The Cost of Failed Projects

Failed projects

Failed Projects are costing companies and countries an absolute fortune every year. The cost of Failed Projects accumulated each year comes to more than the Gross National Product of some hefty sized countries.

Let me first of all give you some shocking facts related to the development of technology projects.

EU figures looking at 214 technology projects from 1998 to 2005 showed that only 1-in-8 technology projects met their time, budget and quality objectives.

Indeed the total cost of technology project overruns in the EU in 2004 was €142bn – yes, that’s billion.

They found that 23.8% of all projects don’t get finished at all.

Project Failure

A survey by KPMG in 2010 showed that  an incredible 70% of organizations had suffered one or more failed projects in the prior 12 months!

A survey by Logica in 2008 showed that 35% of organizations abandoned a major project in the last 3 years.

A survey by KPMG in 2005 showed that only 2% of organisations said that their projects that year met all of their objectives.

Fixing Faults

According to Dosani 80% of technology projects cost more than they return because the benefits are overestimated and the costs underestimated.

According to the National Institute of Standards & Technology in the USA €60bn a year is spent on fixing faults in IT systems. Indeed 80% of the cost of a system is in making fixes to it.

In January 2013 it was announced that the Ministry of Defence had overrun by £468m on 16 projects in the past year with a total slippage of 139 months in the past year.

So, they have 16 projects that have overspent by an average of £29m each and they have slipped by an average of 8.7 monthseach   in the last 12 months.

There are some astonishing figures here that show that the world has not come to terms with successfully implementing software projects on a regular basis.

Just try getting the system you are going to develop insured against failure.

Change Needed

All over the world technology projects are failing and costing companies and countries incredible amounts of money.

Something has to change.

Companies need to take another look at the way they develop software. The whole paradigm is wrong. There are just too many failed projects.

Successful Projects

At one company where we ran projects for major companies like Texaco and Exxon (Esso) we managed to get 4 out of 5 projects done on time, with one of them well ahead of budget and ahead of schedule.

The only one that failed to deliver was one that we had to outsource as we didn’t have the right skills in-house to do it.

Our people looked askance at the poor project management practices on the project as if they were looking at a backward people using backward methods and were not surprised when the project failed.

Huge Opportunity

Because there is such a huge problem there is also a huge opportunity. We intend to explain what needs to be done to get projects completed not just on time, to budget and fit-for-purpose but to be finished ahead of schedule and ahead of budget.

We change completely the way projects are run and we’ll explain how it is done in coming articles on this website.

In 2009, Roger Sessions, a well-known author on the subject, in a White Paper called The IT Complexity Crisis: Danger and Opportunity, estimated that failed projects in IT cost a staggering $6.2 trillion a year globally.

That’s more than the GDP of the UK ($2.43 trillion) and Germany ($3.57 trillion) combined.

Houston, I think we have a problem!

I think we also have a solution!

Projects Overrun – 11 Reasons why Projects Lose Money

Why Projects Overrun

Projects overrun all the time. Projects overrun for many reasons.

Most Projects lose money. Here we want to show you why projects overrun both time and budget. We will show you the main areas where money leaks away. We tell you how to stop the haemorraghing of profits from the project or the overrun of budget.

A Finance Director of my acquaintance once said, when I gave him the Project estimate plus or minus 30%, “You can forget the -30%. Projects are never under. You just hope that they are not too much over the +30%”. He was, of course, correct to say that (but not on this project).

There are many reasons why projects overrun.

1.  Firstly, project estimates are usually wildly out because there is no historic data on how quickly an organisation can produce software and so the estimation process is completely flawed.

If you were asked how much time someone would take to run a marathon without knowing what time they took previously your estimate could be wildly out.

The first task before estimation should be to find out the previous speed of delivery of functionality. This can be measured in Function Points per Man Month.

2.  Secondly tracking a project is wildly out

mainly because incomplete tasks are counted in the tallies. How does one know how many errors there are left to fix in a piece of software?

Developers underestimate the time left to complete to take the pressure off themselves. Who wouldn’t? Only completed tasks should be counted.

3.  Thirdly, there is no motivation for anyone to finish ahead of schedule

. That means that the different components of a project are either finished on schedule or behind schedule. Unless you are very lucky and all the many components are finished on time then the project will be over time and over budget. There are several ways to cure this problem.

4.  Time is the most important thing on a project

and that is what is measured and monitored. However, Fitness-for-Purpose and Quality are usually more important to the customer.

However, these get sacrificed because Time is the most important driver whilst the project is running and the others are not usually measurable or measured during the project. The goals of the project should be aligned with what the customer wants. We have ways to measure this.

5.  They say be careful what you measure as that is what you will surely get

. They also say Time is Money. However, this is not the case on projects. Because Time is all important, quality and fitness-for-purpose of the system suffers. The rework to fix this scuppers the Time (and money) as well. This is the main reason for the failure of virtually every project and it is very curable. It makes projects overrun.

6.  The Customer is King so they say – and who would want to upset a customer?

Unfortunately, the customer, or those working for the main customer, are the ones most likely to screw up the project budget. They fail to deliver information, equipment and data on time unless there are systems in place to make sure they can’t. There seldom is.

No one likes to kick the customer but there are times when the customer becomes the supplier. Processes must be put in place to make sure they, like any other supplier, deliver on time – or else.

7.  External suppliers can also screw up the schedule, budget and profitability of a project,

and make projects overrun, by not delivering on time. There are seldom mechanisms in place to make sure that this is monitored and everything is delivered on time or there are severe penalties.

8.  The way projects are measured,

and the way those working on them are monitored, is penal, de-motivating and bad for morale. There are better ways of motivating those working on projects and making them strive for success rather than having all their concentration on not failing.

9.  The person running the project may well have got to that position by being a good analyst or developer.

However, the skillset for running a project is totally different from the skills and abilities they have shown so far.

Any aptitude for their new role would be just a fluke. The project management role on a project should be split the way it is in the film business. They have a Director responsible for creating the system and a Producer responsible for the logistical side.

This is currently done nowhere. So brilliant analysts and developers are failing and causing major losses to their companies because they can’t estimate, track and manage suppliers. They can’t manage the other logistics that are needed to run a project successfully. These are skills which are nothing to do with being a good Analyst or Developer.

10.  The same mistakes are made over and over

in projects which is why projects overrun. There is never time to look at what went wrong and how it could be put right with both a short-term and long-term solution.

Even football teams take time on a Monday morning to go through the video to show how things went wrong. This is so that the team can see how they can stop those things going wrong in the future. The same system would work on IT projects.

11.  One of the main ways that profitability leaks away from a project is through poor Change Control

.  If this is not rigidly adhered to the customer gets a lot more functionality than they paid for and projects overrun. Of course functionality will grow as one looks more closely at a project. However, that is an opportunity for a supplier to make more money from a project rather than get the same amount of money for a greater amount of functionality. This is one of the main money leakers on a project. It should be one of the great money makers on a project.

Conclusion

Capitalism has been a much greater success than communism. Yet at one of the bastions of capitalism, free market companies, their IT projects are run as if they are the command and control economies of communist states. There is little motivation for the workers to achieve. It would be much better to open the doors to capitalism and unleash the people on IT projects to achieve. The reward of success should be the main goal of people management on projects rather than the fear of failure.

The FD said to me “You can forget the -30%. Projects are never under. You just hope that they are not too much over the +30%”. That is certainly true in the way the great mass of projects are run. However, it doesn’t have to be so. We have shown you why projects overrun. However, there is another way.

Read on…