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Revelations about the IT failures of the new millennium suggest not!

A recent study of over 1,400 organizations reveals some startling new facts about mega-failures in IT, including huge overruns. Whilst the study found average overrun was 27-percent, one in six organizations actually overran their budgets by 200-percent and schedules by 70-percent! That is failure on a massive scale by anyone’s standards.

In the article Why Your IT Project May be Riskier Than You Think in September’s Harvard Business Review, Bent Flyvbjerg and Alexander Budzier explain the findings from Flyvbjerg’s Oxford University study of 1,471 IT projects, costing between $167 million and $33 billion. It makes for bleak reading, particularly the wide ranging impact of such failures. The authors cite Auto Windscreens as a prime example. In 2006 the UK company, which employed 1,100 workers, went into liquidation following a botched ERP implementation.

So is the popular approach to managing IT projects inadequate for the task or is there something more sinister at play here? Traditional project management has its roots in the construction industry and it still works for a house you can see or a bridge you can walk over. But IT is rarely a tangible artifact. People have difficulty imagining what it is they are getting (or going to get) from their new CRM or ERP system. And  this lack of understanding exacerbates the problem.

Another finding is the inherent blindness to blow-out. In a similar study in Germany led by Sascha Meskendahl of the Technical University in Berlin, 67-percent of companies failed to terminate unsuccessful IT projects. This is despite gateway reviews and governance maturing with the increased adoption of the International Standard for Governance of IT: ISO 38500. There’s no question it takes courage to stop a project when vast amounts of money have already been spent. The National Health Service, for instance, has finally called it a day on its e-health system which was set to electronically revolutionize health care in the UK. But it took nine years and a staggering £11 billion of investment to arrive at their decision.

Traditional project management makes some fundamental assumptions: everyone understands the scope, sufficient reserves have been allocated in the budget for contingency and governance groups are empowered to call a halt any time along the way. And of course, the biggest assumption is that the business case is accurate, realistic and regularly reviewed. But the complexity of IT, and in particular ERP roll-outs, demand much more than this.

Flyvbjerg and Budzier’s analysis of successful projects highlights some rigid rules adhered to by organizations that manage to avoid failure. First is to stick to the basics. As any football coach will explain after a win, get the basics right on the field and the excellence will shine through. According to the authors, IT project winners succeed when they stick to the agreed schedule even when big events like an unexpected merger have the potential to lure them away from the plan. They tend to focus on the readiness to go live and measure all activity against that yardstick. They resist scope creep and break down large programs into manageable projects. Successful organizations also invest in IT experts, paying enough to retain them for the duration of the initiative.

Whilst these basic rules lie at the heart of IT success, it is clear that the mammoth failures will continue if this study’s alarming findings are not taken to heart.

The authors maintain that some fundamental questions have to be asked before the business case is approved. Can a 15- to 50-percent non-realization of benefits be accepted without too much pain? If aggregated medium-sized projects suffer a 200-percent increase in cost estimates, will the organization be able to cope with that loss? How will the organization absorb a 400-percent blow out if the improbable happens? Regrettably the improbable is occurring with alarming frequency. Additional advice includes:

  • Scenario plan for the bleakest outcome. Before the business case is built, project leaders should brainstorm some worst case scenarios. Flyvbjerg and Budzier provides ideal material to kick-off the exercise. For example: K-mart’s investment in a $1.4 billion modernization of its supply chain management was cited as one of the reasons for its bankruptcy.
  • Review your success rates. If nothing changes, then nothing changes. Often a straightforward review of past business cases will provide an accurate forecast of success rates. Calculating the margin of error in the last tranche of  business cases against the cost and duration of projects subsequently delivered can be a revelation. If there is a pattern of significant misses then something fundamental has to change.
  • Build in a blow-out budget. This is not the same as contingency planning. Contingency planning more often is focused on costing what you know may go wrong. Blow-out budgeting is more about financing for what you don’t know. It is built from the bottom up assuming a 50-percent,  a 100-percent and a 200-percent blow-out.

As the complexity of IT expands beyond the intellectual capability of all but the most agile executive then financial management and project leadership has to at least keep pace if not move faster than ever before. The stakes are too high for any organization to do otherwise. But where does this leave the project leaders of the future? For starters they must tighten scope control, tenaciously pursue benefits and inscrutably validate business cases. And most importantly, engender a culture which will accept a no-go decision without recrimination. On the dollar front, Flyvbjerg and Budzier’s advice still leaves a lot to worry about. As the world grapples with volatile economies and the ever present threat of recession, organizations simply cannot afford to take the risk.

There is one significant risk mitigation that has proved its worth and that is the appointment of a specialist ERP consultancy like Panorama. Learn more about their ERP and IT services for ERP implementations of all sizes.

 

Note: The inclusion of guest posts on the Panorama website does not imply endorsement of any specific product or service. Panorama is, and always will remain, completely independent and vendor-neutral.

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