Why Your IT Project May Be Riskier than You Think

TLDR

Out‑of‑control IT projects have toppled top managers, collapsed companies, and now are integral to business, yet CEOs often overlook their substantial risks. The article proposes strategies to prevent Black Swan IT projects. Analysis of 1,471 projects shows a 27 % average cost overrun, but one in six are Black Swans with roughly 200 % cost and 70 % schedule overruns, underscoring the disproportionate risk.

Abstract

Out-of-control information technology (IT) projects have ended the careers of top managers, such as EADS CEO Noël Forgeard and Levi Strauss' CIO David Bergen. Moreover, IT projects have brought down whole companies, like Kmart in the US and Auto Windscreen in the UK. Software and other IT is now such an integral part of most business processes and products that CEOs must know their IT risks, which are typically substantial – and overlooked. The analysis of a sample of 1,471 IT projects showed that the average cost overrun was 27% — but that figure masks a far more alarming "fat tail" risk. Fully one in six of the projects in the sample was a Black Swan, with a cost overrun of 200%, on average, and a schedule overrun of almost 70%. This highlights the true pitfall of IT change initiatives: It's not that they're particularly prone to high cost overruns on average – it is that there are a disproportionate number of Black Swans. By focusing on averages instead of the more damaging outliers, most managers and consultants have been missing the real risk in doing IT. In conclusion, the article outlines ideas as to what can be done to avoid Black Swans.Selected by HBR as featured lead article for the "Ideas Watch" section, presenting the most important new ideas in business and management.