Success Probability for IT Projects - Why, What, and How
Over 31% of IT projects are canceled or abandoned after development, and over 51% run over cost, over time, and/or lack promised functionality, resulting in loss of billions of dollars in direct costs every year. In addition to direct costs, indirect costs of a failure, such as lost opportunities, diminished employee morale, eroded customer confidence, and brand dilution, can undermine an organization’s long-term viability and competitiveness. On the other hand, successful IT projects allow businesses to gain strategic advantage in a rapidly evolving digital landscape and customer preferences.
It is thus imperative that organizations do everything possible to improve the odds of success of IT projects. To further emphasize the outsize role that Project Success probability plays in determining the net benefit of a project, we define Net Benefit of a project as follows:
Net Project Benefit = Expected Benefit – Expected Indirect Costs – Direct development costs
Wherein,
Expected Benefit = Quantified benefits accrued from the project if the project succeeds x Project Success Probability
Expected Indirect Costs = Total Indirect Costs or Project Impact if the project fails x Project Failure Probability
At a bare minimum net project benefit for any project should be positive. While the quantified project benefit in case of project success and the quantified indirect cost/impact in case of project failure are important to estimate to determine a project’s viability and to determine whether to greenlight a project or not, once a project is approved to go forward, only parameter that can be controlled by the project execution team is the Project Success Probability and the focus should be to maximize it.
Let’s illustrate with an example:
Example – CRM implementation at a Medium size business
For this case, the total benefit accrued from the project was calculated to be about $2,100,000 over a period of two years. This was based on expected cost savings, benefits associated with increased customer engagement, and higher lead closure rates.
As for indirect costs, since the project failure in this case would mean status quo, and while there may be some impact due to decreased employee morale and possible disruptions, for purposes of this example we will conservatively assume these costs to be zero.
Consider two scenarios for execution of this project:
Scenario 1
Average Team Experience – 10 years
Project timeline – 8 months with expanded 2 month blueprinting and planning phase
Development cost – $650,000
In this case the Project Success Probability (from SQ platform) = 0.8
For these numbers, using above equations we get Expected Benefit = 0.8 x $2,100,000 = $1,680,000 ; Expected indirect cast = 0
Putting all together,
Net Project Benefit = $1,680,000 – 0 – $650,000 = $1,030,000
Scenario 2
Average Team Experience – 5 years
Project timeline – 9 months with 2 month blueprinting and planning phase
Development cost – $450,000
In this case the Project Success Probability (from SQ platform) = 0.65
For these numbers, using above equations we get Expected Benefit = 0.65 x $2,100,000 = $1,365,000 ; Expected indirect cost = 0
Putting all together,
Net Project Benefit = $1,365,000 – 0 – $450,000 = $915,000
So we see that in Scenario 1 even though the direct development costs are almost 45% more compared to Scenario 2, the Net Project Benefit is still higher by $115,000. This is because of higher Project Success Probability due to more experienced team in Scenario 1.
Project Success Probability
The success probability of an IT project depends upon a number of factors, such as:
- Type of Project: Different IT projects, think web development, ERP, CRM, or say Digital Transformation, come with different challenges and requirements. ERP projects often involve integrating multiple business processes and systems, which can be complex and risk-prone and thus have low success probability, whereas web development projects may be relatively simpler to execute and may have higher success probability.
- Size of the Project: The scope and scale of a project significantly impacts its success probability. Larger projects tend to have more moving parts, longer timelines, and greater resource demands, increasing the complexity and potential for issues. Smaller projects, while may still face issues, in general are more manageable and generally have a reasonable success rate.
- Experience of the Team: The skills, expertise, and experience of the team executing the project are critical factors. Teams with a proven track record in similar projects are more likely to anticipate and mitigate risks, adhere to best practices, and deliver successful outcomes.
- Previous Track Record: The historical performance of both the team and the business in implementing similar projects can provide valuable insights. Past successes or failures can indicate the likelihood of encountering similar challenges and the team’s ability to overcome them.
- Stakeholder Engagement: Active involvement, clear communication, and alignment of expectations with stakeholders, including clients, end-users, and management, ensure that the project meets its objectives and gains necessary support.
- Technology Stack: The choice of technology stack influences the project’s feasibility and success. Familiarity with the chosen technologies, compatibility with existing systems, and the availability of skilled resources to work with those technologies are important considerations.
- Resource Availability: Adequate allocation of resources, including time, budget, and personnel, is essential for project success. Projects are more likely to succeed when resources are properly managed and aligned with project needs.
- Risk Management: Identifying, assessing, and mitigating risks throughout the project lifecycle is a key component of success. Effective risk management strategies help address potential issues before they become critical problems.
- Project Management Practices: The methodologies and tools used for project management, such as Agile, Scrum, or Waterfall, can significantly impact the project’s success. Adopting appropriate project management practices ensures structured execution, timely delivery, and quality outcomes.
Direct Development Costs
The direct development costs of an IT project include expenses related to software development, hardware procurement, infrastructure setup, and staffing. These costs are relatively straightforward to quantify and include salaries for developers, project managers, testers, and other personnel, along with expenditures on technology and tools necessary for development.
The Hidden Costs of Failure
When an IT project fails, the repercussions extend far beyond the initial development expenditure. Understanding these hidden costs is vital for a comprehensive assessment of project viability as well as deciding on strategies for project execution.
In a competitive business environment, the delay or abandonment of an IT project can mean losing market opportunities, falling behind competitors, or missing out on potential revenue streams. For instance, if a project intended to enhance e-commerce capabilities fails, the company might lose the chance to capture additional market share or increase sales, leading to substantial opportunity costs.
Employee morale is a critical, yet intangible, factor affected by project failures. When projects fail, employees who invested time and effort may feel demotivated and disengaged. This can lead to decreased productivity, higher turnover rates, and increased recruitment and training costs. The psychological impact of repeated failures can create a culture of uncertainty and apprehension, which can stymie innovation and risk-taking.
Customer confidence is paramount for any business, and IT project failures can severely undermine it. A failed project aimed at improving customer service or a digital platform can lead to customer dissatisfaction and churn. Restoring customer trust after a failure can be a long and costly process, often involving significant investments in marketing, customer outreach, and service improvements to rebuild the brand’s reputation.
Brand dilution occurs when the perceived value and credibility of a brand diminish due to consistent failures. Brand reputation is closely tied to reliability and innovation. Persistent project failures can tarnish a company’s image, making it difficult to attract new customers or retain existing ones. The long-term financial implications of brand dilution can be severe, affecting stock prices, market positioning, and overall competitiveness.
Quantifying the Intangible Costs
While it might be challenging to quantify intangible costs precisely, serious efforts should be made to estimate them to provide a more accurate picture of the total cost of failure. Various methods, such as scenario analysis, expert judgment, and historical data analysis, can help in this endeavor.
Scenario analysis involves creating different hypothetical situations to evaluate potential outcomes and their associated costs. For example, companies can model scenarios where a project succeeds versus fails and assess the financial impact on opportunity costs, customer confidence, and brand value.
Consulting experts with experience in IT project management and failure analysis can provide valuable insights into estimating intangible costs. These experts can draw on their knowledge and past experiences to offer realistic cost projections and risk assessments.
Analyzing past project outcomes and their impacts can help in estimating intangible costs. By examining previous project failures and their repercussions on employee morale, customer confidence, and brand perception, organizations can develop more accurate cost estimates for future projects.
Enhancing Project Success Rates
Given the value that IT projects are expected to provide, organizations must prioritize improving project success rates. Enhancing success rates not only reduces the likelihood of incurring hidden costs but also maximizes the net benefits of IT projects.
In the context of enhancing project success rates, the role of individuals with significant experience and expertise cannot be overstated. Experienced people bring a deep understanding of industry best practices, common pitfalls, and innovative solutions that can greatly enhance project outcomes. Their seasoned judgment and decision-making abilities help navigate complex challenges and ensure the project remains on track. Experienced team members often serve as mentors, transferring crucial knowledge and skills to less experienced colleagues, thereby elevating the overall competency of the team, and thus the probability of success of the project.
Conducting a comprehensive analysis at the project’s outset helps in identifying potential risks, defining clear objectives, and understanding stakeholder requirements. This initial phase is critical for setting a realistic and achievable roadmap. Upfront detailing and planning minimizes the likelihood of scope creep, miscommunication, and unexpected obstacles, and creates a solid foundation for the project, leading to smoother execution, better risk management, and ultimately, higher success rates.
Implementing robust project management practices is crucial for improving success rates. This includes thorough planning, clear goal setting, effective communication, and regular progress monitoring. While leveraging agile methodologies and iterative development can help in addressing issues early and ensuring project alignment with business objectives for smaller to medium size projects, for larger projects, a hybrid development should be considered.
For large projects, one effective risk management strategy is to break the project into smaller, manageable sub-projects. This approach allows for more focused planning, better resource allocation, and easier identification of potential issues at an early stage. Smaller sub-projects can be completed in shorter timeframes, providing frequent opportunities for assessment and adjustment. Such an approach also considerably reduces single points of failures for the project.
Engaging stakeholders throughout the project lifecycle ensures that their needs and expectations are understood and addressed. Regular communication and feedback loops with stakeholders can help in making informed decisions and avoiding misunderstandings that could lead to project derailment, or worse, defunding.
Investing in training and development for project teams enhances their skills and capabilities, increasing the likelihood of successful project execution. Providing ongoing education and professional development opportunities keeps teams updated with the latest tools, technologies, and best practices.
Conclusion
Project success probability has an outsize affect on net benefit of a project, so all efforts should be made to improve it – by having people with right experience and expertise, doing proper upfront analysis, keeping stakeholders engaged, having robust project management and development processes, eliminating single points of failure, and investing in training and development. By making a concerted effort to quantify the intangible costs and focusing on improving project success rates, organizations can significantly enhance their net benefits and overall project outcomes.
1 Catalik is developing such an AI platform called SQ (Success Quotient) that provides the success probability of any IT project through its complete lifecycle – from conception to deployment. The platform considers the factors mentioned in this article and uses project data from its member companies as well as available data from other sources.