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Riskiest IT Projects Your Company Will Ever Face
by Richard B. Lanza, CPA/CITP (www.cpa2biz.com)
Information technology (IT) projects are crucial to business, as organizations introduce new software, networks and other hardware into their enterprise. The aim is to increase profits and productivity. However, many IT projects are loaded with risks that often lead to failure.
According to a Standish Group survey, only 16 percent of technology projects are completed on time and on budget, while 31 percent are canceled all together. Moreover, cost overruns amount to an average 189 percent of original estimates. These alarming trends tell only half the story. Many times, customer service, employee morale and productivity suffer when projects don't produce finished products on time, or when these products are delivered with minimal functionality and bugs due to poor testing. Failed projects also increase the chance of litigation between companies when they involve outside developers.
Finance professionals can contribute to the success of IT projects by helping to manage project risk, both in errors on the part of project managers (unintentional) and even fraud (intentional acts for personal benefit). When determining where to focus your attention, remember that projects tend to fail for simple reasons, not complex technical ones. Past research on project performance has revealed risks that are common to all projects, regardless of the industry. Based on studying 650 projects during the 1960s and 1970s, NASA identified a set of common factors that led to unsuccessful projects (which are still completely relevant today):
 Poorly defined objective
Wrong project manager
Lack of management support
Inadequately defined tasks
Ineffective use of the project management process
Reluctance to end projects.
The above factors are generally considered unintentional acts that could lead to project failure. Another cause is outright fraud on projects. Project fraud, for purposes of this article, is defined as (a) the misrepresentation of a project's mission or progress to secure project financing, (b) misuse of project resources and/or (c) improper dealings with project vendors for personal enrichment. Although this definition is technically correct, it does not provide the full flavor of this malfeasance. Below is a list of common symptoms:
Over-reported and unsubstantiated business case
Unsubstantiated project decisions
Under-reported initial estimates of project lifecycle costs (to get project approved)
Under-reported initial estimates of project maintenance costs (to get project approved)
Under-reported costs
Over-reported schedule progress
Over-reported quality progress
Project asset misuse
Vendor conflict of interest and kickbacks
Vendor "overselling" of their capabilities
Inappropriate vendor charges.
How to Start Your Project Reviews
In the early stages of a project, finance professionals should meet with the project team to explain the value of risk management (if they don't already understand the concept themselves). They then should perform interviews with staff, review key project documents and observe the project to ensure that solid project management principles are being applied. While bearing in mind all of the factors of error and fraud noted above, focus should be place on the following three areas, at a minimum:
- Over-reported and unsubstantiated business case. Although this may be completed in error by the project team (rather than due to fraud), many times the need for the project is over-estimated and the effort is under-estimated. To combat such issues, you should review the business case with various independent parties. For example, if the project is installing a new virtual private network that is expected to save network costs, such claims should be reviewed with other companies' results.
- Collective vision, goals, and team commitment. A project is doomed if members of the project team can't explain the project's purpose. Projects need a clear vision that outlines the purpose of the project agreed upon by the business owners and the project team.
Many times, these requirements are agreed upon through joint application sessions to ensure agreement among the business owners. You can independently review requirement documents with the major stakeholders to ensure the requirements have been addressed. They can also benchmark the requirements to other projects to ensure they are documented sufficiently and are reasonable for the application. For example, if the performance requirement in the document states that a five-second response time is acceptable for a consumer Web application, the organization may be losing customers who use its site.
In addition to the charter and goals, project teams need to develop a project plan that outlines who will work on the project, where and how it will be completed and its time table and deadlines. You can review this plan to ensure that it is complete, accurate and realistic. Benchmarking to past project plans of a similar nature can be very helpful, as well as, networking with other finance professionals as to their experiences. The goal is to not repeat bad history in the current project.
- Project team competence and commitment. The success of a project depends heavily on the team that carries out the project tasks. Unfortunately, project teams are often selected not because they are the best choice, but because they are available, so they may not have the competence to complete the job. Finance professionals should ensure that project managers and team members have the technical experience, current skills and training and past experience on similar projects. Those who lack necessary skills, training and experience should be trained, replaced or supplemented by outside contractors. The goal here is to ensure that the monetary investment translates into the right staff for the job.
Rich Lanza, CPA/CITP, president of Audit Software Professionals, is a frequent contributer to www.cpa2biz.com
Singer Lewak Greenbaum & Goldstein LLP (SLGG) specializes in providing a cost-effective alternative to the national accounting firms. We are one of the largest CPA firms headquartered in Southern California, offering a dedicated and highly Experienced Risk Management Practice. Given the complexity and critical need for IT systems, the need for Enterprise Risk Management Services has significantly inceased to help limit your company's vulnerabilities in today's marketplace. We are prepared to deliver value-driven solutions which are tailored to the size, risk profile and complexity of your business. Please call today for a free consultation.
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