1 Management of IT-Enabled Business Projects Dr. Mary C. Lacity

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Management of IT-EnabledBusiness Projects

Dr. Mary C. Lacity

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Management of IT-Enabled Business Projects

The objectives of this module:

Gain an understanding of the track record and challenges of managing large scale, IT-enabled projects

Understand the relationship between: project management: managing the project phases

change management: managing the people affected by change, mostly through training & incentives

Explain robust, best practices for “doing the thing right”. These are management practices that have been associated with success since the beginning of IT—the practices do not change just because technologies change.

Gain an appreciation for the difference between “doing the thing right” and “Doing the right thing”.

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Relationship Between Project Management & Change Management

Planning TestingDevelopmentDesignRequirements

AnalysisImplementation

Pre-awareness Awareness Self-concernMentalTryout

Hands-on Acceptance

Change Strategy Audience Analysis & Impact Assessment Sponsorship & Communication Plan Role Design & Mapping Training Design Training Deployment Readiness Assessment Startup Support

PROJECT MANAGEMENT PHASES

CHANGE PHASES

Source: Adapted from Roberts, Jarvenpaa & Baxley, MISQE, 2003

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Best Project Management Practices are Robust:

Business solutions drive technology selection

Secure top management active support

Select high powered project manager with proven track record

Involve & incent knowledgeable users

Don't judge success solely based on time to budget

Buy-in outside expertise to transfer learning

Implement incrementally

Manage scope creep, perhaps using 80/20 satisficing rule

Beware of Mythical Man Month

Ensure change management (training, buy-in, roll out); May be a co-lead if large project

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Project Management Studies

For the past 30 years, 80 % of all IT projects are late, over-budget,and/or fail to deliver promised functionality.

See: Keil, Mark and Montealegre, Ramiro, “Cutting Your Losses,Extricating Your Organization When a Big Project Goes Awry,”Sloan Management Review, Spring, 2000, pp. 55-68.

See: Sauer, Chris, Why Information Systems Fail, Alfred Waller,1993.

See: “The Standish Group CHAOS Report” reported on: http://www.standishgroup.com/chaos.html

See: Peter Morris, “Project Management: Lessons from IT and Non-IT Projects,”in Information Management: The Organizational Dimension, Earl (ed), OxfordUniversity Press, 1996, pp. 321-336.

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ERP Success RatesERP Success Rates• Survey of 600 companies(1)

– 57% finished 10% - 30% or more over budget– 3% finished 10% to 30% under budget– 45% took 10% - 30% or more time than planned to implement

• W.W. Grainger Inc(2)

– Experienced “substantial systems and transaction processing disruptions” that caused losses of $.24/share

– Stock dropped 2%/$100M in market value on the earnings announcement

• Hewlett-Packard Inc(3)

– $400M 3Q 2004 loss blamed on “Poorly executed” migration• Hershey Foods Corp(2)

– Delayed customer order processing costing sales during Halloween• Whirlpool Corp(2)

– Poor implementation led to series of shipment delays to customers(1) The Controller’s Report. New York: May 2004., Iss. 5; pg. 7, 1 pgs(2) James P. Miller. Wall Street Journal. (Eastern Edition). New York, N.Y.: Jan 10,

2000. pg. C.12(3) Patrick Thibodeau, Don Tennant. Computerworld. Framingham: Sep 27, 2004.

Vol.38, Iss. 39; pg. 14, 1pgs

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California Department of Social Services

State-wide Automated Child Support System

Expectations:

$76 million contract with Lockheed Martin to develop the system3 year schedule to complete

Outcome:

Cancelled in November 1997, after spending $435 million

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Denver International Airport

Baggage Handling System

Expectations:

$175.6 million contract with BAE Automated Systems to developthe system

18 month schedule to complete, April 22 1992 to Oct 1993

Outcome:

Cancelled after horrible test in April 1994, after spending over $2 billion

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London Stock Exchange

Integrated Claims and Settlement System

Expectations:£50 million cost estimate to develop the system (Cooper’s as project management)2 year project to complete, Dec 1989 to Oct 1991

Progress:In-house staff will take too long, buy Vista software &

hire Vista to modify (est. cost to modify, £1 million)

Outcome: Cancelled on March 1993, after spending £400 million

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Standish Group CHAOS Report

In the US, companies spend $250 billion each year on developmentof 175,000 IT projects.

Research Method:

Interviewed 365 IT executives about 8,380 IT projects.

Large company: > $500 million in revenueMedium company: $200 to $500 million in revenueSmall company: $100 to $200 million in revenue

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Standish Group CHAOS Report:IT Projects classification

Type I: Success; on time, on budget, promised functionality

Type II: Challenged; over-budget, over-time and or missing functionality

Type III:Failed; Severely impaired projects; cancelled projects

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SMALL MEDIUM LARGE

TYPE I 28% 16.2% 9%

TYPE II 50.4% 46.7% 61.5%

TYPE III 21.6% 37.1% 29.5%

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Standish Group CHAOS Report:Failure Statistics

For every 100 project starts, there are 94 restarts

For Type II and Type III Projects: delivered at 189% of originalcost estimate:

Large companies 178%

Medium companies 183%

Small companies 214%

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For Type II and Type III Projects: delivered at 222% of originaltime estimate:

Large companies 230%


Small companies 239%

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For Type II Projects: Only 61% of content delivered

Large companies 42%


Small companies 74%

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Standish Group CHAOS Report:Failure Rates over Time

48 % of participants believe there are more failures today than 5 years ago.

46 % of participants believe that there are more failures today than 10 years ago

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How do IT Project Success RatesCompare with other large projects?

Peter Morris studied 1,444 projects world-wide in many industries.

Only 2% of projects were delivered on budget

Example: Trans Alaskan Pipeline estimated cost in 1969: $960 million actual cost: $8.7 billion

He found that cost escalation was largely due to factors outsideof project manager’s control, such as government action, inflation,strikes, technical uncertainty, scope changes, weather.

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Morris StudyFactors Affecting Project SuccessENVIRONMENTAL

FACTORSPolitics, Community,

Environment, Weather

FINANCING &ECONOMICS

poor c/b analysisbudget cuts

IMPLEMENTATIONbest practices such as top management support, user involvement,

adequate resources, effective teams, quality assurance

PROJECT DEFINITION

Requirements knownTechnology Proven

EXPECTATIONS/ATTITUDES

PROJECTOUTCOME

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Standish Group CHAOS Report:Success Statistics on Type I

• User Involvement• Executive Management Support• Clear Statement of Requirements• Proper Planning• Realistic Expectations• Smaller Project Milestones• Competent Staff• Ownership

DOING THE THING RIGHT:

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Project Management:Three case studies

Manufacturing: Centralized order scheduling system to reduce cycle time

Centralized Decision-making

Baking: Hardware migration to cut costs No changes in decision-making

Insurance: Claims processing system to reduce fraud Decentralized decision making

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Manufacturing: Expected: Costs of $6 million, 2 years Actual: $12 million, more than 4 years

Baking: Expected: Costs of $7 million, 2 years Actual: $1.5 million for pilot, project cancelled

Insurance: Expected: Costs of £4.5 million Actual: £6 million, almost a year late

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Company Sales in Company/SBU

Annual I.T. Budget

# I.T. Employees

U.S. Manufacturing

$1 billion $8 million 75

U.S. Baking $2 billion $16 million 100

U.K. Insurance £650 million in insurance premiums (appx. $1.1 billion)

£15 million (about $24 million)

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QUESTIONS TO THINK ABOUT:

Should success be based “on time” “on budget” “to functionality?”

• Baking is a Type III project that met all objectives• Insurance is a Type II, mediocre results• Manufacturing is a Type II, excellent results

Which projects “Did the thing right?”

Which projects “Did the right thing?”

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HeadquartersMainframe

Honey, whatelse can we addto this claim???

Throw ineverything!

Old Claims Process at Insurance:Pay out £222,000,000 year

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Claims typedin

Old Claims Process at Insurance

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Supervisor readsmainframe reportsand assigns to a claims handler


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Claims handlerinvestigates theclaim and decideson award


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Looks good,cut them a check


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Customer has timeto exaggerate or makeup claims

Supervisor doesn’tassign cases basedon expertise


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Customermust phonein claim

Claim handlerprints and sendsto customer forsignature and also saves electronic copy of claim

New Claims Process at Insurance

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Signed customerdocument scanned andstored on image server

Mainframe programassigns complexityand expertise ratingfrom 0 to 20


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Each claims handlerhas an expert ratingto determine whatclaims they can workon


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• Poor customer service, poor manufacturing coordination due to a lack of shared information about each of the plant’s capabilities, capacities, and schedules.

• BPR: Centralize decision-making, software selection drove client/server

• Implemented a global client/server application for customer-ordering, manufacturing planning, plant scheduling, and product specification.

• Improved customer service from 3 weeks to 4 hours, decrease manufacturing cycle from 27 to 19 days.

• Huge success, although senior management credit manufacturing with the improvements

Manufacturing

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Manufacturing

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Manufacturing

Can I order 60,000wafers with these 200parameters?

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Manufacturing

Let me check,I’ll get back toyou…

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Manufacturing

Can you do 60,000wafers?

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Manufacturing

Well, let me see ifI can get some crystal...

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Manufacturing

Hey Joe--can I have bunch of crystal by next week?

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Manufacturing

I can give you half whatyou need…try Ben

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Manufacturing

Ben--do you have xamount of crystal toship by next week?

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Manufacturing

No, but I can make somewithin 3 weeks. Want it?

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Manufacturing

Let me get backto you

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Manufacturing

Susan, can I have xamount of crystal?

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Manufacturing

Sure I can ship today!

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Manufacturing

I can make 30,000 wafersin 3 months, but the rest willtake 5 months.

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Manufacturing

Let me try some otherplants first...

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Manufacturing

THREE WEEKS LATER….

Great news we can do it!

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Manufacturing

Thanks but I went with your competitor--he gave me a quote the next day.

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Manufacturing

This is what you aregoing to make and when!

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Manufacturing

Sir I am happy to confirm yourorder within 4 hours!

Yipee!!!

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Baking

• $8 million per year on mainframe outsourcing contract perceived as too expensive.

• Migration of mainframe transaction processing systems to client/server for 35 bakeries to client/server to reduce costs.

• No changes in organizational structure or processes.

• Pilot project a technical success

• Project canceled when company was sold

• New management believes in “letting each bakery select its own

technology”

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HeadquarterMainframe

Daily sales, returns, orders

Baking

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Daily baking schedules, driver instructions,prices, discounts, etc.

Baking

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Daily baking schedules, driver instructions,prices, discounts, etc.

Baking

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Original Plan at Baking

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Big success!

Denver Pilot at Baking

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Revised Plan at Baking

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Company Expected Cost Actual Cost Number of Months Late

Manufacturing $ 6 million $ 12 million 24 Baking $ 7 million Project Canceled Project Canceled Insurance £4.5 million £6 million + 10

All three projects were late and over-budget:

PROJECT OUTCOMES

But are they successes or failures?

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PROJECT JUSTIFICATIONPRACTICES

Not just cost/benefit analysis

Contribution to business develop new distribution channelsstrategy: mass customization Process improvement: quicker manufacturing time faster product development

improved customer service reduced inventory levels

Opportunity costs: what happens if we don’t do this project?

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Companies had to develop (or help the vendor develop) the client/server technology. TECHNICAL UNCERTAINTY: Unexpected incompatibilities among vendor products Debug vendor’s new client/server applications Technical cracks in back-ups, roll-outs, and check-points REQUIREMENT UNCERTAINTY: UNREALISTIC EXPECTATIONS OF PROJECT DELIVERY UNREALISTIC COST/BENEFIT ANALYSIS IN ACQUISTION REQUEST

REASONS FOR COST/TIME OVERRUNS

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PROJECT JUSTIFICATION

Company Quantifiable Benefits Financial GuessesManufacturing $500,000 a year savings to

terminate mainframeoutsourcing

Increase sales by $15 millionper year

Baking $3 million a year savings toterminate mainframeoutsourcing (however, theoutsourcing vendor reducedbill by this amount during c/sdevelopment)

Insurance 2% reduction in costs ofclaims (which translates toabout £5 million annually).

Only 1 of the companies quantified the benefits

?

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Lesson: Companies needed to secure top management support in the project, primarily by

having a senior-level project sponsor.

TYPE OF SUPPORT SILICON BAKING INSURANCEProject Champion X X

Project Sponsor X X X

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Lesson: Companies needed to secure top management support in the project, primarily by

having a senior-level project sponsor.

• Project Champion: “Champions are managers who actively and vigorously promote their personal vision for using IT, pushing the project over or around approval and implementation hurdles. They often risk their reputations in order to ensure the innovation’s success” (Beath, 1991, p. 355)

• Project Sponsor: “Sponsors have the funds and authority to accomplish their goals” (Beath, 1991, p. 355) (A less active and less enthusiastic role compared to a champion)

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Lesson: Business strategy drove technology selection in 2 companies

Company Business Process Re-engineeringManufacturing “It’s a business problem that we solved using this technology as opposed to the other

way around. [The MIS Director] thinks, from what he has seen, if you are installingC/S just to install C/S, you are crazy, because there is a high learning curve to get over.”--Strategic Manager of Marketing

Baking none:

“You can buy a $100,000 processor that if you want to use MIPS or throughput, soyou can get a pretty sophisticated piece of equipment for $100,000. To get theequivalent in IBM, older generation, you are talking $700,000 to $1,000,000. Sowhat I presented to management was, ‘Here we are on this path with this investmentbase and its dropping at this rate. Here’s a new technology base, a lower entry fee,but its cost is dropping. How do we get from this curve to that curve without killingourselves and without making a zillion dollar investment?’”-- Head of ITDepartment

Insurance “We are re-engineering the business process. It takes a large number of businessfunctions, so for example, process work flow handling. It has business rules in it forprocessing claims. You take it immediately into a PC arena. Also because we areprocessing rules, it takes us into the client/server arena. We are actually holdingsome data locally to assign work flow.”-- Manager of the Business TechnologyDepartment

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Lesson: All companies hired some outside experts, to varying success

Company Supplier RelationshipManufacturing Received free vendor resources in exchange for helping to

debug new client/server system. Knowledge about the newtechnology was transferred so that internal IT staff were in aposition to support it.

Baking Baking hired a consulting firm to help with implementation:

“I got the feeling they were only one chapter ahead of us inthe book.”

Insurance At first, Insurance relied on vendor salespeople. Aftertechnical incompatibilities arose, they hired an outsourcingconsulting company to review/verify technical design.

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Lesson: All companies hired some outside experts, to varying success

Lesson: From prior research on 116 sourcing case studies, the development of immature technologies were the worst to outsource because specifications were

uncertain and no transfer of knowledge occurred.

The best sourcing model for immature technologies: buy-in vendor resources

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Lesson: Each company implemented incrementally

Company Implementation Strategy

Manufacturing Implemented 3 phases, each with added-value to business Phase I: central specifications, scheduling Phase II: 700 management reports Phase III: Front-end customer orders

Baking Pilot at one bakery

Insurance Mock-up “model” office

Benefits of incremental implementation:

Verify user requirements Reduce risk Recover from mistakes early Demonstrate value to secure management approval

for full-scale implementation Gain user acceptance of the system

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QUESTIONS TO THINK ABOUT:

Should success be based “on time” “on budget” “to functionality?”

• Baking is a Type III project that met all objectives• Insurance is a Type II, mediocre results• Manufacturing is a Type II, excellent results

Which projects “Did the thing right?”

Which projects “Did the right thing?”

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Mastering the Next Wave of Enterprise Systems:Leveraging Lessons From ERP

Top Management is engaged in the project, not just involved

Project leaders are veterans with proven track records and team makers are best in the business empowered to make decisions

Buy-in vendor resources to fill gaps in expertise and transfer their knowledge

Change management goes hand in hand with project management

A satisficing mindset prevails.

By Carol Brown and Iris Vessey, MISQE, 2003.

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Three “Successful” ERP Implementations

“Material” “Valvo” “Asea”

Revenues $3.5 Billion $430 Million Transform a small branch to profit center with own selling & distribution

Reason for ERP

Replace 200 legacy systems to provide global business processes

Replace lousy legacy systems running on old mainframe packages

Cost of ERP $100 million $17 million $150,000

Time Line April 1995

Late 1997

Sept 1996

Year end 1997

Sept 2000

Year end 2000

Time ~2.75 years;

Late & over budget

~1.5 yearsOn time & under budget

(but increased 30% after planning phase)

~4 months

Sooner & on budget

Outcomes 50% increase in inventory turns

20% reduction in admin costs

$millions in logistical costs

Y2k compliance

35% reduction in inventory costs

Better order fulfillment rates

Allowed new profit center to get up and running with selling & inventory

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ERP In Practice…

SourceSource: www.freequality.org/beta%20freequal/fq%20web%20site/ training/EnterpriseResourcePlanning2%5B1%5D.: www.freequality.org/beta%20freequal/fq%20web%20site/ training/EnterpriseResourcePlanning2%5B1%5D. pptppt

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History Of ERP

1. Manual Intensive

2. Not real-time

3. Non-Collaborative

4. Multiple Application

Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf

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After ERP

1. Automated

2. Real-time

3. Collaborate

4. Single Application

Source: http://webprofesores.iese.edu/valor/Docs/EMBA/intro%20ERPS.pdf

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Employees

Managers andStakeholders

ERP Modules

CentralDatabase

ReportingApplications

HumanResource

ManagementApplications

FinancialApplications

ManufacturingApplications

InventoryAnd SupplyApplications

HumanResource

ManagementApplications

ServiceApplications

Sales andDelivery

Applications

Sales ForceAnd CustomerService Reps

Customers Back-officeAdministratorsAnd Workers

Suppliers

Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.

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mySAP Business Suite

Source: http://www.sap.com

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Noted Practices“Material” “Valvo” “Asea”

Adoption Diffusion

Lesson

Early adopter achieves

Success by learning by

Doing with “freedom”

To fail culture

Early majority achieves success by benchmarking successful early adopters

Late majority achieve success by applying templates.

Buy-in of vendor

resources

Big 5 firm with 50 consultants on project

Convinced consulting firm to help them go big bang

Used shared services experts located in Malaysia with R/3 expertise

Change Management

Lead by organizational development & training specialists

900 power users

Cash bonus

Stock options

Project co-lead along with IT and business;

Documented new work, newly automated work, eliminated work; work transferred to another group

Bonus pay to everyone

Business co-led with IT was also responsible for change management

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Management of Global Large-Scale Projects Through a Federation of Multiple

Web Based Workflow Management SystemsBadir, Founou, Stricker, Bourquin, Project Management Journal, Sept 2003

ManagementTeam

E-Platform Providers

ProjectManagement

SystemObject-Oriented Database

Graphical User Interface

WorkflowManagement

System

Sending Information

WorkflowManagement

System

WorkflowManagement

System

Information D

istribution

Browse

Browse

MobileAgent

Updating

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WorkflowManagement

System

ProjectManagement

System

Identification of tasksResource requirements & costsSchedulesPercentage of work completeBudgets verses actual

Task steps & assignments

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Best Practices on Project Managementare Robust

Don’t forget the past...

Business solutions drive technology selection

Secure top management active support

Select high powered project manager with proven track record

Involve & incent knowledgeable users

Don't judge success solely based on time to budget

Buy-in outside expertise to transfer learning

Implement incrementally

Manage scope creep, perhaps using 80/20 satisficing rule

Beware of Mythical Man Month

Ensure change management (training, buy-in, roll out); May be a co-lead if large project

Documents

1 Management of IT-Enabled Business Projects Dr. Mary C. Lacity