Bank IT projects are failing at an alarming rate, as more initiatives are finishing late, over budget or not accomplishing objectives, a trend recent research largely attributes to recessionary cutbacks in funding and personnel.
But that's not without irony: the inability to successfully complete projects because of inadequate resources can cost more in the long run.
"A project at a smaller bank, with assets of about $50 billion, was supposed to replace its entire online banking system over a nine month period for $1 million," says Rodney Nelsestuen, senior research director at TowerGroup, who wouldn't name the bank. "That was two years ago. Now the project's approaching $3 million and the system's still not running."
Nelsestuen says the issue with the bank's project was a failure to properly gather requirements at the onset, causing failures in change control processes as the project progressed. That's an increasing problem, as banks attempt to take on larger projects with a low commitment of funds and personnel at the onset - and wind up making expensive additions, extending deadlines or canceling the project altogether.
"There's a sudden shift away form doing anything long-term," says James Van Dyke, president of Javelin Research, who says institutions are still focused on quarter-by-quarter earnings to maintain investor confidence. "[IT] people have to spend an inordinate amount of time defending what would normally sail though."
New research from The Standish Group, a project management consultant, says the rate of project failure for bank IT projects is currently about 35 percent, up from 23 percent about two years ago and 15 percent in 2002. Banks are faring worse than other industries: the national rate of IT project failure is about 24 percent, and is increasing for the first time in almost two decades.
"Some of that increase in project failure in banking is due to compliance. As banks are putting more controls on IT to adhere to new regulations, they've lost a little agility," says Jim Johnson, chairman of the Standish Group. "But a good part of the decline is due to the downturn in the economy."
Stacy Goff, president of Project Experts and an officer in the American Society for the Advancement of Project Management, says there are several steps banks can take to reverse the downward trend, such as prioritizing specific projects within a larger project portfolio for full attention, rather than attempt to execute a entire portfolio of projects with less resources. "It's an upper management phenomenon to expect project teams to do more with less, so a lot of organizations are trying to do too many things," Goff says.
Nelsestuen says the traditional build-test-pilot-deploy model of bank IT project management can't be abandoned, but more of these steps can be outsourced. "A lot of outsourcing companies today have expertise in software development," he says.
Van Dyke says ROI should also evolve. "With mobile devices and Web 2.0 technology, we're undergoing a revolution," he says, suggesting these projects can't be sacrificed-despite the lack of detailed payback in the short term. "Projects that are really going to return long-term significant value are those that deliver control back to the end user.
This article can also be found at AmericanBanker.com.

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