24/08/11

By Tom Bovingdon

Botched IT projects are putting cities, nations and corporations at risk, according to a research paper published in the Harvard Business Review.

The report, Why your IT project may be riskier than you think, studied 1,471 IT change projects and found that the average financial over-run for projects was 27 per cent.

But what alarmed the authors, from the University of Oxford’s Said Business School, was that one in six of the projects was classified as a black swan event – something unexpected with a major impact – bringing cost over-runs of 200 per cent and a schedule over-run of 70 per cent.

These IT projects have “sunk whole corporations”, cost countries’ economies upwards of $600m and ended the jobs of top managers because of spiralling and unexpected risks, the report said.

“It will be no surprise if a large, established company fails in the coming years because of an out-of-control IT project”, the report added. “In fact, the data suggest that one or more will.”

The biggest over-runs “typically arise in companies facing serious difficulties - eroding margins, rising cost pressures, demanding debt servicing, and so on—which an out-of-control tech project can fatally compound”, the report continued.

It urged businesses to conduct stress tests prior to IT projects to test their readiness, including asking themselves whether they could absorb an increase in costs if a black swan event took place. Projects should also be broken down, contingency plans should be in place and forecasting should be conducted, the authors said.

To read the original report, visit: http://www.sbs.ox.ac.uk/research/people/Pages/BentFlyvbjerg.aspx

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