Investing or Gambling on a Project?
Every project, whether explicitly stated or not, is either an investment or a gamble. Sometimes it can be hard to tell which one a project is. In both cases you put something at stake – time, effort and resources. And in both cases you expect to get a benefit from the endeavor. The crucial difference between these two are the odds of success. When investing, the odds of getting a return on your investment should be reasonably good. When gambling however, the likelihood of getting a return – winning – is considerably lower. Viewing projects as either an investment or a gamble can be a useful way of looking at projects.
Consider this Project Risk-Return Matrix:
- Sure Things. Are great if you can find them, these are ‚Äòlow hanging fruits’ projects and are usually already funded and pursued.
- Investments. Can be worth pursuing provided that the return is not too low.
- Gambles. Can be worthwhile as long as the risks are not too high and are within the project owner’s risk appetite.
- Scraps. Usually not worth considering, and should only be pursued if all other alternatives have been exhausted and one is truly desperate.
What kind of projects are pursued, would depend on the project owner’s risk appetite i.e. how much they can afford to lose. Some organizations, due to their vast resources, can afford to have a big project fail. However, many organizations do not have this luxury.
What’s the difference between investing in a project and gambling on a project? When investing in a project, you are setting aside a certain amount of time and resources in an effort to achieve a certain goal that you hope will amount to a reasonable return by undertaking a reasonable amount of risk. Your chances of success are good and your returns are often modest. Gambling is similar to investing in that it seeks a return on investment, however, the odds of succeeding are much lower. Simply put, in investing the odds are usually in your favor, and when gambling the opposite of that is true.
If the odds of success in gambling are so bad, why do people still gamble? Because the potential rewards, in most gambling scenarios are almost always higher, however, the odds of actually winning are usually low. In choosing a project to finance, you must ensure that the odds of success are not astronomically low and the rewards are significant. Once you have identified such a project, the main strategy is to systematically try to increase your odds of succeeding by improving the factors in which you have control over. For example, you may want to recruiting the best team you can afford or meticulous plan the project schedule and etc. Your goal is for all these small advantages will add up and will be enough to tip the scales in your favor.
When pursuing a project that that is considered a gamble, it is important that the management and the team to always be aware of the odds of the project succeeding. Some may be totally oblivious to what state they project is in. They may not even know if they are gambling or investing. Some may think they are investing when they really are gambling. Knowing ahead of time that your odds of succeeding is 100 to 1 for example, can help the management and the team mentally brace themselves for the hardships and the eventual outcome of the project. In fact, if the overwhelming odds are mentioned at the start of each project, it can help manage the expectations of all the stakeholders involved.
Gambling on a project requires a different kind of mindset from investing in a project. When you are investing in a project you know that you are most likely going to succeed, and the only uncertainty is success to what degree? When gambling on a project however, you know that the odds are against you and that you will most likely fail. Some may feel uncomfortable to explicitly mention that a project is most likely to fail at the very beginning of a project, as they believe it can affect team morale.
Consider this excerpt from John F. Kennedy’s ‚ÄòWe choose to go to The Moon’ speech:
‚ÄòWe choose to go to the moon. We choose to go to the moon in this decade and do the other things, not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills, because that challenge is one that we are willing to accept, one we are unwilling to postpone, and one which we intend to win, and the others, too.’
In 1962, the thought of sending a man to the moon is almost unimaginable, it would have been an incredible project, one that is more likely to end in failure than in success. And JFK acknowledges that. Facing up to the reality of how hard something is going to get can be discouraging. However, if the team and other stakeholders can be convinced that a project is important and worth achieving, often stakeholder will be inspired rather than be demoralized. As mentioned, it is important that the project team be aware of what kind of project there are working on, especially if it is a difficult one where the odds are against them, because knowing this will cause them to act accordingly and prevent them from becoming complacent.
In summary, always know if you are investing or gambling on a project. And when involved in a gamble, act accordingly to improve your odds of success. Be aware that even ‚Äòsafe’ projects can change their nature mid-execution. What might have started out as a sound investment can turn into a huge gamble as the landscape changes and more information becomes available. As a project manager, this is when you are the most valuable, when a project has lowest odds of success when projects are in the gambling quadrant. It’s up to the project manager to use his skills, experience and knowledge to work on tipping the odds favorably so that the project will have a fighting chance of success.
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