The Oxford University researchers examined 1,471 information technology projects, in private and public sectors, comparing budgets and estimated performance benefits with actual costs and results.
They had expected to find IT projects incur large average cost overruns, but they were surprised to see fully one in six projects — nearly 17 per cent — were so mismanaged that they had average cost overruns of 200 per cent, not factoring inflation, and delays of 70 per cent.
Bent Flyvbjerg of Oxford’s Said Business School said in an interview he was shocked at how many large, multi-year projects can easily go off the rails.
While overbudget public projects get more scrutiny, the Oxford researchers say they found no significant difference with business world.
If anything, Flyvbjerg said IT disasters in the private sector may be underestimated because companies don’t want to reveal disasters.
“The assumption is the situation is actually worse than what we document.”
Flyvbjerg, and co-author Alexander Budzier, a consultant at McKinsey & Co., cites several examples in their study including clothing giant Levi Strauss.
In 2003, Levi Strauss wanted to implement a single computer system, budgeted a less than $5 million, but it quickly encountered a slew of problems including not being able to sync with Walmart’s computers. During the switchover, it couldn’t fill orders, and three U.S. distribution centres had to close for a week.
In 2008, the company took a $192.5 million charge against earnings to compensate for the botched project, and the chief information officer was forced to resign.
Kmart eventually filed for bankruptcy in part because an IT disaster. Hershey’s chocolates couldn’t ship $100 million worth of candy in time for Halloween for one year.
In the public sector, debacles in Canada include implementation of the gun registry and Ontario’s eHealth agency, which was tasked with computerizing patient health records.
Toll Collect, a consortium of firms, was implementing new technology to collect tolls from heavy trucks on Germany roadways, but repeated delays cost the German government more than $10 billion in lost revenue. For Germans, “Toll Collect” became a common saying for the woes of their economy.
Flyvbjerg said they were surprised by the magnitude of the overruns and the number of “out-of-control projects that go over budget and over schedule.”
Too often, managers assume these disasters won’t happen to them, but bigger problems become more likely if a project exceeds 30 months.
He suggests breaking projects down into smaller, more manageable chunks, with firm deadlines of six to eight weeks, with constant testing of new systems.
The days of a wholesale switchover of an entire system should be long gone, he said.
Choosing a “master builder,” as project manager, with a proven track record and detailed experience, is also key. That person is unlikely to fall for a sales pitch to come up with a unique system from scratch, where costs tend to skyrocket and problems emerge.
“People are overly ambitious, thinking they need their own system,” said Flyvbjerg, who prefers using existing systems. “If you get the perfect system, you’ll be sure it will be outdated in five years.”
He also recommends using “reference class forecasting,” comparing similar projects and taking an average, to set up more accurate timelines and costs. “It takes out the bias and looks at the actual performance in previous projects,” he said.
Queen’s University business professor John Pliniussen likens IT budget overruns to doing a home renovation or planning a wedding.
“It’s hard for humans to accurately predict the future no matter how many degrees you have,” he said, adding many IT projects span several years, so price increases are expected, but cannot be specifically factored in.
Pliniussen also blames IT disasters on “project creep,” where a system expands or changes due to new technology, lack of expertise by the team overseeing a project, and vendors who overpromise and under-deliver.
“This is not uncommon,” he said. “There is no alternative. You have to decide whether you want to be state of the art or state of the ark.”
He argues that while companies are now including incentives to meeting budget targets and deadlines or building in penalties for not meeting certain benchmarks, there will always been unforeseen costs or challenges.
Nicole Haggerty, associate professor at the Ivey School of Business, said while it’s not surprise that IT projects go over budget in both time and money, she said the Oxford study doesn’t address whether the IT changes brought eventual value to a business.
Haggerty believes companies would care less about being on time and on budget, if the new system offers the value they want. Managers can decide whether continuing a project is a productive use of company funds, she said.
As well, Haggerty, who specializes in management information systems, said CEOs or top executives often don’t understand IT needs and how dynamic and complex they can be.
“Technology is not just for transactions any more. It’s integral to everything,” she said. “Business people lack IT savvy. They don’t know the role they are supposed to play and they’re afraid of the three-letter acronym,” she said.
“They have to understand how they need to bring IT discussions and projects to a strategic level, and build it in a business plan and everyday life.”
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Autor(en)/Author(s): Vanessa Lu
Quelle/Source: The Toronto Star, 21.08.2011
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