83% of cost/benefit analysis supporting IT proposals is a fiction
I was reviewing an academic manuscript, Managing the Realization of Business Benefits from IT Investments (published in (MIS Quarterly Executive, March 2007) by Professors Joe Peppard, John Ward and Elizabeth Daniel, when a footnote really caught my attention:
This is not a new phenomenon. In the early 1990s Kit Grindley reported that 83% of IT directors that he surveyed admitted that the cost/benefit analysis supporting proposals to invest in IT were a fiction. He wrote about the “conspiracy of lies”. See K. Grindley, Managing IT at Board Level (Financial Times, London, 1995). A survey of the 200 largest UK companies reported that 47% openly admitting to overstating the benefits to get approval for IT investments.
If you have to lie, mislead or stretch the truth to get an IT project green-lighted, it probably had no business getting funded in the first place. When I look at the backlog of IT projects many firms face, I find it hard to believe that IT executives need to fudge figures to move a project forward unless they are doing so to get a specific project to happen before another.
Nonetheless, misrepresenting a project’s benefit stream will definitely come back to bite an IT executive as someone will notice the lack of benefits delivered. Logically, I believe in accountability but as Lee Iacocca stated in his book, Talking Straight,
"So we invest in the computers and in training personnel - millions of dollars, thousands of hours - but we never go back and check on whether we saved ourselves even one person...I've signed so many projects that by now I should have nobody left."
The figures in that footnote, Iacocca’s comments, etc. present a view of IT that is unsettling, if typical. If this is even partially true, this explains dissatisfaction/mistrust by non-IT business people towards IT. But, it also shows that:
- some level of game-playing is afoot to get low ROI (or negative ROI infrastructure) projects funded; and/or
- the preparation of business cases by IT personnel is not well-understood; and/or
- benefits realization often requires more than on-time and on-budget delivery of a new technology. If the value is not appearing and the calculations were correct, then something else is adversely impacting the benefits stream (e.g., users choose to forego training in the new technology, users made redundant by the new technology were not let go, etc.)
- delivery of the benefits was not actively managed or even calculated. If no one makes it their responsibility to track the realization of benefits, do they ever get achieved?
- too much technology is being implemented that doesn’t fundamentally change the way people work. I had a huge disagreement with a CIO who wanted to spend a monstrous amount of capital to upgrade office automation software. But, since this expenditure would not change the way anyone did their work, it had no real business value.
I’m still thinking about this issue. I’m going to forward the manuscript to Michael Krigsman, a fellow blogger at ZDNet and an industry watcher on IT projects. I’ll encourage him to post his reactions to this piece.