Successful IT Investment in the Downturn Professor John Ward This is an edited version of a podcast for The Times Online ‘Leading Voices’ Series JW Avoiding making mistakes with investments is more difficult in uncertain times, but also more important – we can’t afford the mistakes. The statistics on IT project failure rates are consistent over time: around 70% failed to deliver the expected business benefits, the benefits that were the basis of approving investment. Our recent surveys in over 300 organisations worldwide confirm this figure and it is consistent across different countries and industry sectors. But around 30% are successful and we should be able to learn from those successes. Our studies have found that in those organisations that enjoy high levels of project success, the investment decision making in management is significantly different from those that suffer high rates of failure. We have been able to identify the management practices, or ways of doing things, that have the most effect on success levels. As economic conditions worsen, it is increasingly important that others know what those practices are and can adopt them and improve their success rates. Looked at from an investment life cycle perspective, those differences can be considered in three main stages. First, investment decision making; second, implementation of the projects; and the third, and as you will perhaps most importantly, evaluation and review of the success or results from the project. Let’s start with investment decision making. This is a two part process. First deciding on whether a particular investment is worthwhile; and second prioritising the worthwhile investments to make the best business return from available funds and resources. The more successful organisations include a wider range of benefits in their business cases, but also include the full costs of the investment; especially the business costs of changes needed to exploit the technology and they are less likely to overstate the benefits. Interestingly over 80% of their business cases are approved, whereas less than 50% are approved in the less successful. In those organisations the focus is mainly on cost saving and efficiency benefits from IT. But often the project costs are understated, only the visible and out of pocket costs are included. They are also more likely to exaggerate the benefits and of course they are wasting time on project proposals that are not approved. It is also more common in the less successful organisations for the IT organisation to develop the business case rather than business managers. So effectively the proposal is to spend money on IT, whereas in the more successful organisations the proposal is to improve aspects of business performance by using IT – quite different. It is far more difficult to set Professor John Ward
priorities against competing investments if the business cases are unreliable. Inevitably wrong decisions will be made. But in the less successful organisations, less criteria are used to help establish priorities relative to the more successful; in particular, the less successful usually consider the desirability of a project – how attractive it is – but that is likely to be overstated, but not their ability to deliver the feasibility of getting the benefits. And not surprisingly the more successful consider both desirability and feasibility factors, thereby reducing the risk of the project value to deliver. Moving on to implementation, the main issues in implementation are ensuring that combination of changes – technology, process, organisational changes – will actually deliver the benefits that were put forward in the business case. In order to do that you need to get commitment from all the stakeholders to the required level of involvement to make those changes happen as and when required. Technology is just one of those changes; often not the most critical to the success of a project. Getting the organisation to commit resources and time to a project will partly depend on the benefits that groups or individuals will get from it. A focus on cost savings and efficiency from IT in the less successful organisations hardly encourages that commitment; whereas in the more successful the ‘what’s in it for me’ tends to be higher due to the wider range of benefits identified. It also partly depends on the degree to which the technology implementation, process and organisational changes are aligned and synchronised. It is normally a combination of these changes that produces the most significant benefits. Technology alone delivers very little. In most organisations the technology implementation is pretty thoroughly planned and controlled. But in the less successful, little attention is paid to the planning of other changes, compared with the more successful who often produce integrated change plans across technology process and organisation. Perhaps the reason the less successful don’t do it, is that they don’t recognise the need for the business changes to realise the benefits and on average their business cases do not recognise the cost or resources needed to make those changes. Finally, the evaluation and review. After implementation the big issue is assessing whether you achieved what you expected; if you haven’t achieved it why not? Can it still be obtained? Can we get the benefits? And also can we identify any further benefits now that we have new knowledge gained from the project so far. And of course, we can also learn from each project lessons that are useful on future projects. From our survey and experience in working with many organisations across all sectors, the practice that most differentiates more successful organisations from the others is the systematic review of the benefits Page 2
Professor John Ward
achieved from the investments: not just reviewing time cost and quality. That is very important and most organisations do it, but far less review the extent of benefit achievement. The fact that projects will be reviewed and evaluated encourages more realistic business cases and commitment to delivering the benefits expressed. But doing the reviews provides opportunities to increase the benefits realised from that particular investment and to learn lessons and increase the value delivered from other IT projects either about what benefits can be gained or how they can be delivered. The less successful organisations can provide a list of reasons or excuses while benefit reviews are not regularly carried out. But in essence, if the business cases are not realistic, reviews will be pointless. Without the reviews business cases will tend to remain unrealistic. Somehow these organisations need to break out of the loop, but will they? In summary, in good times when money is relatively plentiful, making the right decisions about IT investments is important, but not critical. The failures can, at least to some extent, be afforded. Now that economic and business decisions have worsened – probably the worst recession in living memory – most organisations cannot afford failure and they need the investments they do make to deliver significant benefits. Those organisations who are more successful in managing IT investments already know how to do this and should be able to adapt. But the majority of organisations appear either not to know how to do it, or just don’t do it. The successful organisations have essentially put in place common sense, business based and proven good practices over the whole investment life cycle. All these practices are available to everyone – most have been well known for many years, but perhaps this recession will make more organisations adopt them and reduce the risk of failure just by doing the things we know reduce the risks of failure. Let’s hope so. Page 3