July 2009 Archives

Speaking at this week's ISACA International Conference in LA on the subject of value management, I was surprised and somewhat heartened by the relative maturity of the audience in terms of both knowledge of, and interest in, the topic. We were able to have a constructive debate on best practices in optimising enterprise value from IT investment. One specific topic that came up was project cancellations - or rather the lack of them. Most agreed that cancellations were rare, that even the most challenged of projects often continued to limp along, consuming resources and cash, and that governance processes needed significant improvement if continued value destruction was to be avoided. Within many enterprises this requires a cultural shift from cancellations being seen as a sign of failure to them being seen as the exercising of good governance and strong management.

There are many reasons for cancelling or rationalising projects, many beyond the direct control of the enterprise. Research carried out a couple of years ago on behalf of ISACA identified that from a database of more than 3,000 real life discretionary projects from a representative sample of financial services firms, only around 2% were cancelled, despite clear evidence of value destruction in more than 20% of the sample. Of course cancelling projects is never easy, for a variety of good reasons, and robust, reliable data is needed to ensure that the decision is made safely. This is where active portfolio management can help with regular reporting of key value related metrics and the continuing update of the assumptions upon which the original decision to proceed was made. This requires the business cases to become living documents and the project managers to become increasingly oriented towards value, rather than just solutions, delivery.

With all of the statistics still telling us that more than 20% of discretionary projects fail to deliver value, if cancellations are a rare event in your enterprise perhaps it is time to look again at your portfolio management practices. My experience in LA indicated to me that this is beginning to happen more regularly in North America and this has to be a good sign. But in the UK.............?    

In the presentations that I deliver around the world on IT governance and value a recurring theme is the role of the project management office and the project managers in the delivery of value to the enterprise from IT related business investments. My experience is that within most enterprises the focus of the project management team is on the delivery of a technical solution on time, on budget and with an appropriate level of functionality. Whilst agreeing that these are laudable aims, meeting them does not in itself guarantee or prove delivery of value. Therefore I have long put forward the view that PMOs should be relabelled and re-focused as Value Management Offices (VMOs) in recognition of the fact that solution delivery is not the endgame. It is merely the first essential step in ensuring that the investment made results in the delivery of the appropriate return over time. Most enterprises find it (relatively) easy to predict solutions delivery costs (notwithstanding the fact that many enterprises still continue to get even this wrong) but most continue to grapple with the quantification of future benefits. Therefore few enterprises have reached any significant level of maturity in this area. As a result business cases all too often are flawed and unsafe with the result that investments too often are approved without any reliable data on investment return. An inability to identify expected benefits (and therefore value) will make it near on impossible to quantify over time the actual benefits that do accrue. Has the investment resulted in true value creation or in value destruction? Most enterprises can only guess at the answer.

Therefore the transition from a PMO to a VMO will help over time to build skills and experience way beyond the traditional focus of current project management practices. This can only benefit the development of the project management (value management?) profession and the enterprises that they serve. The CIO and his/her business colleagues should grasp this opportunity as a key IT governance objective.

I note that the Standish Group has released the results of its latest CHAOS report (http://www.standishgroup.com/newsroom/chaos_2009.php ). The Boston, Mass.-based IT project management research and consulting firm surveyed 400 organizations and found a decrease in IT project success rates and an increase in IT project failure rates since it last released its findings in 2006. Specifically, 32 percent of IT projects were considered successful, having been completed on time, on budget and with the required features and functions. Nearly one-in-four (24 percent) of IT projects were considered failures, having been cancelled before they were completed, or having been delivered but never used. The rest (44 percent) were considered challenged in that they were finished late, over budget, or with fewer than the required features and functions. Although I have yet to have sight of the detailed report there were two immediate observations that occurred to me. Firstly I have an issue with the success criteria. To me it seems as if the Standish definition of success is being based primarily (and perhaps solely?) on the delivery of a satisfactory technical solution rather than on the delivery of quantifiable benefits and value over time resulting in value creation. If successful solution delivery is the prime criteria, and if value delivery has been ignored, then the probability is that the reported 32% success rate is itself a significant over-estimate of the reality. My second immediate observation is that the increase in project cancellations may perhaps at last signal an improvement in governance. Challenged projects may have been identified and cancelled at an earlier stage than has previously been the case and consequently further waste and value destruction has been avoided. This would indeed be good governance and not, at least in itself, a sign of poor management or poor investment selection. It is probable that the current recession may have also contributed to the greater number of cancellations but initial reactions to surveys such as this, which tend to veer towards the negative, may actually indicate that in some respects things may be improving.