Perhaps the most frustrating aspect of any information technology project is the near certain fact that it will be either late, over budget or both. It seems that ever since information technology (IT) first appeared on the executive radar screen in the 1960s, the norm is for projects to fall short of the goals established at the outset. It is rare to see a major project that does not promise astounding net present values (NPVs) or internal rates of return in excess of 30 percent prior to its approval. How many deliver? For that matter, how many projects actually measure the return?
Over time, numerous tools and techniques have been developed to mitigate the problem of poor project performance; however, the results have been variable at best. Be it the structured development methodologies of the '70s and '80s, the rapid prototyping of the '90s or the continuing sophistication of project tracking tools from Gantt to Pert to critical path, the result has often been to have better and better reporting of relative failure.
Answerthink's Hackett Bench-marking and Research unit reports that only 53 percent of software development projects over one year in duration are delivered on time. Even for smaller projects of less than one year, the on-time percentage is only 65 percent. Even the airlines do better than that!
Perhaps a bigger concern is that allied to poor on-time and on-budget performance, there are also major shortfalls in the realization of expected benefits. While there is little doubt that much of the sustained economic growth of the last 10 years has been fueled by technology-enabled productivity gains, it appears that the full potential has yet to be realized. Consider some further findings from the Hackett study:
- Only 30 percent of companies which have implemented enterprise resource planning (ERP) systems have deployed them on an enterprise- wide basis. So much for the "E" in ERP.
- The administrative support costs in finance and human resources for companies which have implemented ERP systems are almost exactly the same as those of companies which have not.
- Companies that have aggressively standardized process and technology typically have IT costs that are nearly one-third lower than those that have not effectively deployed standards. Unfortunately, many companies are still wrestling with a myriad of different standards that not only drive up implementation costs, but also ongoing support and maintenance costs and overall business risk.
This and other studies suggest that while major benefits have been realized, much potential remains. Effective project management is key to ensuring realization of projected benefits. What is needed is a radical change in the processes for the evaluation and management of projects. In short, project management must become a core competency of all organizations.
From idea generation through benefits realization, there must be a systematic and rigorous set of processes, tools, measures and accountabilities to ensure effective execution. It is sad to report that most companies have greater insight into their spending on office supplies than they do into the progress of their most strategic initiatives. Many companies have established more formal processes. Unfortunately, they often become too bureaucratic and inflexible. Too often, project review processes merely check for completion of required steps, such as "Did you develop a time-phased project plan?" rather than "Was it any good?"
Clearly, the challenge is significant but is not optional if the true benefits of technology-enabled transformation are to be realized. A few of the most common flaws in managing projects include:
- No clear criteria for abandoning a project. Every project specification dutifully lists the critical success factors. Few clearly state the criteria under which the project should be abandoned, thereby avoiding further wasted investment.
- A failure to tie incentives and rewards to results. Every general contractor knows the value and purpose of performance clauses in their contracts, yet few internal projects apply such rigor in measuring results.
- A focus on task completion rather than results realization. Project reporting typically consists of communicating progress on completing tasks. While clearly of value, more crucial to benefits realization is the tracking of performance changes accruing from the project.
- A failure to encompass uncertainty. Too few project plans acknowledge uncertainty and lay out alternative scenarios and contingencies. This places the project team in reactive mode when the inevitable "un-planned" events occur.
Why is this important? In addition to the fact that some companies now indicate that as much as half of all manager and professional staff time is consumed by project work, the economics of success are compelling. For the average billion-dollar company, cost of goods sold (COGS) is around $550 million. Selling, general and administrative expenses (SG&A) add another $200 million. Let's assume the unrealized portion of the technology-enabled transformation potential due to poor project management equals a modest 5 percent of COGS and 10 percent of SG&A. This translates into $47.5 million in incremental profit. If we assume a conservative price/earnings ratio of 15, the result is the creation of over $700 million of shareholder value. Not a bad return on investment from simply improving project management and execution.
In summary, project management remains a neglected skill in many organizations; however, its potential to drive up the return on technology investment is significant. Remember, it's not the technology you select that matters as much as how well you implement it.
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