Project Health – Should We Keep on Investing?
Overall, failure is more prevalent in IT projects than success. Although hidden from the public, failure rates of 70 to 80 percent are not unusual. Giga Information Group, for example, reports that successful (on time, on budget) projects amount to only 28 percent. Although that figure increases annually, it remains a dismal statistic. In today's economy, assessing project health and halting non-performing projects are key to effectively managing IT resources. Many projects, once started, gain lives of their own. They fill both time and budgets and are brought to a halt under only the most extraordinary conditions. As a result, it is sometimes more cost-effective to stop a project and eliminate ongoing expenses. While this option is not always available, how does an enterprise determine whether a particular project is a candidate for termination?
Why Projects Fail to Deliver - Business Reasons
IT projects fail to deliver projected benefits, overrun cost estimates or miss delivery dates for numerous business and technical reasons. The following represent the primary reasons for failure:
- Unrealistic business expectations. Often senior management, without the appropriate technical consultation, makes nave promises on delivery dates or capabilities. Lacking a grasp of the project's complexity may lead the project astray from the onset.
- Business doesn't have "skin in the game." If business sponsors are not accountable for results or are not willing to deal with the business issues (e.g., readying the organization), then the project is on a failure path. "The primary reason IT projects fail is that they do not have a clear executive sponsor," says Bart Perkins, former CIO of Dole Food Company and Tricon Global Restaurants (now Yum Brands) and currently president of Leverage Partners, Inc. in Louisville, Kentucky. "It's critical to understand that IT projects are business programs with an IT component. When a project is viewed as exclusively an IT project, then the IT organization ends up sponsoring it and it becomes a project for technology's sake, which is a formula for disaster. That's why projects need a committed executive sponsor who owns the benefits," says Perkins.
- Lack of effective IT governance - managing priorities, scope and project requirements. When CIOs can't deliver results or aren't getting their projects done on time and within budget, governance must be assessed. A typical situation is that business requirements are changing rapidly and an empowered governance team is not in place to prioritize them. The result - the project team makes the call. The project team, lacking the big picture, often makes the wrong decisions on priorities.
- Misunderstanding the key determinants of success. Defining business outcomes and understanding both sides of the project (business and technical) are vital. Technology projects alone cannot deliver business value. Business value is created through a combination of business readiness augmented by technical capabilities. For projects to deliver business value, both the business and technical challenges must be addressed.
- E-business time-to-market madness. Contrary to the belief held by executives, e-business systems are not quicker or easier to implement than other applications. Web developers face the same challenges in developing complex transactional systems that conventional system developers face.
Why Projects Fail to Deliver - IT Reasons
Even if all business prerequisites are in place, projects can fail for a myriad of IT-related reasons, such as:
- Inadequate project management. The highest threat to project success is weak project management; that is, the inability to manage the business and technical dynamics of projects from inception to development to operation.
- Poor estimating. Many projects are doomed from the beginning because the overall effort is not estimated in any methodical, rational manner.
- Project outcomes are not fully specified and measurable. The project team must be doing "the right things" but, just as importantly, they must be "getting them done right."
- Lack of senior management involvement. When management oversight is insufficient, course corrections happen too late.
- Lack of risk management. Only a few project teams take the time to understand the potential risks and define plans to mitigate these risks.
- Insufficient project staffing. The lack of experienced staff - trained and skilled - to develop and deliver what the project needs is another cause of project failure.
- Inadequate communication skills. Weak interpersonal skills result in poor communication channels, which tend to instigate internal and external problems for any company.
- Lack of a development framework to manage complexity. Many organizations lack the processes and tools to identify project prerequisites, manage requirements, develop and deliver, measure and report, and deal with change.
- Insufficient production planning. Development teams tend to neglect consideration of overall production issues and the support of the systems once deployed.
- Poor performance or "hype" by hardware/software suppliers. Vendor hype - over-promising and under- delivering - adds more difficulty to achieving success.
- Insufficient testing. Absence of a thorough testing process, spanning development through production, leads to unanticipated problems.
- Making the business process coincide with the technology. A main source of failure, particularly with large enterprise applications, is that business users are forced to comply with processes driven from the technology applied.
- New technologies. The project team may lack the skills or experience to develop, tailor or integrate newly emerging technologies.
To Halt, Delay or Continue
IT budgets are down from a high of 7.5 percent of revenue in 2000 to approximately 3.3 percent of revenue in mid-2002. More than ever, it is a business imperative to get better productivity out of existing IT investments. A project that is hopelessly beyond corrective action should be stopped and the scare dollars spent elsewhere. A project needs to be halted when one or more of these conditions are met:
- Insurmountable risk. The risks are too great and cannot be mitigated.
- Not meeting milestones or containing costs. When a project consistently misses its dates and costs, it is a prime candidate for not meeting its original business case.
- Inability to identify acceptable tradeoffs. When the project team is unable to identify tradeoffs that allow it to meet the "key" business requirements, the project is at risk.
- Major architectural changes. If the project has to be reformulated due to foundational architectural considerations, then it becomes an extremely costly proposition to continue the project.
- Business shift in the needed capability. Drastic business changes, such as mergers and acquisitions, may leave the project without a customer. "IT projects fail without a clear, solid business case," says Perkins. "When the business changes, the business case has to be redone to make sure everyone is still on board."
- Other prerequisites are not being met. If other technology or business components, required for the project to succeed, are not in place, it's best to delay the project until these prerequisites are completed.
"Halting a project is an extremely tough decision," says Perkins. "The question to ask is: are we still going to get the benefits projected in the business case? If not, the project is a candidate for termination. Few organizations are able to take a hard enough look to make those decisions. It usually takes someone who is not politically vested in the outcome to kill a project, such as a new person or a consultant."
By the time organizations realize that a project cannot succeed, they have usually already invested far too much. This was the case in a corporation that decided to halt an enterprise-wide inventory application. Problems with the implementation included lack of a design, an inability to deliver prerequisite component technology, changing requirements, no incremental development and a lack of development experience. When a manufacturing operation halted its ERP project after losing millions, the primary reason was that the business did not want the system. Even without business sponsorship, the project had continued, that is, until a new CIO was hired. Recognizing the project could not succeed, she stopped the project. At a service organization, a migration from mainframe to client server was halted after it was realized that the reason for the migration was to build the resumes of IT staffers. Naturally, these staffers weren't able to deliver. These companies' massively sunk investments could have been prevented had business and IT done their homework from the start.
Why Do Failed Projects Continue?
There are many reasons why projects continue when it would make more sense to stop them. In some cases, no one takes the responsibility for revisiting the business case. Other times, management refuses to admit failure, forcing the company to continue funding the project with resources that could have been better spent elsewhere. A related problem is the "hero" mentality. Instead of solving the core problems, those who work "beyond the call of duty" to get the job done are rewarded. In other instances, projects aren't stopped because of the intense internal competition for resources. No one wants to fail. Finally, managers are isolated from reality and sick projects stagger on.
The decision to stop a project midstream should depend on costs and business benefits. A leading practice is to treat IT investments as an investment portfolio. This involves planning, categorization, measurement, review and mid- course IT investment correction. Investment monitoring must be done at three levels. The lowest level is project management. A project manager directs a team of developers and makes decisions that directly influence the project's direction. The second level is program management. Numerous initiatives are viewed for their interdependencies and overall performance. The top level, "governance," is a critical function for a joint IT-business executive team to ensure that the investments are performing against business goals. The entire portfolio of projects is monitored. These leaders decide whether a particular project is generating the desired results and, if not, whether it is worth the risk of allocating more funds.
The IT Project Health Test
For those charged with monitoring IT project performance, a practical tool is the IT project health test. It rates each project on the results it is producing, the probability of success, associated risks and how well the overall development and management processes are working.
The IT project health test consists of five steps:
- Determine project risks from a set of predefined risks (see Figure 1).
- Score each project's risks to determine a probability of success.
- Develop recommendations (stay the course, delay, modify the project scope, halt the project).
- Develop a mitigation approach for each project risk.
- Develop a cost or savings profile for each project.
Figure 1: Risk Areas
The project health test renders a project scorecard with the following elements:
- Project rating as to process, governance and results;
- Probability of success;
- Risk mitigation plan;
- Estimated savings or costs; and
- Overall savings.
Using the project health test, management can assess results with an eye on opportunities for maximizing the business benefit derived from the investment. They can identify projects that have no possible chance of success, those that are questionable, those that need some specific attention and those that are gems.
Investing for Optimum Return
In a time of cost reduction and leveraging existing assets, aligning IT projects with business initiatives is critical. A successful project begins by setting practical goals and expectations that are communicated completely and consistently through the organization so that everybody has a shared sense of direction. Management must identify the technology and business contributions necessary to achieve business results. They must make certain that all the components are in play - organization, people, business processes and technology - and pulling toward achieving the targeted business results. Business and technology leaders must form a partnership, monitor investments, make mid- course corrections and ensure all are working together. It's not rocket science. It's a matter of common sense coupled with accountability, partnership, visibility of interim results and the ability to act quickly, but prudently. All combined, this helps make the decisions that achieve an optimum return on all investments.
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Allen Lazzara is vice president of Technology Consulting Associates, LLC. Headquartered in Atlanta, Georgia, TCA provides expert technology and business consulting services in a wide range of industries. For further information, call 404-303-1795 or visit the company?s Web site at www.tca-llc.com.
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