New projects are always appealing, but should we do them?

CEO’s love them. Board’s love them. Banker’s love them. We all love new projects.

They hold the promise of being the long term solution to your company’s problems. A more productive workforce, less union problems, a new culture, a lower production cost, new equipment – you name it, we all see this as a good thing. However, after 15 years of doing valuations on new projects I am beginning to wonder if new projects are always good.

I now wonder if many new projects aren’t really just wishful thinking. Let me explain.

It is always but always hard to sort out existing operations. There is no easy solution. You have to spend more capital on an existing assets – which the Board is reluctant to do. Then you have to sort our culture issues, take on unions, fire people, take a financial hit as you pay out accrued entitlements such as leave, restructure, etc.

Even if you do all that, the turnaround time can be years, and your whole company can become demoralised for the period in the middle. Basically it sucks. It is hard work, and the reward is delayed.

Instead we focus on something new because we imagine it is starting with a blank slate and that none of the existing problems will occur. Trust me, those exact same problems will occur.

My thinking on this has been sparked by my own divorce. You reach a point in a relationship where things are just not working – just like a problematic asset. You are stuck in your ways, and you can’t see any way to fix up your existing relationship – just like existing operations. So you both find someone new.

Counsellors say that you need to understand your own issues and biases before forming a new relationship to avoid making the same mistakes. How many companies can say that they work through their own organisational issues before they embark on a new project?  Aren’t they just repeating the same mistakes on a new project by avoiding fixing up how the rest of the company works?

What this has really highlighted for me is that the job of turning things round and fixing up what you already have is really difficult and that most of us will do anything to avoid it.  As someone who consults specifically in the area of new major projects for major companies, I see this bias all the time. It’s subtle, pervasive and most people aren’t even aware that they are acting this way.  It’s taken me 15 years of working at the coal face of new projects to even find a way to describe it.

The challenge for all of us is to find ways to unlock the value in what we already have and bring out the best in people and operations as well as profit. That’s not to say that we don’t need new investments, but that they may not always be the best answer.