Oct 24, 2012

Eventually, Perhaps, Your New IT System Will Be Able to Figure Out Just How Big a Hole You’ve Blown in Your IT Budget

If you’re feeling guilty about hugely blowing your budget on a technology project, at least you’re not alone.

Writing in the latest McKinsey QuarterlyMichael BlochSven Blumberg and Jürgen Laartz report that massive troubles on large IT projects—defined as those with initial price tags exceeding $15 million— are alarmingly common. On average, the analysis finds, these initiatives run 45% over budget and 7% over time, while delivering 56% less value than predicted.

The research in question was based on an examination of 5,400 IT projects.  In total, the cost overruns for all of these came to $66 billion—or, as the authors note, “more than the GDP of Luxembourg.”

Cleaning up these messes, the authors note, should start with four principles, all of which were also articulated by Peter Drucker, whose insights we append here:

1. “Focusing on managing strategy and stakeholders instead of exclusively concentrating on budget and scheduling.”

Only if targets are defined can resources be allocated to attain them,” Drucker wrote in Management: Tasks, Responsibilities, Practices. “Only then can priorities and deadlines be set, and somebody held accountable for results.”

2. “Mastering technology and project content by securing critical internal and external talent.”

“It is precisely the purpose of a plan,” Drucker wrote, “to show where scarce resources—and the scarcest is good people—should be working.”

3. “Building effective teams by aligning their incentives with the overall goals of projects.”

Each manager, from the ‘big boss’ down to the operations supervisor, needs clearly spelled-out objectives. Otherwise confusion can be guaranteed,” Drucker warned. “These objectives should always derive from the goals of the business enterprise.”

4. “Excelling at core project-management practices, such as short delivery cycles and rigorous quality checks.”

These were practices for which Drucker felt that traditional Japanese firms, at their best, set the standard. In Managing in a Time of Great Change, Drucker laid out their core strengths as follows: “control of the economics of the entire production and distribution process rather than accounting control of the costs of each step; zero-defects quality; and shortening development, production and delivery cycles by spending money to save time.”

What do you think causes so many IT projects to blow their budgets and deadlines—and what can fix the problem?

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