'Black Swan' IT Projects Can Sink Enterprises

By CIOinsight  |  Posted 08-30-2011 Print Email
Project managers aren't properly assessing low-probability, high-impact risks when planning budgets and timelines for IT projects.

Major IT projects are 20 times more likely to fail than other business projects, according to a recent study from Oxford University.

IT projects on average are 27 percent over budget and take 55 percent longer to complete than originally planned, researchers from the University of Oxford's Said Business School's BT Centre for Major Program Management said Aug. 22. Researchers analyzed 1,471 global projects where the organization had revamped its information technology systems within the last 10 years. The projects were worth a total of $245 billion, and on average cost $170 million.

After comparing their budgets and estimated performance benefits with actual costs and results, researchers found that project managers were not taking into account unpredictable events when planning IT projects. Instead, they focused on the average performance of previous projects. When the projects spiraled out of control, both the careers of the managers and the future of the organization were at risk, the researchers found.

"IT projects are now so big and touch so many aspects of business, government and citizens' lives that this poses a singular new challenge for top managers," said Prof. Brent Flyvbjerg, principal investigator and BT professor and founding chair of Major Program Management. Companies may be hit by an out-of-control project when they are already facing difficulties and can't afford the increased costs.

While projects on average overran expectations by 27 percent, some projects encountered rare and huge events that should have been identified at the start. Researchers called these projects "black swan" IT projects and said the issues generally came toward the end of the projects to catch project managers by surprise. Black swan projects are impossible to predict and on average go 197 percent over budget and take 68 percent more time than expected, according to the study.

"Any company contemplating large technology projects should ask whether the company is strong enough to absorb the hit should it go over budget by 400 percent. Although this figure may seem excessive, as our research shows, costs such as these can occur all too frequently," said Flyvbjerg.

While there are no indicators that some industry sectors are more prone to black swans than others, researchers found some project types are more likely to spiral out of control. For example, the risk of cost overruns in hardware infrastructure projects is low while the risk in software projects is high.



 

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