Issue No. 64 - April/May 2012
IT projects: how to manage the risk
by Sonya Weiser
IT projects can be extremely risky, with failure having the potential to sink companies and careers. In my experience over the last 25 years in IT, I’ve seen that it is unfortunately all too common for IT projects to run over budget by at least 25%. But that can be just the start of the problems.
In a recent Harvard Business Review (HBR) magazine article, there was an article which describes why IT projects are often riskier than you think. They analysed 1,471 IT projects and found that the average overrun was 27%, but one in six projects had a cost overrun of 200% on average and a schedule overrun of almost 70%. Their research revealed that 67% of companies failed to terminate unsuccessful projects; 61% of managers reported major conflicts between project and line organisations; 34% of companies undertook projects that were not aligned with company strategy and 32% of companies performed redundant work because of non-harmonised projects.
For example, a project to migrate of all of the IT systems of Levi Strauss into a single solution had a project budget of $5 million. In proportion to the company’s annual revenue, that didn’t seem like a large project, so the risks were under-rated. Unfortunately the project went off the rails very quickly, causing failure to fill orders and closure of distribution centres for a week – resulting in losses to the company of $192.5 million. That’s a loss of revenue which equates to almost 40 times the project’s budget! Beside the company’s losses, a career also took a hit, as the CIO resigned over this project failure.
These problems are not unique to large corporations in the USA. There have been studies conducted in Europe, the UK, New Zealand and Australia all revealing the same pitfalls for IT projects. A study conducted by the UK Standish Group indicates that o...