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BRU-AAA123-20100305-
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BRU-AAA123-20100305-
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BRU-AAA123-20100305-
Todays presentation
2
Mastering technology
and content
1
Managing strategy
and stakeholders
4
Excelling in core
project management
practices
| 3
BRU-AAA123-20100305-
Todays presentation
2
Mastering technology
and content
1
Managing strategy
and stakeholders
4
Excelling in core
project management
practices
| 4
BRU-AAA123-20100305-
Lord Chancellors
Department
Courts Computer
System
167m USD
Design finished in
2001 differences
in development
software
More than 12
months delay to
market; 26% drop
in share price
Resignation of
Nol Forgeard
After failing a
$1.4bn IT
modernisation
Kmart started a
$500mio SCM
project
The combination of
two failed projects
forced Kmart into
bankruptcy
37,000% cost
overrun,
IT system only
160% over budget
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BRU-AAA123-20100305-
Trajan's response
Steps must be taken to provide
Nicomedia with a water supply,
and I am sure you will apply
yourself to the task in the right
way.
But for goodness sake apply
yourself no less to finding out
whose fault it is that Nicomedia
has wasted so much money up to
date.
It may be that people have
profited by this starting and
abandoning of aqueducts.
Let me know the result of your
enquiry.
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BRU-AAA123-20100305-
Is this anecdotal
evidence representative for IT projects?
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BRU-AAA123-20100305-
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BRU-AAA123-20100305-
Location
Sector
Project type
Private
Sector
Rest
2
Europe
35
40
65
US
Public
Sector
System type
Other
IT ArchiIntegration Office
tecture
Administration
Project
Information
IT InfraTransaction
Stanstructure
9 12
Customer
9 12
ERP
dard
2
8
7
facing
1
4
SW
28
20 Other
72
Custom
development
25
MIS
10
5
0.01
0.10
10
100
1,000 10,000
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BRU-AAA123-20100305-
II
VI
VII
What is the value of benefits management?
McKinsey & Company
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BRU-AAA123-20100305-
Engineering
projects are less
risky than ICT by
a magnitude
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BRU-AAA123-20100305-
Thin-tailed distribution
Infrastructure projects
IT projects
Frequency
Percent
50
45
40
35
30
25
20
15
10
5
0
-100
-50
0
27%
50
100
150
200
250
300
Cost Overrun
Percent
1 Thin tails: not more than .7% projects are outliers outside these bounds
McKinsey & Company
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BRU-AAA123-20100305-
Outliers
cost overrun
Projects with
cost overrun
All projects
Cost
overrun
+197
+70
+27
Schedule
overrun
+68
+60
+55
Benefits
shortfall
-1
+49
Even if the average cost overrun is low, risk of cost overruns is high
Black Swans mean very high cost and schedule risks
And all the projects with a downside risk show significant risk
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BRU-AAA123-20100305-
The calculus
The impact
5 months delay wipe out annual profit
8 months delay wipes out all profits
In the worst case (10% margin) 2 months
eat up all profits
55% schedule risk = 18 + 10 months
Schedule risk requires vendors
to respond, e.g., cutting costs
McKinsey & Company
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BRU-AAA123-20100305-
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BRU-AAA123-20100305-
Private sector
Public sector
25
20
15
10
5
0
-100
-50
50
100
150
200
250
300
350
400
450
500
Schedule escalation
Frequency (%)
2.0
1.5
1.0
0.5
0
-100
-50
50
100
150
200
250
300
350
400
450
500
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BRU-AAA123-20100305-
Don't do bespoke
software use tame
technology, ideally
COTS (commercialoff-the-shelf)!
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BRU-AAA123-20100305-
Project type
Average
cost overrun
Standard Software
42%
Custom Development
Average
schedule overrun
26%
32%
IT Architecture
19%
45%
26%
0%
20%
IT Infrastructure
2%
18%
27%
75%
71%
Integration Project
Average
Average bene-fits
shortfall
43%
5%
50% ()
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BRU-AAA123-20100305-
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BRU-AAA123-20100305-
ICT average
ICT projects
600
500
400
300
200
100
0
-100
0
250
500
750
13,750
Project Budget
EUR millions
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BRU-AAA123-20100305-
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BRU-AAA123-20100305-
The longer the project, the higher the expected cost overrun
ICT average
ICT projects
Cost overrun
Percent of initial budget
600
500
400
300
200
100
0
0
-100
12
24
36
48
60
72
84
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BRU-AAA123-20100305-
L
Actual size
Cost Black
Swans
Duration
Cost Black
Swans
XL
XXL
10-30
million
30-350
million
>350
million
20%
29%
11%
1-2 years
2-3 years
4+ years
6%
31%
27%
Highest risk =
stuck in the middle
Short is better
than small
Expensive better
than long
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BRU-AAA123-20100305-
L
Planned size
Cost Black
Swans
Duration
Cost Black
Swans
XL
5-20
million
XXL
20-200
million
>200
million
9%
14%
13%
1-2 years
2-3 years
4+ years
12%
28%
41%
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BRU-AAA123-20100305-
More experienced
project managers are
a key to successfully
managing risks
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BRU-AAA123-20100305-
Initial hypothesis:
the more work
experience, the
better the project
performance
Work experience
<10
10-14
15+
Cost overrun
1%
16%
32%
Schedule
overrun
2%
15%
61%
Mind over
machine
Young brains
new methods
However, we find a
struggle between
"Master builder"
and "Fire fighter"
Benefits
shortfall
Black Swan
events
-49%
0%
0%
19%
size (m)
0.9
4.3
141
duration
(months)
11
32
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BRU-AAA123-20100305-
Initial hypothesis:
the more work
experience, the
better the project
performance
Work experience
<10
10-14
15+
Cost overrun
28%
40%
23%
Schedule
overrun
4%
18%
63%
Mind over
machine
Young brains
new methods
However, we find a
struggle between
"Master builder"
and "Fire fighter"
Benefits
shortfall
Black Swan
events
-48%
8%
7%
17%
size (m)
0.9
4.3
141
duration
(months)
11
32
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BRU-AAA123-20100305-
Lack of benefits
management is the
single most important
deficiency in ICT
project performance
management
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BRU-AAA123-20100305-
Cost overrun
Benefits not
measured
85%
Benefits
measured
15%
Schedule overrun
32%
-7%
Black Swans
36%
17%
122%
7%
Cost-benefit-based performance
management seems to motivate
managers to trade off schedule for
cost/benefits
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BRU-AAA123-20100305-
II
The challenge is
black swans, more
than it is average
overruns
VI
VII
IV Should we be afraid
of big projects?
Should we be afraid
of long projects?
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BRU-AAA123-20100305-
Todays presentation
2
Mastering technology
and content
1
Managing strategy
and stakeholders
4
Excelling in core
project management
practices
| 31
BRU-AAA123-20100305-
+90%
90
"Content issues"
Shifting requirements
Technical complexity
"Skill issues"
Unaligned team
Lack of skills
1
21
+44%
-67%
2
23
3
11
"Execution issues"
Unrealistic schedule
No active project
planning
4
16
18
Unexplained
cause
1 Cost increase over regular cost
SOURCE: McKinsey Oxford Reference Class Forecasting for IT Projects Study
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BRU-AAA123-20100305-
leading to a
"Value Assurance" framework
organized in 4 building blocks
Delivering
value
Mastering
content
Building
team &
capabilities
Excelling in
project delivery
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BRU-AAA123-20100305-
Delivering
1 value
Mastering
2
content
Building
team &
3 capabilities
Excelling
4 in project
delivery
Unspecified goals
Scope grows over time
Unclear business case
IT-driven project
IT goals ("output")
Project creates new legacy system
1000-pages+ design documents
Ivory-tower solutions
Technical migration
Traditionally
neglected
To (holistic approach)
Risks managed
Focus on value delivery
Progress and critical path transparent
Issues identified early, problems solved fast
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BRU-AAA123-20100305-
Examples follow
Key capabilities
negotiation)
Mastering
content 1
4
Excelling in
project delivery
Address cultural
3 aspects through
"softer tools"
IT architecture, infrastructure1
Functionality design/optimization1
Quality assurance1
Migration and roll-out strategy (technology,
organization)1
Project scoping/scope control1
1 Content may depend slightly on project subject (e.g., ERP, Core system replacement, O&O, PMM)
McKinsey & Company
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BRU-AAA123-20100305-
Categories
Missing/insufficient strategic
alignment?
Minimize project
risks
Unproven
technology?
Insufficient
capabilities?
Non-robust
project mgmt
practices?
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BRU-AAA123-20100305-
Unproven
technology?
Insufficient
capabilities?
... the underlying technology is not "bleeding edge", but has been proven in
comparable references
frontline users are continuously involved
the project manager has done it before
everyone in the leadership team has a clear leadership role
there are not only green lights in the status reports, but they show a "healthy
level of pain"
every approach, every tool has been used before
McKinsey & Company
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BRU-AAA123-20100305-
NOT EXHAUSTIVE
Across Industries
Total Project Spend
($ MM)
Number of Companies
300-400
400-500
500-600
12
600-700
15
12
352
451
540
647
~80%
Average time to
completion (Months)
44
~80%
80-90
Performance
of IT
Mega projects80-90
(2/2)
Healthcare
56
49
33
(1.4)
(3.5)
Average Overrun
(0.9)
25
(1.8)
75th percentile
200
200
60
Development type
Supply Chain
management
Operations
Management e.g. call
center, work force
management etc
(1.8)
Minimum
(0.9)
Average
26
72
US
US
3.7
US, Germany
N=20
Maximum
~470
48
25
270
.76
5.0
US
5.7
.17
6.8
Cost over runs are measured from the point when the project got Green light for execution
Examples of Projects
* Back calculated using spend on services, assuming average rate of $80 per hour
Geographies
represented
US
Cost over runs are measured from the point when the project got Green light for execution
Question
Printed
Geographies
(1.8)
NOT EXHAUSTIVE
25th percentile
11
Number of Projects
Printed
* Back calculated using spend on services, assuming average rate of $80 per hour
Project stopped
at green-light
decision
Rightsizing of
project together
with McKinsey
team started
Aligning
duration and
cost of the
project with risks
of HCMS
projects
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BRU-AAA123-20100305-
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