If You Think a 20% Buffer is Enough for Your IT Project...
...You Haven’t Seen the Data.
Strategy Control Room Advanced members can access the new IT, Digital, AI, and Cloud Center-of-Excellence, Updates 1 and 2, here.
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A vision, as wonderful and ambitious as it may be, is not enough to
deliver a successful project.
According to a database of over 16,000 projects from 136
countries from 20+ different fields, only 8.5% of projects are
completed within the budget and on time.
Further, out of the 8.5% successful projects, only 0.5% delivered the promised benefits.
Megaprojects are almost always doomed to fail.
But why?
This slow progress-more problems pattern is driven by two distinct
forces.
These two are constant in all projects, from major IT projects to space stations down to garden renovations. Basically, whenever someone wants to turn a dream/vision into reality.
We break these forces down in the second update for the new IT, Digital, AI, and Cloud Center-of-Excellence.
There is a way to achieve the opposite and finish a project on time, on budget, and with its intended benefit, if not more.
Most people are aware that budget and time overruns are common
on projects, especially on the large ones.
As mentioned earlier, 91.5% of projects result in being over budget, over time, and under benefits. This occurrence is so common that it can be considered as a natural law.
But this statistic is not yet the whole truth – which is much worse.
If 9 out of 10 projects are bound to be over budget and over time, any
sensible person would say to just increase the budget (cost and time) to allow a buffer.
But by how much?
Typically, people would make a 10-15% buffer; let’s even say that you’re very cautious and you want 20%.
But is this enough?
According to a database of large projects, the mean cost overrun of a
major building project is 62%.
I can attest that this number checks out. And not just in major IT projects but in major projects related to personal life, such as a large-scale home renovation. When I was renovating my house, the budget overrun was shocking. So was the time overun (more than 50%).
In fact, I had to move back into the house while it was still under renovation to finally pressure the contractor to finish the job.
If you’re a project manager for a building project, and you managed to
talk to your financial backers for hundreds of millions to allow a 62%
buffer for your project, then you still drastically underestimated the risk
of project overrun.
It was found out that a lot of megaprojects are fat-tailed.
You may say, "Kris, what do you mean by fat-tailed?"
Excuse the MBA/consulting speak. When distributions contain far more extreme outcomes in their tails, they are called “fat-tailed”.
This piece of data makes things simpler, clearer, and more alarming: Most big projects are at risk of going disastrously wrong. Yet traditional project management literature rarely addresses the systemic nature of fat-tailed risk.
Events with low probability but high impact, the so-called "Black Swan events", can derail even steady progress and create lasting damage.
Just look at the LA fires and the damage they caused. Many families impacted by LA fires may never recover from this (emotionally or financially).
The more complex a system is, the more susceptible it is to these events. And if your project is ambitious, with many interdependent parts and stakeholders, you are almost certainly embedded in a complex system.
Cities. Markets. Energy. Transportation. Debt. Viruses. Climate change. Organizations. These are all complex systems. And every day, the world gets more complex.
Project failures can be prevented by starting to understand what causes it. If we follow the patterns from different projects – big and small – around the world, we can infer that failing projects tend to drag on, while successful projects tend to be completed quickly.
Imagine a project timeline as an opening. The more open it is, the more opportunity for it to catch black swans and cause trouble.
Then, the answer is obvious: simply get the project started as quickly as possible by setting aggressive timelines, right?
Unfortunately, no.
Being able to run a successful IT project requires a very different way of thinking about how projects should be planned and led.
We cover this in detail in the IT, Digital, AI & Cloud Center of Excellence. Update 2 was just released for the SCRA members and can be accessed here.
If you have questions or want guidance on which memberships/resources are recommended given your career/business goals, email us at team@firmsconsulting.com.
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