Wednesday, September 25, 2013
It Has Been A Big Week For News On Major Project Failures. Lots Of Lessons Still Not Learnt.
In Australia we have had an excellent review of the mess the deeply underperforming NBN has become.
September 21, 2013
David Ramli and James Hutchinson
The National Broadband Network Company was to be the Labor government’s crowning achievement in the vein of Medicare and the Snowy River Dam Project.
Where high speed broadband was traditionally restricted to corporate networks and international links, Labor would connect it to 93 per cent of homes and businesses, from the sandstone manors of Bellevue Hill to the valleys of Tasmania and everywhere in between.
But four years on the reality is murkier. Its founding chief executive has been pushed out the back door while the entire telecommunications industry is despondent.
The current chairman Siobhan McKenna – despite attempts to confront the company’s mismanagement – has been earmarked for replacement.
And Telstra, the one company NBN Co sought to sideline in its efforts to rewire Australia, has found itself with the whiphand; poised to get the very contracts it was denied.
How did things go so wrong and who is to blame?
According to those who claim to know , many of the problems can be traced to a single shock decision in 2011.
After a year of hard-fought negotiations between Australia’s 14 biggest construction firms the tender to build the national broadband number for $12-14 billion had been thrown out the window amid claims of mass price-gouging.
“We weren’t going to get to a fair price, and the only way to achieve that was to sit down opposite a credible company and work through the detail,” NBN Co head of corporate services Kevin Brown said later.
To the bidders involved, it sounded like a gut-churning April Fools’ joke. The decision to cancel tenders, approved by NBN Co’s inaugural chief executive Mike Quigley, led to the immediate departure of Patrick Flannigan, NBN Co’s first head of construction, just days after the announcement.
“It was obviously a shot across the bows and showed they were very determined to get the best value for money,” says Graeme Sumners, a former managing director of telecommunications services firm, Service Stream. It was one of the main companies responsible for building the NBN. Together with Lend Lease it formed a 50-50 joint venture named Syntheo that won contracts worth up to $315 million.
NBN Co eventually sat down with a select group of contractors and began to squeeze every cent of discount from the players at the table. Eventually four companies agreed to final contracts worth $1.1 billion.
Lots more of the gruesome facts here.
And in the UK we have had a damning report on the UK Health IT Program.
By Henry Mance
There are several ways the US Air Force could have wasted $1.1bn. It could have poured tomato ketchup into 250m gallons of jet fuel or bought a sizeable stake in Bear Stearns.
Instead it upgraded its IT systems. Work began in 2007 to reconfigure how the force managed its logistics, with the aim of replacing 200 dated networks with a single piece of Oracle software. By the time the project was abandoned last November, it was at least four years behind schedule and would have required an additional $1.1bn to become usable.
Yet in making such mistakes, the Air Force is not flying solo.
This week a UK parliamentary watchdog described a failed National Health Service patient IT programme – the cost of which has spiralled to £9.8bn – as “one of the worst and most expensive contracting fiascos in the history of the public sector”. Earlier this month the Department for Work and Pensions admitted that it had written off £34m of IT costs, incurred in an attempt to overhaul how social security benefits are paid. A week earlier Co-operative Bank said it had written off the £148m cost of a new IT system that would no longer be implemented.
“It is quite scary,” says Ralf Dreischmeier, the global head of Boston Consulting Group’s IT practice. “From my experience, 20 per cent of projects fail, and 40-50 per cent have a cost overrun, time overrun or don’t meet requirements. Only a third could be described as good projects.”
Why are companies and governments still suffering such embarrassing failures?
In a 2011 study, Bent Flyvbjerg and Alexander Budzier at Oxford university’s Saïd Business School examined 1,471 IT projects against their forecast costs and overruns. They found that the projects exceeded their budgets by an average of one-quarter.
“Over the past decade there have been no improvements even though a lot of things have been tried,” says Mr Budzier. The researchers posited that planners consistently underestimated the costs and overestimated the benefits of IT projects. They also failed to appreciate the “black swan” scenario – that is, the chance that something will go really wrong.
Citing Nicholas Nassim Taleb, author of the book The Black Swan, the researchers argue that “the high over-incidence of black swans underlines that ICT projects are a very important source of uncertainty in an organisation”. In one in six projects examined by Prof Flyvbjerg and Mr Budzier, the cost was at least triple what had been estimated. When Hershey’s, the chocolate maker, implemented a new ordering system, it ended up missing out on a whole Halloween of sweet sales, worth $100m.
Make realistic estimates
“People always underestimate the cost of software development. Suppliers always push their prices,” says John Fotheringham, a partner at Deloitte.
Keep it short
Longer projects tend to see a higher turnover of personnel and a greater likelihood of a change in objectives. “A reasonable recommendation would be to try to complete a project within 18 months,” says Alexander Budzier of Oxford university’s Saïd Business School. The state of South Australia recently proposed only commissioning IT projects lasting less than 90 days. Yet Mr Budzier adds that there is no statistical correlation between the value of an IT project and its success.
Everyone loves ‘agile’
Up to four-fifths of new IT projects are now implemented using agile methods, whereby pieces of the project are implemented quickly then improved if necessary. This can, however, require more active management.
Your project is not different
“If the project manager thinks this is a unique project, then it’s going to explode,” says Mr Budzier. “And there’s a clear reason – they don’t benchmark themselves.”
Although much criticism has been directed at civil servants, IT overruns are present in both the private and public sector.
“The private sector is just much better at hiding these things,” says Mr Budzier. He points out that large blue-chip companies continue to operate failing IT systems because they are unwilling to write down the expense.
Lots more here:
Both there long articles are well worth a careful read. There are lessons here - as usual - that we all need to be reminded of regularly.
I loved the comment regarding the private sector being better as hiding things!
Posted by Dr David G More MB PhD at Wednesday, September 25, 2013