization and its stakeholders. Firms have the option of initiating a variety of
entrepreneurial projects with varying degrees of risk. If an organization chooses to accept greater
risks, it should avoid penalizing members of projects that turn out to be unsuccessful. If team
members believe they will be penalized for participating in unsuccessful projects, they will be
less willing to terminate failed projects and may become risk adverse.
This research contains information about the project life cycle and the importance of continually
monitoring a project to determine if it is meeting the objectives established at the outset. We
have identified and categorized external and internal factors that influence the success or failure
of projects. The relative importance of each factor varies by organization and project type.
Organizing a project's termination process is especially important when it has failed, because of
the lasting impact on future projects as well as the organization's image. Including project team
members in the termination process will increase their loyalty and commitment, not only to the
organization but also to the success of future projects. At the end of a project a post-audit report
will be prepared that summarizes the project and provides recommendations for similar projects

in the future. Lastly, as a project is closed down or completed it is important that senior
management recognize the contributions of the project team.
The Project Life Cycle
There are several stages in the life cycle of a project: (1) project selection, (2) planning, (3)
execution, and (4) termination (Ruhl, 1988). The first phase, project selection, will vary among
firms. Each project must be evaluated to determine which is the best use of corporate funds. Each
will have different risks, benefits, and costs, making the selection very difficult. The final
decision should be based on the project's financial return and how well it assists the organization
in achieving its long-run strategic objectives.
Once a selection has been made, formal plans must be developed. The importance of thorough
project planning cannot be overemphasized. The objective of this process should be to develop a
master plan that details how each asset of the organization will be used to accomplish the
project's goals. Thorough and aggressive planning will also increase the team's commitment to
success. The two most important components of the master plan are the project budget and the
master schedule, which are developed from a detailed list of specific project tasks. The master
plan should include measures for evaluating the progress of the project as well as guidelines for
its termination.
During the execution phase, resources are consumed to complete the project. Throughout this
period, the actual progress of the project, in terms of cost, schedule, and performance, is
measured against the planned goals. The results of this monitoring process are assembled into
status reports, which are then distributed to the project team and senior management.
In the end all projects, both successful and unsuccessful, will have to be terminated. During the
termination phase the project's resources are redistributed, financial records are closed, and
project personnel are reassigned. The organization's sensitivity to the concerns of the project
team can have a lasting impact on their commitment and productivity. Lastly, a final report,
which discusses the project's successes and shortcomings is prepared for senior management.
This report can significantly influence how the organization manages projects in the future.
Factors Influencing Project Success
Several factors have a direct influence on the viability of a proposed or ongoing project. They

fall into the following categories (Balachandra & Raelin, 1983, Bard, 1988, Bedell, 1983,
Meredith & Mantel, 1995):
1. Technology
2. Organization
3. Market Forces
4. Planning
5. The Project Team
6. Economic Factors
7. Other
During the life of a project, senior management and the project team must continually reassess
these critical factors to ensure that it can still accomplish the goals set by the organization.
(1) Technology. The technological path of the project can have a major influence on its chance
of success. Senior management and the project team must understand the technological track so
they can (a) measure the progress of the project; (b) have a general idea of when technological
breakthroughs can be expected; and (c) not become discouraged when the pace of development
appears slow. Based on a review of a project's progress, it is possible that the technological
approach used by the project team may be deemed infeasible. It is not uncommon for "leading
edge technologies" to have several false starts, while projects that rely on older more proven
technology remain stable. By keeping abreast of the team's progress along the technological
track, senior management can avoid funding a project that is unlikely to succeed.
(2) Organization. Organizational factors that can influence the viability of a project include
internal competition, management support, and the company's market strategy. The presence of
internal competition, especially for access to important resources or funding, will affect the
project team's motivation. Also, as the number of projects in a firm's portfolio increases, the
more likely it is that one of them will end in failure. This reflects a natural diffusion of
management support. Maintaining management's focused support tends to be the single most

important factor predicting the success or failure of a project. Another extremely important factor
is the compatibility of the project with the corporation's long-term goals. A project that no
longer fits with the organization's objectives is usually slated for termination.
(3) Market forces. The competition a firm faces in the market has a strong influence on the
viability of new or ongoing projects. The value of a project can be diminished by the sudden
availability of alternative or competing technological innovations. Continuing to fund an
obsolete project can be avoided by maintaining communication between the marketing,
manufacturing, and R&D departments.
(4) Planning. Naturally the firm's ability to manage a project will have a significant impact on
its eventual success or failure. Central to this, of course, is the project plan, which should be
exceptionally detailed. Obstacles that could threaten the schedule must be identified so that
workable alternatives can be developed ahead of time. There will always be a basic, inherent
level of uncertainty in every project; however, thorough planning can reduce most of these risks
to an acceptable level. It is also important to note that the quality and level of planning for a
project is frequently related to the level of experience of the project team. More experienced
project teams tend to plan and organize more effectively.
(5) The project team. As would be expected, the team plays a key role in the project's success or
failure. The effectiveness of a team is, in turn, governed by the abilities of its project manager,
the team's overall commitment and enthusiasm, and the synergy of the team as a whole. Of
these, the role of the project manager is the most critical. He or she must be able to coordinate
changing activities, resolve conflicts, and keep management informed and committed to the
project -- while also keeping the project on track. The project team should also be relatively
stable. Changing important team members at critical junctures in the schedule can have a
devastating effect. On the other hand, a new team member, if briefed properly, can provide a
fresh approach to many problems.
(6) Economic factors. These factors may have a significant influence on the project's ability to
generate a minimum acceptable return on the organization's investment. While financial
measures, such as return on investment (ROI), are not the only factors influencing success or
failure, they do provide a measurement tool for evaluation. It is entirely possible that a project,
which is on schedule and well within its budget may be cancelled because of unrelated financial
constraints dictated by the organization. When firms fail to achieve their desired level of
profitability, they always have the option to reevaluate ongoing projects and terminate those that

are less viable or overly expensive.
(7) Other. Miscellaneous factors that influence the success or failure of a project include new
government regulations, problems with patent ownership, or new environmental concerns.
The Termination Phase
Many colorful terms have come into use to describe the abrupt termination of a project.
Unsuccessful projects can be murdered, commit projecticide, or be terminated as a result of a
political assassination. An exploratory study to determine information system project
abandonment indicated that of the 49 acceptable responses, 23, or almost 50%, reported incidents
of abandoned projects within their organization. Of these 23, or almost 70%, abandoned two or
more projects. Anywhere from 10% to over 100% of allocated costs were already spent before
project abandonment took place. According to the survey, 57% of the companies spent 70% or
more of allocated costs before termination. In most cases these funds were not recoverable
(Ewusi-Mensah and Przasnyski). Regardless of whether the death of a project is sudden or of
natural causes, the organization is left with the same set of administrative tasks. Personnel will
need to be reassigned to other activities, and resources, such as material and equipment, will
need to be redistributed according to corporate procedures or prior agreements.
According to Meredith and Mantel (1995), there are three ways to terminate a project:
extinction, inclusion, or integration. Termination by extinction means the project is completed.
For example, the new project has been developed and given to the client, the building has been
completed and accepted by the purchaser, or the software has been installed and is running.
Projects terminated by extinction may have been successful or unsuccessful. In either case, all
meaningful project activities have stopped; actual work has been halted, delayed indefinitely, or
has been reduced to such a slow pace that future progress is not possible.
By contrast, termination by inclusion is a very different process. The complete project team and
its equipment are transferred to a new division. As one might expect, this type of change places
significant additional stress on the day-to-day operations of the organization. Project managers
and team members must be sensitive to these stresses until the organization is able to settle into a
new and more stable routine.
The most common, but also the most complex method of termination is by integration. The
project's resources, personnel, and functions are absorbed as a part of the original organization.

The major problem associated with this termination process is the ability of the organization to
blend technological differences between the project and the organization. Past experience
appears to play a key role in successfully integrating terminated projects.
When to Terminate
While it is important to be committed to the success of a project, it is equally as important to
know when and how to pull the plug. During all phases of the project senior management and the
project manager should monitor the success factors discussed above. Significant changes in the
project's environment may make the decision to terminate a project relatively clear. Conversely,
an accumulation of many minor changes in these factors may make the decision very difficult.
The type of project is an important consideration when determining whether to continue it or
not. "A project that has very little salvage value and high closing costs, which may include
payments to terminate employees, penalties for breached contracts, and losses from the closing
of facilities, will be much more difficult to abandon than a project in which expenditures are
recoverable and exit is easy" (Staw & Ross, 1987). For example, construction projects have high
termination costs. A half-completed building has little or no salvage value and raises the
possibility that the organization may be sued for breach of contract. An R&D project to develop
a new drug, on the other hand, may have significant sunk costs but limited termination costs
(Statman & Sepe, 1989). To reduce the risk of funding a project that should be terminated,
organizations must consistently monitor the critical success factors to ensure that it is still able to
achieve its goals in a timely and cost-effective manner.
The rate of project failures is accelerating, especially for the information technology (IT)
industry. A survey of 500 IT directors by Sequent Computer Systems, Inc., found that 76% had
experienced a major project failure at some point in their careers. "Project failures seem to be a
cost of being in the IT business" (Paul, 1998). The average cost for an IT development project
for a large company is more than $2 million. More than $250 billion is spent in the United States
each year on approximately 175,000 IT projects, of which only 26% are completed on time and
within the budget (Bounds, 1998).
One method to help monitor a project's environment is to periodically survey the project team
and senior management. The survey itself can be made more quantitative by assigning a value to
each response and developing threshold values for each critical area. A substantial change from
one period to the next in a particular category, or in the total score, might indicate a need to

reassess the project's viability. Similarly, a declining trend over a period might also prompt a
reevaluation. When using this method, management should be aware that different team
members will have different perceptions of the project. These differences will be reflected in the
survey results. When the difference or deviation is small, members are generally in agreement,
but increasing differences may indicate that the opinions and perceptions of the team are
changing.
Many mathematical models can be used to assist management in determining whether or not to
continue a project. Some of the more common rely on financial techniques such as payback or
net present value. However, any final decision should take into account other important strategic
factors such as whether the project helps the firm maintain its competitive position or is essential
to its survival.
Two common techniques used to monitor projects throughout their life cycle are cybernetic
control processes and Go/No-Go control processes. The cybernetic control method compares the
project's actual performance path against the anticipated or scheduled path. This makes the
project team aware of schedule deviations so corrective action can be taken. Cybernetic control
processes should not be used as a decision model but only as a tool to keep a project on track (in
terms of performance, time, and cost) so that it is not terminated prematurely because of poor
planning or control (Meredith & Mantel, 1995). "Go/No-Go controls take the form of
[periodically] testing to see if some specific precondition has been met" (Meredith & Mantel,
1995). This technique can be used on many facets of the project as the team finds appropriate. In
addition, specific weights can be assigned to individual measures to provide a more quantitative
dimension to the monitoring process.
How to Terminate
Regardless whether a successful project is completed by inclusion, integration, or extinction, a
plan must be developed to terminate it. An organization that is project-oriented may have a
"termination manager" whose primary responsibility is to effectively and efficiently end
projects. The duties of a termination manager may include the following (Meredith & Mantel,
1995):
* Ensure the project is complete.
* Ensure delivery and client acceptance.

* Prepare a final report.
* Ensure that all bills have been paid and that the final invoice has been sent to the client.
* Redistribute personnel, materials, equipment, and any other resources.
* Determine what records (manuals, reports, and other paperwork) are to be kept and place them
in storage.
* Assign responsibility for product support, if necessary.
* Oversee the closing of the project's books.
It is equally as important that team members not be penalized for participating in what may turn
out to be an unsuccessful project. If team members are penalized, they will be less willing to end
a project or will become risk averse.
This brings us to the human side of the termination process. Senior management and the team
leader must recognize and reward the accomplishments of the project team. Doing so creates a
corporate culture that encourages success and the motivation to do well. Acknowledging the
dedication and achievements of the project team will enable team members to proceed to their
next assignment with a more loyal and positive attitude (Stevens, 1992). Unfortunately, near the
end of a project it is easy to neglect these kinds of important details because most of the team is
looking forward to the next project, or worse, do not want the project to end.
Impact of Project Cancellation
A project may be canceled for a variety of reasons, including lack of funding, technological
obsolescence, changes in consumer trends, mergers and acquisitions, loss of the "champion,"
and negative cost/benefit relationships. Although the reasons may vary, the impact is frequently
the same. Project cancellation can affect employee productivity, the reputation of the firm, and
the value of the firm's stock. Although there is little research on the topic of employee
productivity and project cancellation, what little there is suggests that a project team's
perception of the cancellation may influence their productivity for the next several years.
However, there are guidelines to help soften the impact of cancellation on the team. To begin

with, it is essential that the project team be included in the cancellation process and should be
made aware of the rationale behind the cancellation well before the official announcement.
Moreover, this rationale should be consistent with the perceptions of the project team (Bommer
& Pease, 1991).
A study found eight factors that influenced whether an employee perceived the cancellation of a
project negatively (Bommer & Pease, 1991):
1. The rationale for cancellation.
2. Communication between management and the project team.
3. Careful planning for the cancellation process.
4. Strong management commitment and support for the project from its beginning.
5. Effective planning and leadership of the project.
6. Prompt and comparable reassignment of project personnel.
7. Acknowledgment of the efforts of the project team.
8. Participation of the project team in the cancellation decision-making process.
As might be expected, the output and commitment of team members immediately before a
project is cancelled, and for one or two months after the announcement, will be drastically
reduced. This loss in productivity and commitment will be exacerbated if the project team
perceives the cancellation negatively. Worse, the individual's commitment to the organization
may depend on his or her perception of the cancellation. Employees that view a cancellation in a
more positive light will have higher levels of commitment than do those who view it more
negatively (Bommer & Pease, 1991).
How a project is viewed within the organization is also very important. Because corporate
resources can be very limited, projects that are perceived to be draining scarce resources tend to
undercut morale. Other project teams envy the resources "squandered" on unproductive or
falling projects. This, in turn, leads employees to question the wisdom of senior management

(Mandell & Murphy, 1989), and reduces their productivity and level of commitment to the
organization.
The impact of cancelling a project on the firm's market value can vary. If information on the
project was readily available, and Wall Street already viewed the project as a drain on the
company's resources, then the announcement will tend to bolster the company's stock (Dobson
& Dorsey, 1993, Sleven & Pinto, 1987).
Post-Audit Review
The importance of a final report cannot be overemphasized. An objective review of the project's
successes and shortcomings can provide senior management with insights into how to improve
future projects. The final report is also a valuable tool to help future project managers, since it
includes not only what worked, but also what did not, and recommendations for similar projects
in the future (Ware, 1990).
This report should focus on the following functional areas: project performance, administrative
performance, organizational structure, project and administrative teams, and project management
techniques (Meredith & Mantel, 1995). Each section should compare actual results to the
project's planned objectives. Because an organization's "culture" can have a significant impact
on the efficiency of the project team, the administrative performance section should be written
with an eye toward developing a more effective organizational culture. Reporting how well the
organization's structure helped or hindered the project is also important. Depending on the
firm's experience in managing projects, companies may want to adjust their organizational
structure after each one. Because teamwork is essential to the success of a project, a confidential
section should be included that discusses the team members, their abilities, aptitudes, and
willingness to work as a team. This will help senior management determine which employees
should be made part of the next project team.
Keeping a project on target, within budget, and within required specifications entails accurate
forecasting and control. A thorough analysis of forecasting, planning, budgeting, scheduling,
resource allocation, and control techniques used during the project will help improve the future
projects.
Summary and Conclusion

Projects have a life cycle. They are born from an idea, develop into a finished product or
service, and then terminate. As a project moves through this process, the project manager and
senior management should continually monitor the project's critical success factors to ensure it
is still viable. Although terminating a project is inevitable, the timing and planning of this
termination can affect future projects and possibly the entire organization. Just as successful
projects can have a positive impact on the organization, unsuccessful projects can have the
opposite effect (Stevens, 1992). To minimize this unfortunate side effect, management must be
especially sensitive to the needs of its employees during the termination process. Cancellation, in
particular, can have a profound and lasting affect on the organization and its employees. Lastly,
the final report is the opportunity to reflect on the project -- to document its successes and
shortcomings and make recommendations for the future.
Amir M. Hormozi is a Professor of Operations Management at Texas A&M University-Corpus
Christi. He earned a Ph.D. in operations management and a M.BA. from the University of
Houston. He has extensive experience in training and implementation of manufacturing,
planning and control systems and has authored numerous articles in this area.
Robert D. McMinn is Professor of Economics and Chair of the Department of Finance,
Economics and Decision Sciences Department in the College of Business at Texas A&M
University-Corpus Christi. He is a member of the University Core Curriculum Committee and
Director of the Center for Economic Education. He earned a Ph.D in economics from the
University of Oklahoma and a MBA and BBA from the University of North Texas. He also
serves on the Editorial Review Board for the SAM Advanced Management Journal. Okeleke
Nzeogwu received his Ph.D. in Economics from the University of Missouri at Columbia. He also
received his MBA from the University of Missouri at Columbia. His research interests are in
development economics and economic education.

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