Podcast 4 - IT Investment
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A full transcript of this podcast is reproduced below.
Hello. I’m John Ward, Professor of Strategic Information Systems at Cranfield
School of Management. Last December I celebrated, although perhaps that’s
not the right word, 40 years of working in IT; the first 15 in industry and
the last 25 at Cranfield. During that period I’ve had the privilege of
working with many organisations in all sectors of industry, commerce and the
public sector, and in many countries around the world.
Based on that experience and our research at Cranfield, I would like to talk
about addressing an endearing issue, but an issue that is of increasing
importance in the tougher economic and business conditions we now face.
I’m talking about managing IT investments: how to make better decisions about
which investments to make, and then manage them more successfully, as an
integral part of implementation of organisational strategy.
Avoiding making mistakes with investment is more difficult in uncertain times,
but also more important. The statistics on IT project failure rates are
consistent over time. Around 70% fail to deliver the expected business
benefits: the benefits that were the basis of approving the investment. Our
recent surveys in over 300 organisations world wide confirm this figure, and
it’s consistent across different countries and across industry sectors.
So, if 70% of projects fail to deliver, the easiest way to increase the value
delivered is to stop doing that 70%. Easier said than done. But on close
review some 30-40% of our IT investments the benefits were never achievable.
There were either exaggerated in order to get the funding or there was a
lack of understanding in what needed to be done to deliver those benefits.
And the other 30-40% some benefits were obtained, but not all those that
were expected. But around 340% are successful and we should be able to learn
from those successes.
Our studies have found that in those organisations that enjoy high levels of
project success, the investment decision making and management is
significantly different from those who suffer high rates of failure. We’ve
been able to identify the management practices or ways of doing things that
have the most effect on success levels. As economic conditions worsen, it’s
increasing important that others know what those practices are and can adopt
them and improve their success rates.
Looked at from the investment lifecycle perspective, those differences can be
considered in three main stages: first, investment decision making; second,
implementation of the projects; and third, and as you’ll see perhaps most
importantly, evaluation and review of the success or results from the
project.
Let’s start with investment decision making. This is a 2 part process. First,
deciding on whether a particular investment is worthwhile; and second,
prioritising the worthwhile investments to make the best business return
from available funds and resources. The more successful organisations
include a wider range of benefits in their business cases, but also include
the full cost of the investment. Especially the business costs of changes
needed to exploit the technology, and are less likely to overstate the
benefits. Interestingly, more than 80% of their business cases are approved,
whereas less than 50% are approved in the less successful. In those
organisations the focus is mainly on cost saving and efficiency benefits
from IT. But often the project costs are understated. Only the visible or
out-of-pocket costs are included. They are also more likely to exaggerate
the benefits. And of course they are wasting time on budget proposals that
are not approved.
It is also more common in the less successful organisations for the IT
organisations to develop the business case, rather business managers. So
effectively the proposal is to spend money on IT, whereas in more successful
organisations the proposal is to improve aspects of business performance by
using IT. Quite different. It’s far more difficult to set priorities against
competing investments if the business cases are unreliable. Inevitably wrong
decisions will be made. But in the less successful organisations, less
criteria are used to help establish priorities relative to the more
successful. In particular, the less successful usually consider the
desirability of a project, how attractive it is, but that’s likely to be
overstated, but not their ability to deliver the feasibility of getting the
benefits. And not surprisingly, the more successful consider desirability
and feasibility factors, thereby reducing the risk of the project failing to
deliver.
Moving on to implementation. The main issues in implementation are assuring
the combination of changes, technology, process, organisational changes, can
actually deliver the benefits that were put forward in the business case. In
order to do that, you need to get commitment from all the stakeholders to
the required level of involvement to make those changes happen as and when
required. Technology is just one of those changes, and often not the most
critical to the success of the project. Getting the organisation to commit
time and resources to a project will partly depend on the benefits that
groups or individuals will get from it. The focus on cost savings and
efficiency from IT in the less successful organisations hardly encourages
that commitment, whereas in the more successful the ‘what’s in it for me’
tends to be higher due to the wider range of benefits identified.
It also partly depends on the degree to which the technology implementation,
process and organisational chains are aligned and synchronised. It’s
normally a combination of these changes that produces the most significant
benefits. The technology alone delivers very little. In most organisations,
the technology implementation is pretty thoroughly planned and controlled,
but in the less successful, little attention is paid to the other changes
compared to the more successful who often produces integrated change plans
across technology process and organisation. Perhaps the reason the less
successful don’t do it is they don’t recognise the need for business changes
to realise the benefits and on average their business cases do not recognise
the cost or resources needed to make those changes.
Finally, the evaluation and review. After implementation, the big issue is
assessing whether you achieved what you expected, if you haven’t achieved
it, why not?, can it still be obtained?, can we get the benefits?, and also
can we identify any further benefits now that we have new knowledge gained
from the project so far. And of course, we can also learn from each project
lessons that are useful on future projects.
From our survey and experience in working with organisations across all
sectors, the practice that most differentiates more successful organisations
from the others is the systematic review of the benefits achieved from the
investments, not just reviewing time, cost and quality. That’s very
important and most organisations do it. But far less review the extent of
benefit achievement.
The fact that projects will be reviewed and evaluated encourages more
realistic business cases and commitment to delivering the benefits
expressed. But doing the reviews provides opportunity to increase the
benefits realised from that particular investment and to learn lessons,
increased the value from other IT projects, either about what benefits can
be gained or how they can be delivered.
The less successful organisations can provide a list of reasons or excuses of
why benefit reviews are not carried out. But in essence, if the business
cases are not realistic the reviews will be pointless. Without the reviews,
business cases will tend to remain unrealistic. Somehow these organisations
need to break out of the loop. But will they?
In summary, in the good times when money is relatively plentiful, making the
right decisions about IT investments is important but not critical. The
failures can, at least to some extent, be afforded. Now that economic and
business conditions have worsened and organisations cannot afford failures
and need the investments they do make to have significant benefits. Those
organisations who are more successful in managing their IT investments
already know how to do this and should be able to adapt, but majority of
organisations appear either not to know how to do it or just don’t do it.
The successful organisations have essentially put in place common sense
business based and proved good practices over the whole investment life
cycle. All these practices are available to everyone, most of them have been
around for many years, but perhaps this recession will make more
organisations adopt them and reduce the risk of failure. Just by doing the
things we know reduces the risks of failure. Well let’s hope so.
John Ward, MA FCMA, is a Professor of Strategic Information Systems at
Cranfield School of Management with a special interest in the strategic uses
of IS/IT, the integration of IS/IT strategies with business strategies, the
development of organisational IS capabilities and the management of IS/IT
investments. He has published many papers in leading journalsand is
co-author of the books, Strategic Planning for Information Systems
and Benefits Management: Delivering Value from IS & IT Investments.
Ward is also a consultant to a number of major international and public
sector organisations, has a degree in Natural Sciences from Cambridge, is a
Fellow of the Chartered Institute of Management Accountants and is a
past-President of the UK Academy for Information Systems.
www.som.cranfield.ac.uk
