By Jenner, Stephen
Financial Management (UK)
Organisations invest in IT projects in order to save costs, increase revenues, improve performance or achieve regulatory compliance, yet all too often they fail to deliver such benefits. The UK parliamentary committee of public accounts concluded in 1999 that "for more than two decades, implementing IT systems successfully has proved difficult ... has resulted in delay, confusion and inconvenience to the citizen and, in many cases, poor value for money to the taxpayer."
Research indicates that the situation has not improved significantly since then and that the problem is not restricted to UK organisations. For example, KPMG's 2005 global IT project management survey report concluded that the success of projects seemed to "equate to achieving an acceptable level of failure or minimising lost benefits".
There's a growing recognition that this problem can be solved with an approach that combines portfolio management techniques with more effective methods of benefits realisation that embed responsibility within the business, rather than the project. The approach developed by my organisation, Criminal Justice Information Technology (CJIT), to manage the UK criminal justice system IT portfolio has drawn extensively from best practice both nationally and abroad. Its key aspects can be applied to major investments beyond our particular field.
It's crucial that projects are appraised on a level playing field against agreed criteria. A first step, therefore, is to agree investment principles against which all funding bids can be appraised. Our investment principles include the following:
* Projects should not be started if their achievability and attractiveness ratings do not meet minimum levels derived from empirical research and the required minimum economic rates of return. The principles of achievability and attractiveness reflect an application of the concepts of risk and return that underpin portfolio theory. A project's attractiveness refers to the contribution it will make to strategic objectives; its net present value; and the quality of the benefits. Its achievability refers to the degree of innovation and complexity involved; whether there's enough capacity to deliver it; the adequacy of risk assessment and contingency planning; and the level of stakeholder commitment.
* Claimed benefits need to be validated with the recipients.
* The continuation of funding depends on the project's performance in realising the planned benefits and meeting its schedule, which is monitored regularly.
Empirical studies by HM Treasury suggest that there is a "demonstrated, systemic tendency for project appraisers to be overly optimistic. This is a worldwide phenomenon that affects both the private and public sectors. Appraisers tend to overstate benefits and underestimate timings and costs."
It's essential, therefore, that such claims are scrutinised. CJIT has set up an independent internal portfolio unit to evaluate business cases for projects against the investment principles. This process uses an appraisal tool called the Proving Model. The model emerged from a two-year study by Cranfield University into the causes of project failure, which concluded that on most occasions crucial flaws were obvious before the projects were authorised--ie, that failing projects tend not to have brilliant business cases. The result of this investment appraisal is a short report. This ensures that, rather than having to wade through 100-page business cases, governance bodies instead receive a summary of the salient facts--eg, the project's cost, its claimed benefits, its contribution to strategic priorities and the degree of confidence in the forecast costs and benefits.
Investment appraisals must evaluate not only projects' NPVs, attractiveness and achievability, but also their affordability--ie, projects' relative rankings must be considered in the context of available funding. …