Big businesses are collapsing because of failed IT projects, according to research.
IT projects spinning out of control in the public and private sector are ending the careers of senior executives and causing entire businesses to collapse.
According to research from Oxford University, IT projects are 20 times more likely times more likely to run out of control than other business projects. One in six IT projects run out of control with average cost overruns of 200%, the research found.
Researchers anticipate more large companies failing as a result of out-of-control IT projects.
The research, from the Said Business School, found there had been an increasing trend for IT projects to run out of control in recent years. This is the result of larger, more complex projects, said the researchers.
A lack of understanding of the unpredictability of these projects - described as "black swan projects" - is the problem. "These run-away tech projects are due to managers focusing on average performance [of previous IT projects] instead of variability," said the researchers. This is causing large cost overruns and delays.
The research analysed 1,500 global projects worth $245bn. These projects had an average cost of $170m.
The fact that businesses and government think they are in control when they are not, is costing them dearly, said the report.
"Rotten-egg IT projects have brought down well-known brands such as Kmart and the UK's second largest car glass company, Autowindscreens," said the researchers. "These companies spun out of control and collapsed while trying to implement large IT projects. Whole corporations such as Airbus, Levi-Strauss, TollCollect, and Hershey's have been on the brink of collapse because of out-of-control IT." Government agencies face similar problems, the Oxford researchers found.
Bent Flyvbjerg, principal investigator, said: "We were shocked when the data came in and we learned that large IT projects are twenty times more likely than normal projects to spin out of control. IT projects are now so big and touch so many aspects of business, government and citizens' lives, that this poses a singular new challenge for top management."
"I would not be surprised if a large, established company fails in the coming years because of an out-of-control IT project. In fact, our data suggest that one or more will", said Bent Flyvbjerg.
The public sector is littered with examples of out of control IT projects.
A study from the European Services Strategy Unit, completed in 2007, reported on 105 government ICT projects which cost more than they should, overran or were terminated. Or even all three.
The 105 projects were valued at £29.5bn and cost almost £9bn more than expected.
A total of 60 programmes had cost overruns and on average cost about 30% more than they should have, 35 contracts were delayed and 31 cancelled. (see table below for examples).
The private sector and the suppliers that often carry out large projects are not immune. In 2009 BT Global Services lost £1.2bn due to cost overruns on big contracts with the NHS and Reuters.
|Five out-of-control public sector IT projects.|
|1 £3.04bn - Defence Information Infrastructure for new IT at defence locations around the world (March 2005), signed with Atlas consortium led by EDS. Cost now estimated to be £5bn and major problems at first site near Bristol. 16,000 terminals installed by October 2007 but missed target of 70,000 by mid 2007.|
|2 £2.77bn - Skynet 5, Satellite Communications Services cost increase to £3.66bn by spring 2007 (+32%).|
|3 £237m - Joint Personnel Administration, cost increase to £257m (+8%) as a result of delay in roll-out to Royal Navy and British Army|
|4 £2.4bn - Bowman Combat Infrastructure Platform to replace the Clansman radio network, signed with General Dynamics. Project recast to include an additional £121m, £51m write-off, £24m training cost plus £204m over 25 years. Projects delays.|
|5 £2.57bn - Renegotiated submarine contract in 2003 increasing cost by £1bn - delays and failure of computer aided design. Contract with BAE Systems.|
|Source: Cost overruns, delays and terminations: 105 outsourced public sector ICT projects by the European Services Strategy Unit|