66% of Enterprise Software Projects Have Cost Overruns

Interestingly, a study conducted by McKinsey found that 66% of enterprise software projects have cost overruns. A third of them go beyond the estimated schedule, and almost 20% of them fall short of promised benefits.

And as the McKinsey study noted:

As staggering as these findings are, most companies survive the pain of cost and schedule overruns. However, 17% of IT projects go so bad that they can threaten the very existence of the company.

It was a rather large study done in collaboration with the University of Oxford and the total sum of cost overruns is immense.

These findings consistent across industries emerged from research recently conducted on more than 5,400 IT projects by McKinsey and the BT Centre for Major Programme Management at the University of Oxford. After comparing budgets, schedules, and predicted performance benefits with the actual costs and results, we found that these IT projects, in total, had a cost overrun of $66 billion, more than the GDP of Luxembourg. We also found that the longer a project is scheduled to last, the more likely it is that it will run over time and budget, with every additional year spent on the project increasing cost overruns by 15 percent.

They suggest 4 dimensions that are important:

• focusing on managing strategy and stakeholders instead of exclusively concentrating on project budget and scheduling
• mastering technology and project content by securing critical internal and external talent
• building effective teams by aligning their incentives with the overall goals of projects
• excelling at core project-management practices, such as short delivery cycles and rigorous quality checks

All are important and valid aspects and the main things that we at Forecast.it believe is really important is creating a set corporate structure for ensuring that historic company data is used to estimate the size of the project. Furthermore, ensuring that it is mandated that teams break down all activities so that they require fewer than X hours to complete (we usually recommend that the activity uncertainty be no more than 5%). In addition to this, locking down the scope or the amount of money they are willing to spend and get all the relevant stakeholders to approve the project before commencing to avoid the "unknown" cost/scope creep issue.