The singular new risks of organisational IT projects

This short article by Bent Flyvbjerg and Alexander Budzier makes a powerful case that “IT projects are now so big, and they touch so many aspects of an organization, that they pose a singular new risk”. It reports on a project they undertook analysing 1,471 projects,  comparing their expected budget and performance benefits to the eventual reality. While the average cost of these projects was $167 million, the largest project $33 billion. They found an average cost overrun of 27% but a much smaller subset of huge overruns, suggesting a potential for existential risks which are obscured if one merely looks at the averages:

Graphing the projects’ budget overruns reveals a “fat tail”—a large number of gigantic overages. Fully one in six of the projects we studied was a black swan, with a cost overrun of 200%, on average, and a schedule over- run of almost 70%. This highlights the true pitfall of IT change initiatives: It’s not that they’re particularly prone to high cost over- runs on average, as management consul- tants and academic studies have previously suggested. It’s that an unusually large pro- portion of them incur massive overages— that is, there are a disproportionate number of black swans. By focusing on averages in- stead of the more damaging outliers, most managers and consultants have been miss- ing the real problem.

They find that the biggest problems tend to arise when a spiralling IT project compounds the existing difficulties (e.g. “eroding margins, rising cost pressures, demanding debt servicing”) which an organisation is facing, What fascinates me here is the possibility that the IT projects may have been conceived wholly or partially to address these difficulties, instead making them even worse when the implementation of the technology fails.

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