Software Project Failure Costs Billions.. Better Estimation & Planning Can Help
There are so many studies attempting to quantify the cost of software failures. They don’t agree on percentages but they generally agree that the number is at least 50 to 80 billion dollar range annually.
Standish Chaos Reports: Standish is probably the most referenced. They define success as projects on budget, of cost, and with expected functionality. There are several updates to the Standish “Chaos” reports. The 2004 report shows:
- Failed Projects: 18%
- Challenged Projects: 53%
- Successful Projects: 29%
- Canceled projects cost $55 Billion Annually?
Standish Findings By Year Updated for 2009
1994 1996 1998 2000 2002 2004 2009
Succeeded 16% 27% 26% 28% 34% 29% 32%
Failed 31% 40% 28% 23% 15% 18% 24%
Challenged 53% 33% 46% 49% 51% 53% 44%
Most projects cost more than they return, Mercer Consulting: When the true costs are added up, as many as 80% of technology projects actually cost more than they return. It is not done intentionally but the costs are always underestimated and the benefits are always overestimated. Dosani, 2001
Oxford University Regarding IT Project Success (Saur & Cuthbertson, 2003)
- Successful: 16%
- Challenged: 74%
- Abandoned: 10%
British Computer Society:The UK public sector spent an estimated £12.4 bn. on software overall spend on IT about 22.6 Billion British Pounds (Jaques, 2004)
- Successful: 16%
- Failure Costs Tens of Billions of British Pounds in the European Union
National Institute of Standards and Technology (NIST)
- Software defects cost nearly $60 Billion Annually
- 80% of development costs involve identifying and correcting defects
Tata Consultancy 2007
62% of organizations experienced IT projects that failed to meet their schedules
49% suffered from budget overruns
47% had higher-than-expected maintenance costs
41% failed to deliver the expected business value and ROI
33% file to perform against expectations
Communications of the ACM Nov 2007: Sauer, Gemino, Reich
Abandoned 9%
Overdeliver 7%
from the paper:
3 of 5 IT Projects do not do what they were supposed to for the expected costs
49% budget overruns
47% higher than expected maintenance costs
41% fail to deliver expected business value==============
From Bob Lawhorn presentation on software failure March 2010
- Poorly defined applications (miscommunication between business and IT) contribute to a 66% project failure rate, costing U.S. businesses at least $30 billion every year (Forrester Research)
- 60% – 80% of project failures can be attributed directly to poor requirements gathering, analysis, and management (Meta Group)
- 50% are rolled back out of production (Gartner)
- 40% of problems are found by end users (Gartner)
- 25% – 40% of all spending on projects is wasted as a result of re-work (Carnegie Mellon)
- Up to 80% of budgets are consumed fixing self-inflicted problems (Dynamic Markets Limited 2007 Study)
Dynamic Markets Limited 2007 Study of of 800 IT managers across eight countries shows that:
Two Reasons Why IT Projects Fail Reports:
- 62 % of organizations experienced IT projects that failed to meet their schedules
- 49% budget overruns
- 47% higher-than-expected maintenance costs
- 41% failed to deliver expected business value and ROI
- 25%+ of all software and services projects are canceled before completion
- up to 80 percent of budgets are consumed fixing self-inflicted problems
” Gartner also reports that “testing consumes 25% to 50% of the average application life cycle and often is viewed as adding no business value.”
11 percent of business organizations consider technology a “strategic weapon,” study by Info-Tech Research Group
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From ESSU (European Services Strategy Unit) Research Report No. 3 “Cost overruns, delays and terminations” on IT Projects
Key findings
The Research report identifies 105 outsourced public sector ICT contracts in central government, NHS, local authorities, public bodies and agencies with significant cost overruns, delays and terminations. The summary of findings are (from Tables 1 and 2):
105 outsourced public sector ICT projects with significant cost overruns, delays and terminations.
- Total value of contracts is £29.5 billion
- Cost overruns totaled £9.0 billion
- 57% of contracts experienced cost overruns
- The average percentage cost overrun is 30.5%
- 33% of contracts suffered major delays
- 30% of contracts were terminated
- 12.5% of Strategic Service Delivery Partnerships have failed
 Table 1: ICT contract summary
Local Government Total: 1,446 Overruns & Write-offs 18
Total
Table 2:
Contracts with cost overruns 60 57%
% Average cost overrun per contract - 30.5%
Contracts with delays 35 33%
Contracts terminated 31 30%
SSP contracts terminated or substantially reduced 4 12.5 (% of SSDP contracts)
Computer World 10 Worst US Commercial Project Failures of the ’90s
Computerworld published a list of the top 10 corporate information technology failures
This list of failures includes hundreds of millions of dollars of losses to organizations including not jus the cost of the software, infrastructure and services but losses to the business as well. For example, according to the article a failed reservations system caused Greyhound to loos their status as a transport powerhouse and cause a $61 million loss for the first half of 1994
Hersheys: lost over $150million due to a SAP / Seibol deployment
Oxford Health Care: Nearly $400 million in overstated revenues
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Firoz Dosani, vice president of Mercer Consulting claims “When the true costs are added up, as many as:
- Â 80% of technology projects actually cost more than they return. It is not done intentionally but the costs are always underestimated and the benefits are always overestimated.” (Dosani, 2001).
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Roger Seasons BLOG, September, 2009 lists the costs of IT project failures based on several reasonable assumptions:
Cost of IT Failure
we are already losing over USD 500 billionper month on IT failure, and the problem is getting worse. http://www.objectwatch.com/whitepapers/ITComplexityWhitePaper.pdfÂ
According to the World Technology and Services Alliance, countries spend, on average
- 6.4% of the Gross Domestic Product (GDP) on Information Communications Technology
- 43% of this spent on hardware, software, and services.
This means that, on average, 6.4 X .43 = 2.75 % of GDP is spent on hardware, software, and services. I will lump hardware, software, and services together under the banner of IT.
According to the 2009 U.S. Budget, 66% of all Federal IT dollars are invested in projects that are at risk. I assume this number is representative of the rest of the world.
A large number of these will eventually fail. I assume the failure rate of anat risk project is between 50% and 80%. For this analysis, I’ll take the average: 65%.
Every project failure incurs both direct costs (the cost of the IT investment itself) and indirect costs (the lost opportunity costs). I assume that the ratio of indirect to direct costs is between 5:1 and 10:1. For this analysis, Ill take the average: 7.5:1.
To find the predicted cost of annual IT failure, we then multiply these numbers together: .0275 (fraction of GDP on IT) X .66 (fraction of IT at risk) X .65 (failure rate of at risk) X 7.5 (indirect costs) = .089. To predict the cost of IT failure on any country, multiply its GDP by .089.
Based on this, the following gives the annual cost of IT failure on various regions of the world in billions of USD:
REGION GDP (B USD) Cost of IT Failure (B USD}
World 69,800 6,180
USA 13,840 1,225
New Zealand 44 3.90
UK 2,260 200
Texas 1,250 110
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The IT Complexity Crisis: Danger and Opportunity by Roger Sessions Nov 2009 :
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68% of IT Projects Fail: primary cause identified as poor requirements by Michael Krigsman referring to a study by IAG
Key findings from the report, The Impact of Business Requirements on the Success of Technology Projects from IAG Consulting, include (emphasis added):
- Companies with poor business analysis capability will have three times as many project failures as successes.
- 68% of companies are more likely to have a marginal project or outright failure than a success due to the way they approach business analysis. In fact, 50% of this groups projects were runaway which had any 2 of: taking over 180% of target time to deliver; consuming in excess of 160% of estimated budget; or delivering under 70% of the target required functionality.
- Companies pay a premium of as much as 60% on time and budget when they use poor requirements practices on their projects.
- Over 41% of the IT development budget for software, staff and external professional services will be consumed by poor requirements at the average company using average analysts versus the optimal organization.
- The vast majority of projects surveyed did not utilize sufficient business analysis skill to consistently bring projects in on time and budget. The level of competency required is higher than that employed within projects for 70% of the companies surveyed.
Obviously software estimation is essential to more successful projects… I wonder how many projects would not be started if strong software estimation techniques were employed? And what the true cost is to organizations of challenged projects. Sometimes, a slip with the project being successfully delivered is a minor sin. Other times a slip can be devastating to the organization. What are your experiences or opinions in this regard.
Thank you for reading “Dan on Estimating”, if you would like more information about Galorath’s estimation models, please visit our contact page or call us at +1 310 414-3222.
Related posts:
- The Cost of a New Project Manager’s Failure
- More Software Project Failure / Challenge Information From CAI
- Government IT Project Woes and Estimating Total Ownership Costs
- Poor Estimation: Major Root Cause of Project Failure
- 2009 Standish Chaos Report.. .Software Going Downhill
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7 Responses to “Software Project Failure Costs Billions.. Better Estimation & Planning Can Help”
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I’ve worked two large software development programs that were both cancelled after years of development, and one that has survived despite 100% cost and schedule growth. The difference has been the degree of interaction with the user, and the continued need for and understanding of the capability. In no case was the program funded anywhere near the independent cost estimate, but rather at what was perceived to be affordable.
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[...] This was in the context of Satyam. It goes on but you’ll need to click through to read the whole bloody mess. What is surprising about this is that it doesn’t seem to cross legislators minds that the obvious conflicts of interest exist. Time and again governments continue to re-appoint the same firms when time after time we see project failure. [...]
Here you have provided really nice and helpful information. We know that every company has their own way of managing work flow and projects, with their own objectives and desired results. Now a days people are used online project management software for different purposes. It made their work flow easy and systematic. Web-based project management software allows you to save time and reduce costs at implementation and throughout the project lifecycles.
[...] for IT projects have ranged from 65% to 84% over the period 1994 to 2009; see Dan Galorath, 2008. Software Project Failure Costs Billions; Better Estimation & Planning Can Help, June 7, 2008. In this report, Galorath compares and combines many of the available IT failure [...]
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