From the Eye of the Storm

Mediating Decisions, Facilitating Solutions, Sustaining Prosperity

The Cost of Project Conflict


Today's Challenge is Cost Avoidance

Today's Challenge is Cost Avoidance

During my past 24 years of experiences, I have often wondered what the real agenda was of some corporate executives. A recent conversation with a former colleague revealed a belief that is widely accepted in his work environment but never openly talked about. This belief is that for some corporate executives, profits are not as important as maintaining the status quo. According to him, these leaders believe that the appearance of ‘being strong’ and ‘in control’ is more important than being responsible to the bottom line. If this is true, then it is one explanation for why one would observe day-to-day decision-making that results in poor company performance. 

This was in part the response my former colleague shared with me after I presented the opportunity that my project mediation service provides for removing costly conflict from the work environment. He believes the corporate leaders in question thrive on conflict and use it to improve their position of power within the company structure. The perception is that conflict leads to blame, which triggers organizational restructuring, ultimately resulting in promotion opportunities. After receiving this insight, I decided to evaluate the cost of ‘appearing strong and in control’. 

This simulation uses the Dana Measure of Financial Cost of Conflict tool, designed by Dr. Daniel Dana, author of Managing Differences and founder of Mediation Training Institute International. 

The simulation is a realistic situation for one (1) project overseen by a corporate executive (Project Executive). The leaders involved in this project are a Project Manager, a Sr. Software Developer, an Operations Manager and an IT Manager. In addition there are two (2) Software Engineers working at the direction of the Sr. Software Developer. A Customer Service Representative, Installer, Specialist and Electronics Technician are all working at the direction of the Operations Manager. A Computer Technician is working at the direction of the IT Manager and an Administrative Assistant is working on behalf of the entire project team. There are a total of 13 people, including the Project Executive. The average compensation used in this simulation is from PayScale, Inc. under United States Telecommunications, updated July 18, 2008. 

Assume that an unresolved conflict develops between the Sr. Software Developer and the Operations Manager one month after the project start. This conflict is allowed to persist for 2 ½ months (10 weeks). The conflict is resolved when the Sr. Software Developer leaves the project. Upon leaving, the individual is frustrated and communicates that his skills have been requested on another project. The cost of this conflict as is as follows: 

#1: Wasted time: $ 3,772 
#2: Opportunity cost of wasted time: $ 5,658 
#3: Lowered job motivation and productivity: $ 189 
#4: Lost performance due to conflict-related absenteeism: 0 
#5: Loss of investment in skilled employees: $ 193,866 
#6: Conflict-incited theft, sabotage, vandalism, and damage: $ 5,389 
#7: Restructuring around the problem: $ 10,778 
#8: Health costs: $ 450 
#9: Degraded decision quality: $ 112,090 

TOTAL COST of this conflict: $ 332,192 

This simulation assumes: 

• There are only 10 people are directly impacted in this project conflict 
• No cost for impact to the Project Executive, IT Manager or Computer Technician due to the conflict 
• No additional cost to managers or executives outside of the project 
• There is no absenteeism due to the conflict 
• The conflict only last 10 weeks (my former colleague sited a conflict that’s been ongoing for 78 weeks) 
• Each of the project members impacted by the conflict only loses 1 hour/week due to the conflict 
• Only a 5% reduction in project members’ job motivation and loyalty resulting from the conflict 

This is the simplest simulation of project conflict. In reality, corporate executives are responsible for larger projects and more than just one. Typically, more than 10 people are affected for more than one hour every week of a conflict. Project conflicts can easily be responsible for financial losses in the millions of dollars. 

Looking ahead, the opportunities in project mediation are tremendous. Global competition has and will continue to create cost reduction pressure for American companies. When companies are ready, there is a solution available to assist them with picking a low hanging fruit that I refer to as project conflict. A project mediation or “decision-making” service can be engaged to guide conflicting parties to an agreed resolution within 24 hours, avoiding further project delays and reducing overall costs. This service can be delivered anywhere in the United States for a relatively small cost ($5000). Now, assume that a mediation meeting was scheduled during the 9th week of the simulated conflict. A resolution was reached that required an additional two weeks to implement, ending the impact of the conflict after 11 weeks. The model now calculates to cost of conflict to be: 

#1: Wasted time: $ 4,149 
#2: Opportunity cost of wasted time: $ 6,224 
#3: Lowered job motivation and productivity: $ 207 
#4: Lost performance due to conflict-related absenteeism: 0 
#5: Loss of investment in skilled employees: 0 
#6: Conflict-incited theft, sabotage, vandalism, and damage: $ 5,928 
#7: Restructuring around the problem: 0 
#8: Health costs: $ 495 
#9: Degraded decision quality: $ 112,090 

TOTAL COST of this conflict: $ 129,094 

The simulated conflict resolved through project mediation ($134,094) yields a savings of at least $198,098 compared to the cost of doing nothing ($332,1920). A proactive Project Executive who schedules an earlier intervention would save an additional $11,700 for every week the conflict interval is reduced. One day soon, we will not question the agenda of any particular corporate leader. Business profitability will be the agenda.


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