Preventing IT projects from failing requires the courage to make hard decisions
By Joanne Flinn
Joanne Flinn, author of "The Success Healthcheck for IT Projects", feels that the cost of failure of new IT projects is too much for banks to continue delaying much-needed triage.
There is a private club in banking in Asia which costs $200 million to join. It’s the club for business transformation projects that fail. According to one bankIt’s tragic it exists. Membership is confidential – but those of us in the business know it’s there – and many are members.
CEO, “It’s not just the significance of the write-off of the investment or the impact to employee morale; it’s the six months to clean up the mess, the six months to work out what went wrong, the six months to decide what to do next, the six months to source and set-up a new program and then two years to implement. By this point, we will be five years behind in the market.”
It is an inconvenient truth. Even with our brains, our discipline, our ability to plan and deliver, and also our application of good project management and change management, benchmark research from Oxford University suggests that 10% of projects are written off in their entirety. One conservative estimate presented at the Asian Banker Summit 2011 in Hong Kong states that banks in Asia will spend $10 billion on IT projects alone in 2011. They will invest still more to change people and processes. Conservatively, that’s $1 billion written off in our industry in Asia.
Another 23% of projects will have a 50% variation—that’s when more funds are consumed or less value delivered. To combine the two, it seems that one third of all investment in projects and business change is at risk. Only 60% of projects will deliver what was wanted, when agreed, for the amount agreed—within 10% of over-run of time or cost. That’s another 6% at risk. Overall, this is a Non-Performing Project Ratio of 27.5%. This is a blind spot that executives have grown used to. As one regional executive said “We hope to survive projects,” to which the CEO noted above added “…and work incredibly hard to make up for what we’ve lost.”
Yet a proactive success health check—where an evaluation of the core systems and the ability of the business to get value from the project is done before the implementation—can save as much as $20 million. In another, early identification that a $30 million IT project investment was at risk helped both business and IT reconsider the project and address the issues before further investment was made.
A small project that fails can undermine a larger project in the pipeline. A large project that fails creates clean-up, frustration and a tougher environment for future projects. With years of managing project teams, we know the reality of this. The dynamics of (inter) dependencies between projects means value is truly measured at the portfolio rather than project level.
It is too late to delay taking action until a project is implemented, until there are operational disruptions, until apologies to customers are required, until staff turnover increases or year-end bonuses are jeopardized. Like any investment, there are early warning signs that indicate if a project is likely to succeed or fail. Project investment can be monitored for its ability to generate value; but this can change over time, and an external change or an internal challenge can undermine the ability of a project to deliver value.
We’ve found issues as wide-ranging as the ability of national telecommunications infrastructure to the bandwidth of front office personnel to specific organizational belief increases risk to results.
Much like meridian lines, core systems create the conditions that lead to the business getting results from a project. Three of these are:
- The reliability to deliver results of the processes used. If there are weaknesses here, results are lower.
- The gap between the current business processes, practices and people and the strategic vision. Certain gaps increase risk to the project.
- The ability of the organization to monitor and manage the dynamics of the dependencies between outside events, projects and day-to-day business. Organisations are complex structures, and particular dynamics can create tipping points that are hard to recover from.
The probability of any project succeeding or failing is assessable in the same way our health is assessable. What looks like a lack of organization on one level can come from lack of bandwidth or morale, poor tools or processes, or even misaligned reward systems. Problems in one area may be a result of another core system. Early assessment and action can improve success rates.
It takes courage to dig around for numbers like those shared earlier. It takes courage to acknowledge that a project has sunk significant funds and yet is likely to be unable to deliver value; it takes courage to recognize that most people are trying to do the right thing, and yet still set up practices that have unintended consequences of this magnitude; it takes courage to take action.
Companies that find themselves running late on a project and are facing a hard deadline while being significantly over budget need to sit down and diagnose the key underlying problems and realign the project to strategic goals. Following this, a health monitoring process should be introduced and appropriate support provided in the form of process redesign, training, tools, leadership support and specialist expertise. When companies undergo these self-assessments, leaders must be prepared to make the following decisions:
- Keep projects that are likely to succeed
- Kill projects that are unlikely to succeed
- Reconsider those that are in the middle ground.
Health checks are as applicable to smaller $50,000 projects as they are to the $100 million projects that get the limelight, and between them all there is a billion dollars at risk.
*Joanne Flinn is the author of "The Success Healthcheck for IT Projects" (Wiley, 2010), and is a director at Shelton.
Keywords: IT Projects