May 06. 2020

Project hype-cycles – are they being audited?

Project hype-cycles – are they being audited?

Project hype-cycles within large and mature organizations emerge due to entities’ limited toolbox when it comes to earnings growth. On a high level, entities can embark on mergers and acquisitions, strategic partnerships, spin-offs, or the latest corporate process redesign (i.e. lean six-sigma, just in time, etc.) and cost-cutting initiatives.

However, an organic growth strategy at a certain company size just does not add enough to the bottom line to be really meaningful. As a result, major capital projects become more a signaling mechanism towards the market than actual earnings drivers.

Why do project hype-cycles occur?

The alternative corporate strategies listed above, naturally evolve as the organization’s ultimate growth strategy and go through a hype-cycle.

Project hype cycles occur, since the entities assisting with the strategy proposal, design and execution (investment banks, consulting and law firms, etc.), tend to oversell the potential benefits to senior management and the board.

Let’s look at a hypothetical example:

An investment bank pitches potential acquisition targets to the senior executives of a company. Overly optimistic estimates on potential synergies, cost savings, and benefits to the customers are presented. In addition, there is a tendency to provide inadequate details of the post-acquisition HR strategy, process reorganization initiatives, etc.

If the company embarks on the proposed initiative, it launches both an internal and external PR campaign about the benefits of this new strategy. As a result, senior management, the board, and even middle management gets overly pre-occupied with this new project. The initiative enters a hype-cycle, where the PMO and anyone involved with the project becomes “untouchable”.

Are project hype-cycles verified by Internal Audit?

The short answer is NO.

This is the point when the Internal Audit is advised not to plan any audits related to the project, since this is a top priority, and the project team is way too busy.

Even if audits would take place, currently there is no corporate strategy audit methodology to rely on. You might want to read our related article as per the link below:

Corporate Strategy Audit – where is the methodology?

Risk of project hype-cycles

Let me give you a list of financial and operational risks, due to the lack of internal audit oversight, related to project hype-cycle:

  • Budget overruns
  • Schedule overruns
  • Inadequate classification between one time and recurring savings
  • Lack of accountability by the PMO
  • Inadequate project performance measurement
  • Lack of or limited benefit realization

If Internal audit could play its role, even for key initiatives that enter hype-cycles, risks could be identified on time. In addition, proper risk mitigation measures could be put in place to avoid any or all of the negative consequences listed above.

Have you encountered projects/initiatives that classified as hype-cycles?


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