IT = R + D

It’s time to approach information technology decisions for what they are… research & development.

“Nobody told us anything like that.”

A Vice President quietly uttered those words after hearing industry statistics on IT overruns and write-offs. Three years earlier, the management approved a two-year system overhaul to meld multiple processes into a single integrated system. The original proposal included generous reserves and contingency plans, assuring management the project was a safe bet.

Now they were plagued with unexpected hurdles, delays and overruns. Unfamiliar with the track record of large IT projects, this Vice President thought they were relatively alone in their painful experience.

Par For The Course
September’s Harvard Business Review surveyed 1,471 IT projects and published updated findings on IT failure rates. The article, “Why Your IT Project May Be Riskier Than You Think”, reports, “The average overrun was 27%.” More alarmingly, “Fully one in six of the projects [incurred] a cost overrun of 200%, on average, and a schedule overrun of almost 70%.”

Clearly, while project planning disciplines and forecasting techniques have become ever more sophisticated, project estimates remain highly unreliable.

Are our project leaders dullards or incompetents? Certainly not. The issue is in the nature of IT projects themselves. Like Research & Development, this work has never been performed in this precise context. Therefore, the unknowns are loom large.

As Predictable As R&D
No executive in the pharmaceutical industry expects certainty in budgets or timelines for developing new cures. Executives facing IT decisions need a similar mindset, approaching large IT initiatives as R&D.

This will sound excessively cynical, but we cannot rely on a project leader’s risk assessment. As smart and highly trained as they may be, they are also human beings bombarded by a dozen biases and decision-traps that promote over-confidence and over-optimism. Most truly believe their meticulous plans exempt them from those 1-in-6 odds of a 200% overrun.

Buyer Beware
It falls to decision-makers to factor outsized risks into their deliberations to avoid inadvertently “betting the farm” against unrecognized odds. The HBR recommends:

  • Require a scenario with a 400% overrun that delivers only 25% to 50%. Your project leader will likely view this as ludicrous and alarmist (it certainly couldn’t happen to them), but history states that this occurs with “uncomfortable frequency.”
  • Break the work down into smaller phases of limited size and complexity. This approach likely comes with higher costs, but consider these costs to be insurance against spectacular failures crippling operations or breaking the bank.

There is no immunity from the risk of budget-busting IT projects, so judge accordingly.

© 2011 Verax Point Consulting, LLC

About Dave Wittenberg

I am all about equipping business teams to enjoy greater payoffs on their biggest bets. I bring a unique combination of evaluation expertise and behavioral insights developed over the course of more than 300 major strategic initiatives. Applying a highly effective, disciplined framework, teams unleash their full capabilities to generate better solutions, wring out hidden waste, and deliver superior returns. Specialties: Investment Evaluation, Decision Excellence, Strategic Analysis, Mergers and Acquisitions, Investor Relations, Leadership Development, Education & Training
This entry was posted in IT, Leadership & Decision-Making, Risk Assessment. Bookmark the permalink.

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