These days, most consulting projects end up recommending investing in some sort of IT system as a solution. Interestingly enough, recent research by McKinsey & The University of Oxford has shown that:
1. On average, large IT projects (>$15 million) run 45 percent over budget and 7 percent over time, while delivering 56 percent less value than predicted.
2. 17 percent of IT projects end up going 200-400% over budget, threatening the very existence of the companies they’re trying to help.
3. This effect happens across all industries.
Today’s article is about why so many IT system implementations end up failing and what companies can do about it.
What Causes the Cost Overruns?
What Can Companies Do?
McKinsey recommends the following solutions:
1. Focusing on managing strategy and stakeholders instead of exclusively concentrating on budget and scheduling. This would include things like build a strong business case for the IT projects, secure quality IT service vendors, and get all parts of the company involved from day one.
2. Mastering technology and project content by securing critical internal and external talent. This involves bringing in experienced people, and making sure they’re focused on both business and technical issues (no sense making a big investment in a complex solution when something simple will do).
3. Building effective teams by aligning their incentives with the overall goals of projects. Everybody on the project should be judged based on whether or not the entire team hits its targets.
4. Excelling at core project-management practices, such as short delivery cycles and rigorous quality checks. The company should create a Project Management Office (PMO) that has the power to approve / deny changes to the original plan and keeps a watchful eye on the budget.
Also note that the longer a project goes on, the greater the chance of some sort of Black Swan event that can dramatically increase costs. Thus, another important consideration is reducing risk by completing projects as quickly as possible.
Large Scale IT implementation projects tend not to deliver the value that is initially projected. Some possible solutions include: