June 5, 2023 | Reviewed by Sam Scott

It’s no secret that many IT projects go over budget. But by how much?

Two times the expected cost? Three times, worst case?

In reality, the mean average overrun for IT projects is 1.4 times the estimated cost in the private sector — and double the planned budget of public sector projects.

The worst case is much, much worse, with many projects coming in three times, four times, or even 10+ times the estimated cost. These data points come from a recent study by Flyvbjerg et al. (2022) for the Journal of Management Information Systems on the reality of IT project cost overruns.

Examples Of Recent IT Project Overruns

Unfortunately, IT projects with exploding costs are not uncommon. Here are two examples from recent years:

BC Bid Tech Project

A major IT project in British Columbia to overhaul the government's procurement system has been plagued with problems, delays, and cost overruns. According to The Tyee, the $8.9 million project to replace the three-decade-old BC Bid website is now three years behind schedule.

The project was to be completed by 2019 as a first step toward the procurement system's overhaul. And while direct costs have grown by a relatively small amount, it’s become clear the province will get less than expected for its $9 million investment. Further, the government has been forced to take on a prominent role in managing the project, driving additional spending.

In their examination of what went wrong, a third-party consulting firm found the project failed to deliver on the province's goals for "risk transfer" and "solution delivery." And although the firm identified significant unresolved challenges, they acknowledged that extending the province’s agreement with the system integrator was likely unavoidable.

ArriveCan App

According to The Globe and Mail, the development of the ArriveCan app — initially budgeted at $80,000 — has grown into a $54 million expense for the federal government.

A cost breakdown details expenses such as $8.8 million for more than 70 updates, plus “$7.5 million for Service Canada call-centre time, $5.2 million for data management, $4.9 million in ‘indirect costs’ such as employee benefits and accommodations and $4.6 million for cloud hosting services.”

The app was created to collect COVID-19-related health information and has since expanded to include customs and immigration questions. The government is under scrutiny, and members of the House of Commons committee on government operations and estimates agreed to hold at least two meetings of inquiry.

So What Makes IT Projects Spin Out Of Control?

In their study, Flyvbjerg et al. (2022) identify one clear cause, which is interdependencies.

Interdependencies are all the related tasks, systems, and activities that must be successful — or at the very least, in place — for your project to be successful.

In IT, there are many layers of dependencies. Your project relies on other systems to be successful, and those systems, in turn, have a number of other dependencies.

So, on an IT project, when one of these dependencies starts to go bad, it sets off a chain reaction of other dependencies that can bring the project to a grinding halt or shoot the budget number way up.

As Flyvbjerg et al. analogize, this chain reaction is like a forest fire, in which the magnitude of the fire “is determined by how intricately the tree clusters [interdependent systems] are connected with one another” (2022, p. 626).

AV Projects Are Particularly Vulnerable

Not only do AV projects have all the IT-side dependencies, such as those relating to identity management, network systems, and software, but they also have dependencies on the construction or facility management side.

Consider the installation of a projector and screen. It’s not enough that the right cable infrastructure is in place; the projector must also be precisely in line with — and at a particular distance from — the screen to produce the desired image. Further, the room’s sources of natural and artificial light affect the image's quality.

In this example, there are a host of issues that could disrupt the installation plan. If there was a change to the room’s HVAC, the required projector mount point might not be available. If the window blinds are changed or removed, the now-brighter room may be better served by a flat panel display. And if hanging lights are installed after the fact, well…

AV systems and equipment are highly dependent on electrical systems, network infrastructure, acoustics, lighting, furniture, and various other room design components such as millwork. All those IT and physical construction dependencies must come together for your AV project to become successful.

How To Prevent Your AV Project From Catching Fire

Our most critical advice: do not skimp on your project risk analysis.

Project risk refers to the uncertainty of a project’s outcome due to factors beyond your control. These factors — or “risk events” — may be internal or external to your project. They may negatively impact your AV project’s schedule, budget, and quality, and they can cause very well-planned projects to fail.

As we’ve discussed, it’s not enough to consider the risks directly associated with your AV design. You must also consider all the interdependent systems that could cause your project to catch fire from an adjacent risk event.

And while the occurrence of risk events is, by definition, out of your control, that doesn’t mean it’s outside your sphere of influence. You must identify, monitor, and manage these risks to ensure a successful outcome for your AV project.

Quantitative Risk Analysis

One way to manage project risk is through a quantitative risk analysis. The analysis is “quantitative” because it involves assigning values to each risk’s likelihood and impact. It is a systematic approach to managing project risks openly and objectively with the project’s key stakeholders — and those of its interdependent systems.

By taking a determined, deliberate approach to project risk management, you can identify risks before they arise, take preventative measures to avoid them, and minimize their impact should they occur. Further, you will be better equipped to make good decisions throughout the life of your project and increase stakeholder confidence.

Here are five steps you should take to analyze risks to your project:

1) Risk Identification

Go through the project and identify all those systems and interdependencies that could impact its outcome. Then, list the potential risks events associated with each system.

There are several techniques that can help you with this:

• Brainstorm with stakeholders such as project managers, designers, and end-users

• Review relevant documentation, such as project plans, contracts, and regulations

• Confer with professionals such as consultants, subject matter experts, and auditors

2) Risk Analysis

Analyze each of those risks and determine a) the likelihood of it occurring and b) what the consequences would be if it occurred. Assign a value to the likelihood and impact of each risk event; this will allow you to prioritize them by magnitude, aiding your decision-making process.

Where we often see people fail is with risk events that are low likelihood but high impact — risks you don’t think will happen, but if they do, they would be catastrophic. These risks are also known as “black swan events.”

Black swan events are worth paying particular attention to because if they occur, your project will go completely off the rails. It will become one of those unfortunate projects that balloon in cost and schedule.

3) Risk Response Planning

Go through your risk matrix and plan a mitigation strategy for each risk event you’ve identified. This step involves developing a plan for how to lessen, avoid, transfer, or accept the impact of each risk.

Be sure to assign a subject matter expert, manager, or person responsible for each interdependency. For example, in the case of the projector and screen, you may wish to speak with the architect, electrical engineer, and construction project coordinator and ensure the ceiling features, lighting, and blinds will not change without your knowledge.

This example highlights an important benefit of quantifying project risks: it helps identify which stakeholder relationships you should prioritize to keep your AV project on track.

4) Risk Monitoring

As you go through your project, review your risk matrix often and adjust the likelihood and impact of each risk event occurring — or strike them off the list if you’ve passed that phase and their probability is zero.

Conversely, if new risks are identified, the process starts again from the beginning. Remember, the aim is to keep the project on track and minimize any negative impacts on the project’s success. So, it’s critical to go back to your plan and reevaluate it periodically.

5) Project Communication and Reporting

Keep open communication with all stakeholders responsible for the project’s interdependencies. This communication should include regular updates on the project’s progress, any changes or developments that could impact the interdependencies, and the status of risk mitigation efforts.

This step is crucial to the project's success and should not be overlooked. With regular communication, everyone will be kept up-to-date with the schedule and tasks, and nothing will be missed.

Project risk is a real concern for any organization undertaking an IT or AV initiative. The complexity and interdependencies of these types of projects make it difficult to estimate costs and timelines, which can result in significant budget overruns.

However, by taking a structured approach to project risk management, you can significantly improve your chances of success. As with any project, careful planning, monitoring, and control are key.

If you seek guidance identifying and managing the risks of your AV project, we can help.

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References

Flyvbjerg, B., Budzier, A., Lee, J. S., Keil, M., Lunn, D., & Bester, D. W. (2022, August 30). The empirical reality of IT project cost overruns: Discovering a power-law distribution. Journal of Management Information Systems, 39(3), 607-639. https://doi.org/10.1080/07421222.2022.2096544