Management of IT-Enabled
Business Projects
Dr. Mary C. Lacity
1
Management of IT-Enabled
Business Projects
The objectives of this module:
Gain an understanding of the track record and challenges of managing large
scale, IT-enabled projects
Understand the relationship between:
project management: managing the project phases
change management: managing the people affected by change,
mostly through training & incentives
Explain robust, best practices for “doing the thing right”. These are
management practices that have been associated with success since the
beginning of IT—the practices do not change just because technologies change.
Gain an appreciation for the difference between “doing the thing right” and
2
“Doing the right thing”.
Relationship Between Project
Management & Change Management
PROJECT MANAGEMENT PHASES
Planning
Requirements
Analysis
Design
Development
Testing
Implementation
Hands-on
Acceptance
CHANGE PHASES
Pre-awareness Awareness
Self-concern
Mental
Tryout
Change Strategy
Audience Analysis & Impact Assessment
Sponsorship & Communication Plan
Role Design & Mapping
Training Design
Training Deployment
3
Readiness Assessment
Source: Adapted from Roberts, Jarvenpaa & Baxley, MISQE, 2003
Startup Support
Best Project Management
Practices are Robust:
Business solutions drive technology selection
Secure top management active support
Select high powered project manager with proven track record
Involve & incent knowledgeable users
Don't judge success solely based on time to budget
Buy-in outside expertise to transfer learning
Implement incrementally
Manage scope creep, perhaps using 80/20 satisficing rule
Beware of Mythical Man Month
Ensure change management (training, buy-in, roll out); May be a
co-lead if large project
4
Project Management Studies
For the past 30 years, 80 % of all IT projects are late, over-budget,
and/or fail to deliver promised functionality.
See: Keil, Mark and Montealegre, Ramiro, “Cutting Your Losses,Extricating Your
Organization When a Big Project Goes Awry,”Sloan Management Review, Spring
, 2000, pp. 55-68.
See: Sauer, Chris, Why Information Systems Fail, Alfred Waller,1993.
See: “The Standish Group CHAOS Report” reported on:
http://www.standishgroup.com/chaos.html
See: Peter Morris, “Project Management: Lessons from IT and Non-IT Projects,”
in Information Management: The Organizational Dimension, Earl (ed), Oxford
University Press, 1996, pp. 321-336.
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ERP Success Rates
• Survey of 600 companies(1)
– 57% finished 10% - 30% or more over budget
– 3% finished 10% to 30% under budget
– 45% took 10% - 30% or more time than planned to implement
• W.W. Grainger Inc(2)
– Experienced “substantial systems and transaction processing
disruptions” that caused losses of $.24/share
– Stock dropped 2%/$100M in market value on the earnings
announcement
• Hewlett-Packard Inc(3)
– $400M 3Q 2004 loss blamed on “Poorly executed” migration
• Hershey Foods Corp(2)
– Delayed customer order processing costing sales during Halloween
• Whirlpool Corp(2)
– Poor implementation led to series of shipment delays to customers
(1) The Controller’s Report. New York: May 2004., Iss. 5; pg. 7, 1 pgs
(2) James P. Miller. Wall Street Journal. (Eastern Edition). New York, N.Y.: Jan 10, 2000. pg. C.12
6
(3) Patrick Thibodeau, Don Tennant. Computerworld. Framingham: Sep 27, 2004. Vol.38, Iss. 39; pg. 14, 1pgs
California Department of
Social Services
State-wide Automated Child Support System
Expectations:
$76 million contract with Lockheed Martin to develop the system
3 year schedule to complete
Outcome:
Cancelled in November 1997, after spending $435 million
7
Denver
International Airport
Baggage Handling System
Expectations:
$175.6 million contract with BAE Automated Systems to develop
the system
18 month schedule to complete, April 22 1992 to Oct 1993
Outcome:
Cancelled after horrible test in April 1994,
after spending over $2 billion
8
London Stock Exchange
Integrated Claims and Settlement System
Expectations:
£50 million cost estimate to develop the system (Cooper’s as
project management)
2 year project to complete, Dec 1989 to Oct 1991
Progress:
In-house staff will take too long, buy Vista software &
hire Vista to modify (est. cost to modify, £1 million)
Outcome:
Cancelled on March 1993, after spending £400 million9
Standish Group CHAOS Report
In the US, companies spend $250 billion each year on development
of 175,000 IT projects.
Research Method:
Interviewed 365 IT executives about 8,380 IT projects.
Large company: > $500 million in revenue
Medium company: $200 to $500 million in revenue
Small company:
$100 to $200 million in revenue
10
Standish Group CHAOS Report:
IT Projects classification
Type I: Success; on time, on budget, promised functionality
Type II: Challenged; over-budget, over-time and or missing
functionality
Type III:Failed; Severely impaired projects; cancelled projects
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Standish Group CHAOS Report:
IT Projects classification
12
Standish Group CHAOS Report:
IT Projects classification
SMALL MEDIUM LARGE
TYPE I
28%
16.2%
9%
TYPE II
50.4%
46.7%
61.5%
TYPE III
21.6%
37.1%
29.5%
13
Standish Group CHAOS Report:
Failure Statistics
For every 100 project starts, there are 94 restarts
For Type II and Type III Projects: delivered at 189% of original
cost estimate:
Large companies
178%
Medium companies
183%
Small companies
214%
14
Standish Group CHAOS Report:
Failure Statistics
For Type II and Type III Projects: delivered at 222% of original
time estimate:
Large companies
230%
Medium companies
202%
Small companies
239%
15
Standish Group CHAOS Report:
Failure Statistics
For Type II Projects: Only 61% of content delivered
Large companies
42%
Medium companies
65%
Small companies
74%
16
Standish Group CHAOS Report:
Failure Rates over Time
48 % of participants believe there are more failures today than
5 years ago.
46 % of participants believe that there are more failures today than
10 years ago
17
How do IT Project Success Rates
Compare with other large projects?
Peter Morris studied 1,444 projects world-wide in many industries.
Only 2% of projects were delivered on budget
Example: Trans Alaskan Pipeline
estimated cost in 1969: $960 million
actual cost:
$8.7 billion
He found that cost escalation was largely due to factors outside
of project manager’s control, such as government action, inflation,
strikes, technical uncertainty, scope changes, weather.
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Morris Study
Factors Affecting Project Success
ENVIRONMENTAL
FACTORS
Politics, Community,
Environment, Weather
FINANCING &
ECONOMICS
poor c/b analysis
budget cuts
EXPECTATIONS/
ATTITUDES
PROJECT
DEFINITION
Requirements known
Technology Proven
PROJECT
OUTCOME
IMPLEMENTATION
best practices such as top management support, user involvement,
adequate resources, effective teams, quality assurance
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Standish Group CHAOS Report:
Success Statistics on Type I
DOING THE THING RIGHT:
• User Involvement
• Executive Management Support
• Clear Statement of Requirements
• Proper Planning
• Realistic Expectations
• Smaller Project Milestones
• Competent Staff
• Ownership
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Project Management:
Three case studies
Manufacturing: Centralized order scheduling system to
reduce cycle time
Centralized Decision-making
Baking:
Hardware migration to cut costs
No changes in decision-making
Insurance:
Claims processing system to reduce fraud
Decentralized decision making
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Project Management:
Three case studies
Manufacturing: Expected: Costs of $6 million, 2 years
Actual: $12 million, more than 4 years
Baking:
Expected: Costs of $7 million, 2 years
Actual: $1.5 million for pilot, project cancelled
Insurance:
Expected: Costs of £4.5 million
Actual: £6 million, almost a year late
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Project Management:
Three case studies
Company
U.S.
Manufacturing
U.S. Baking
U.K. Insurance
Sales in
Company/SBU
$1 billion
Annual I.T.
Budget
$8 million
# I.T.
Employees
75
$2 billion
$16 million
100
£650 million in
£15 million
insurance
(about $24
premiums (appx. million)
$1.1 billion)
180
23
QUESTIONS TO THINK ABOUT:
Should success be based “on time” “on budget” “to functionality?”
• Baking is a Type III project that met all objectives
• Insurance is a Type II, mediocre results
• Manufacturing is a Type II, excellent results
Which projects “Did the thing right?”
Which projects “Did the right thing?”
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Old Claims Process at Insurance:
Pay out £222,000,000 year
Honey, what
else can we add
to this claim???
Throw in
everything!
Headquarters
Mainframe
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Old Claims Process at Insurance
Headquarters
Mainframe
Claims typed
in
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Old Claims Process at Insurance
Supervisor reads
mainframe reports
and assigns to a
claims handler
Headquarters
Mainframe
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Old Claims Process at Insurance
Claims handler
investigates the
claim and decides
on award
Headquarters
Mainframe
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Old Claims Process at Insurance
Looks good,
cut them a check
Headquarters
Mainframe
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Old Claims Process at Insurance
Customer has time
to exaggerate or make
up claims
Supervisor doesn’t
assign cases based
on expertise
Headquarters
Mainframe
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New Claims Process at Insurance
Customer
must phone
in claim
Headquarters
Mainframe
Claim handler
prints and sends
to customer for
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signature and also saves electronic copy of claim
New Claims Process at Insurance
Signed customer
document scanned and
stored on image server
Headquarters
Mainframe
Mainframe program
assigns complexity
and expertise rating
from 0 to 20
32
New Claims Process at Insurance
Headquarters
Mainframe
Each claims handler
has an expert rating
to determine what
claims they can work
on
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Manufacturing
• Poor customer service, poor manufacturing coordination due to a
lack of shared information about each of the plant’s capabilities,
capacities, and schedules.
• BPR: Centralize decision-making, software selection drove
client/server
• Implemented a global client/server application for customerordering, manufacturing planning, plant scheduling, and product
specification.
• Improved customer service from 3 weeks to 4 hours, decrease
manufacturing cycle from 27 to 19 days.
• Huge success, although senior management credit manufacturing
with the improvements
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Manufacturing
35
Manufacturing
Can I order 60,000
wafers with these 200
parameters?
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Manufacturing
Let me check,
I’ll get back to
you…
37
Manufacturing
Can you do 60,000
wafers?
38
Manufacturing
Well, let me see if
I can get some crystal...
39
Manufacturing
Hey Joe--can I have
bunch of crystal by next week?
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Manufacturing
I can give you half what
you need…try Ben
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Manufacturing
Ben--do you have x
amount of crystal to
ship by next week?
42
Manufacturing
No, but I can make some
within 3 weeks. Want it?
43
Manufacturing
Let me get back
to you
44
Manufacturing
Susan, can I have x
amount of crystal?
45
Manufacturing
Sure I can ship today!
46
Manufacturing
I can make 30,000 wafers
in 3 months, but the rest will
take 5 months.
47
Manufacturing
Let me try some other
plants first...
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Manufacturing
THREE WEEKS LATER….
Great news we can do it!
49
Manufacturing
Thanks but I went with your
competitor--he gave me
a quote the next day.
50
Manufacturing
This is what you are
going to make and when!
51
Manufacturing
Yipee!!!
Sir I am happy to confirm your
order within 4 hours!
52
Baking
•
$8 million per year on mainframe outsourcing contract perceived as too
expensive.
•
Migration of mainframe transaction processing systems to client/server
for 35 bakeries to client/server to reduce costs.
•
No changes in organizational structure or processes.
•
Pilot project a technical success
•
•
Project canceled when company was sold
New management believes in “letting each bakery select its own
technology”
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Baking
Headquarter
Mainframe
Daily sales, returns, orders
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Baking
Headquarter
Mainframe
Daily baking schedules, driver instructions,
prices, discounts, etc.
55
Baking
Headquarter
Mainframe
Daily baking schedules, driver instructions,
prices, discounts, etc.
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Original Plan at Baking
57
Denver Pilot at Baking
Big success!
58
Revised Plan at Baking
59
PROJECT OUTCOMES
All three projects were late and over-budget:
Company
Expected Cost
Manufacturing
Baking
Insurance
$ 6 million
$ 7 million
£4.5 million
Actual Cost
Number
of Months Late
$ 12 million
24
Project Canceled Project Canceled
£6 million +
10
But are they successes or failures?
60
PROJECT JUSTIFICATION
PRACTICES
Not just cost/benefit analysis
Contribution to business
strategy:
develop new distribution channels
mass customization
Process improvement:
quicker manufacturing time
faster product development
improved customer service
reduced inventory levels
Opportunity costs:
what happens if we don’t do this project?
61
REASONS FOR COST/TIME
OVERRUNS
Companies had to develop (or help the vendor develop) the client/server
technology.
TECHNICAL UNCERTAINTY:
 Unexpected incompatibilities among vendor products
 Debug vendor’s new client/server applications
 Technical cracks in back-ups, roll-outs, and check-points
REQUIREMENT UNCERTAINTY:
UNREALISTIC EXPECTATIONS OF PROJECT DELIVERY
UNREALISTIC COST/BENEFIT ANALYSIS IN ACQUISTION
REQUEST
62
PROJECT JUSTIFICATION
?
Company
Manufacturing
Baking
Insurance
Only 1 of the companies quantified the benefits
Quantifiable Benefits
$500,000 a year savings to
terminate mainframe
outsourcing
$3 million a year savings to
terminate mainframe
outsourcing (however, the
outsourcing vendor reduced
bill by this amount during c/s
development)
Financial Guesses
Increase sales by $15 million
per year
2% reduction in costs of
claims (which translates to
about £5 million annually).
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Lesson: Companies needed to secure top
management support in the project, primarily by
having a senior-level project sponsor.
TYPE OF SUPPORT
Project Champion
Project Sponsor
SILICON
X
BAKING
X
INSURANCE
X
X
X
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Lesson: Companies needed to secure top
management support in the project, primarily by
having a senior-level project sponsor.
• Project Champion: “Champions are managers who actively and
vigorously promote their personal vision for using IT, pushing the
project over or around approval and implementation hurdles. They
often risk their reputations in order to ensure the innovation’s
success” (Beath, 1991, p. 355)
• Project Sponsor: “Sponsors have the funds and authority to
accomplish their goals” (Beath, 1991, p. 355) (A less active and less
enthusiastic role compared to a champion)
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Lesson: Business strategy drove
technology selection in 2 companies
Company
Manufacturing
Business Process Re-engineering
Baking
none:
“It’s a business problem that we solved using this technology as opposed to the other
way around. [The MIS Director] thinks, from what he has seen, if you are installing
C/S just to install C/S, you are crazy, because there is a high learning curve to get over.”
--Strategic Manager of Marketing
“You can buy a $100,000 processor that if you want to use MIPS or throughput, so
you can get a pretty sophisticated piece of equipment for $100,000. To get the
equivalent in IBM, older generation, you are talking $700,000 to $1,000,000. So
what I presented to management was, ‘Here we are on this path with this investment
base and its dropping at this rate. Here’s a new technology base, a lower entry fee,
but its cost is dropping. How do we get from this curve to that curve without killing
ourselves and without making a zillion dollar investment?’”-- Head of IT
Department
Insurance
“We are re-engineering the business process. It takes a large number of business
functions, so for example, process work flow handling. It has business rules in it for
processing claims. You take it immediately into a PC arena. Also because we are
processing rules, it takes us into the client/server arena. We are actually holding
some data locally to assign work flow.”-- Manager of the Business Technology
Department
66
Lesson: All companies hired some outside
experts, to varying success
Company
Manufacturing
Baking
Insurance
Supplier Relationship
Received free vendor resources in exchange for helping to
debug new client/server system. Knowledge about the new
technology was transferred so that internal IT staff were in a
position to support it.
Baking hired a consulting firm to help with implementation:
“I got the feeling they were only one chapter ahead of us in
the book.”
At first, Insurance relied on vendor salespeople. After
technical incompatibilities arose, they hired an outsourcing
consulting company to review/verify technical design.
67
Lesson: All companies hired some outside experts,
to varying success
Lesson: From prior research on 116 sourcing case studies, the development of
immature technologies were the worst to outsource because specifications were
uncertain and no transfer of knowledge occurred.
The best sourcing model for immature technologies: buy-in vendor resources
68
Lesson: Each company implemented
incrementally
Company
Implementation Strategy
Manufacturing
Implemented 3 phases, each with added-value to business
Phase I: central specifications, scheduling
Phase II: 700 management reports
Phase III: Front-end customer orders
Baking
Pilot at one bakery
Insurance
Mock-up “model” office
Benefits of incremental implementation:




Verify user requirements
Reduce risk
Recover from mistakes early
Demonstrate value to secure management approval
for full-scale implementation
 Gain user acceptance of the system
69
QUESTIONS TO THINK ABOUT:
Should success be based “on time” “on budget” “to functionality?”
• Baking is a Type III project that met all objectives
• Insurance is a Type II, mediocre results
• Manufacturing is a Type II, excellent results
Which projects “Did the thing right?”
Which projects “Did the right thing?”
70
Mastering the Next Wave of Enterprise Systems:
Leveraging Lessons From ERP
Top Management is engaged in the project, not just involved
Project leaders are veterans with proven track records and team makers
are best in the business empowered to make decisions
Buy-in vendor resources to fill gaps in expertise and transfer their
knowledge
Change management goes hand in hand with project management
A satisficing mindset prevails.
By Carol Brown and Iris Vessey, MISQE, 2003.
71
Three “Successful” ERP Implementations
“Material”
“Valvo”
“Asea”
Transform a small
branch to profit center
with own selling &
distribution
Revenues
$3.5 Billion
$430 Million
Reason for
ERP
Replace 200 legacy
systems to provide global
business processes
Replace lousy legacy
systems running on old
mainframe packages
Cost of ERP
$100 million
$17 million
$150,000
Time Line
April 1995
Late 1997
Sept 1996
Year end 1997
Sept 2000
Year end 2000
Time
~2.75 years;
Late & over budget
~1.5 years
~4 months
Sooner & on budget
50% increase in
inventory turns
20% reduction in admin
costs
$millions in logistical
costs
Y2k compliance
35% reduction in
inventory costs
Better order fulfillment
rates
Outcomes
On time & under budget
(but increased 30% after
planning phase)
Allowed new profit
center to get up and
running with selling &
inventory
72
ERP In Practice…
73
Source: www.freequality.org/beta%20freequal/fq%20web%20site/ training/EnterpriseResourcePlanning2%5B1%5D.ppt
History Of ERP
1. Manual Intensive
3. Non-Collaborative
2. Not real-time
4. Multiple Application
Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf
74
After ERP
1. Automated
3. Collaborate
2. Real-time
4. Single Application
Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf
75
ERP Modules
Managers and
Stakeholders
Human
Sales and
Resource
Delivery
Management
Applications
Applications
Customers
Sales Force
And Customer
Service Reps
Reporting
Applications
Central
Database
Financial
Applications
Manufacturing Back-office
Applications Administrators
And Workers
Service
Applications
Human
Resource
Management
Applications
Suppliers
Inventory
And Supply
Applications
Employees
76
Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.
mySAP Business Suite
Source: http://www.sap.com
77
Noted Practices
“Material”
“Valvo”
“Asea”
Adoption Diffusion
Lesson
Early adopter achieves
Success by learning by
Doing with “freedom”
To fail culture
Early majority
achieves success by
benchmarking
successful early
adopters
Late majority achieve
success by applying
templates.
Buy-in of vendor
resources
Big 5 firm with 50
consultants on project
Convinced consulting
firm to help them go
big bang
Used shared services
experts located in
Malaysia with R/3
expertise
Change
Management
Lead by organizational
development &
training specialists
900 power users
Cash bonus
Stock options
Project co-lead along
with IT and business;
Documented new
work, newly automated
work, eliminated work;
work transferred to
another group
Bonus pay to everyone
Business co-led with
IT was also responsible
for change
management
78
Management of Global Large-Scale
Projects Through a Federation of Multiple
Web Based Workflow Management Systems
Badir, Founou, Stricker, Bourquin, Project Management Journal, Sept 2003
Workflow
Management
System
Providers
E-Platform
Project
Mobile Management
Updating
Agent
System
Object-Oriented Database
Graphical User Interface
Sending Information
Information Distribution
Management
Team
Workflow
Browse Management
System
Browse Workflow
Management
System
79
Workflow
Management
System
Project
Management
System
Task steps & assignments
Identification of tasks
Resource requirements & costs
Schedules
Percentage of work complete
Budgets verses actual
80
Don’t forget the past...
Best Practices on Project Management
are Robust
Business solutions drive technology selection
Secure top management active support
Select high powered project manager with proven track record
Involve & incent knowledgeable users
Don't judge success solely based on time to budget
Buy-in outside expertise to transfer learning
Implement incrementally
Manage scope creep, perhaps using 80/20 satisficing rule
Beware of Mythical Man Month
Ensure change management (training, buy-in, roll out); May be a
co-lead if large project
81