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
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Dynamic Markets Limited 2007 Study of of 800 IT managers across eight countries shows that:
Two Reasons Why IT Projects Fail Reports:
- 62 %o 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 29,504 8,994European Services Strategy Unit, 2007.
Table 2:
Summary of cost overruns, delays and terminations
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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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.
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3 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.
[...] http://www.galorath.com/wp/software-project-failure-costs-billions-better-estimation-planning-can-he... [...]
[...] 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. [...]