There is something of an expectation that IT projects rarely deliver what they’re meant to in terms of completion time or cost. While this is certainly true of multi-million dollar projects in large companies, it can also happen to smaller businesses.
Recently I saw some worrying statistics in a report out of the University of Oxford in the UK that suggested the status quo around IT projects is even worse than the naysayers had assumed.
The authors of the study, Bent Flyvbjerg and Alexander Budzier, carried out a global study that looked at IT change initiatives. The pair examined nearly 1500 IT projects and compared budget and expected performance benefits with the actual costs and results. The findings from their study were generally damning, but what is really interesting is the spread of cost overruns.
Flyvberg and Budzier suggest that it is this figure, with some projects going over budget in terms of cost and time up to some hundreds of percent, that will potentially destroy a major corporation in the near future.
First, a couple of examples the pair found to highlight the impact of this issue:
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In 2003, a fashion retailer decided to upgrade its global IT system. It budgeted $5 million for the project and the benefits appeared massive. Five years after the project began, critical flaws stopped distribution of the company’s products for weeks. The company took a $193M charge for the failed project and the CIO resigned.
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Hong Kong’s airport, built in the late 1990’s, had a major IT system failure which cost the local economy $600 million.
These attention-grabbing stories are less important than the metric for IT failure. The study found the average cost overrun for a project was 27 percent. While this isn’t ideal, it’s arguably manageable. Unfortunately they also found a large number of outliers. One in six of the projects studied generated cost overruns of 200 percent.
The academics said that:
This highlights the true pitfall of IT change initiatives: it’s not that they’re particularly prone to high cost overruns on average, as management consultants and academic studies have previously suggested. But rather, it’s that an unusually large proportion of them incur massive overages. IT projects are now so big, and they touch so many aspects of an organisation, that they pose a singular new risk….they have sunk whole corporations. Even cities and nations are in peril. It will be no surprise if a large, established company fails in the coming years because of an out-of-control IT project. In fact, the data suggests that one or more will.
This is, of course, an attention grabbing sentence. But if we look at these statistics in the context of a rapidly changing organisation, pressured economy and demand for ever more flexible tools, we can see that the problems raised by the study will only grow in the years ahead.
Technology leaders need to change the way they look at IT projects. Some key tips:
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Avoid massive “rip and replace” technology projects where systems touch a multitude of discrete operation areas, instead think about the business, and by extension the IT systems it uses, as being modular, chunk the IT systems down into manageable parts and look at IT transformation as a series of bite sized pieces
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Prioritise IT transformation – only innovate systems that really have an impact on the performance of the company
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Don’t try and shoehorn flexibility and connectivity with other systems into an IT platform. Rather look to IT solutions that, from the outset, make integration with different systems easy
IT is critical, and will only grow in criticality in the future. Ensuring that IT projects happen on time, on cost and, most importantly, deliver the benefits that are intended of them will be the CIOs’ lodestone as we enter the new world.
This is an edited version of a post by Ben Kepes that first appeared on the Salesforce.com blog. It is part of the Future of Work series sponsored by Salesforce.com.
