Reasons for Failure of Project - Project Management, Entrepreneurship & Small Businesses | Entrepreneurship & Small Businesses - B Com PDF Download

Reasons for Failure of Project

It was observed that most of the projects (nearly 84%) fail or go over time and over budget. Truly speaking, nobody plans to fail, but due to following reasons the project may fail. Let’s see the reasons, which cause failure of a project.

1. Inadequate provision for contingencies

Change is the only static phenomena in the business world. The future can be predicted up to a certain limits. The unforeseen change in the socio- economic, technological or legal environment pose the contingencies before business. If the adequate provision is not made to face such contingencies in project report, the project is likely to fail.

2. Unrealistic estimations

While appraising and selecting the project some unrealistic and exaggerated estimations are likely to be made. If a project report is so divested from reality, it may fail.

3. Wrong location

In case of some industries location and site where the project is established plays vital role. Wrong location leads to cost overrun and reduction in profits. Therefore, if the wrong or inappropriate location is selected, it may lead to project failure.

4. Incompatible form of ownership

The entrepreneur has to choose the appropriate form of ownership viz. proprietorship, partnership and private or public limited/ unlimited company considering size of investment, diversity and scope of business, complexities and desired control over the business etc. However, if the unsuitable form of ownership is chosen, it may lead to mismanagement and ultimately to failure.

5. Wrong estimation of capacity utilization

Capacity utilization forms the basis for calculation of many other important financial ratios. If capacity utilization is wrongfully estimated all other calculations would go wrong.

Further, if the capacity is underutilized due to frequent power cuts and inability to go for alternatives, the project is likely to fail.

6. Overestimation of future earnings

Sometimes the entrepreneurs show higher future earnings in the project report with the intention to avail more financial assistance from the financial institutions and bankers. Moreover, the earnings of the firm are likely to be adversely affected by a number of factors. This may lead the project failure.

7. Underestimation of expenses

The balanced cost-benefit ratio ensures the success of the business. For that the cost to be incurred on various inputs has to be accurately ascertained. If the expenses to be incurred on various inputs are underestimated, it may reduce the benefits and make the project commercially unviable. Insufficient budget allocations and poor commitment of resources also fail the project.