Management of IT-Enabled Business Projects Dr. Mary C. Lacity 1
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 2 “Doing the right thing”.
Relationship Between Project Management & Change Management PROJECT MANAGEMENT PHASES Planning Requirements Analysis Design Development Testing Implementation Hands-on Acceptance CHANGE PHASES Pre-awareness Awareness Self-concern Mental Tryout Change Strategy Audience Analysis & Impact Assessment Sponsorship & Communication Plan Role Design & Mapping Training Design Training Deployment 3 Readiness Assessment Source: Adapted from Roberts, Jarvenpaa & Baxley, MISQE, 2003 Startup Support
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 4
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), Oxford University Press, 1996, pp. 321 -336. 5
ERP 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%/$100 M in market value on the earnings announcement • Hewlett-Packard Inc(3) – $400 M 3 Q 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 6 (3) Patrick Thibodeau, Don Tennant. Computerworld. Framingham: Sep 27, 2004. Vol. 38, Iss. 39; pg. 14, 1 pgs
California Department of Social Services State-wide Automated Child Support System Expectations: $76 million contract with Lockheed Martin to develop the system 3 year schedule to complete Outcome: Cancelled in November 1997, after spending $435 million 7
Denver International Airport Baggage Handling System Expectations: $175. 6 million contract with BAE Automated Systems to develop the 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 8
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 9
Standish Group CHAOS Report In the US, companies spend $250 billion each year on development of 175, 000 IT projects. Research Method: Interviewed 365 IT executives about 8, 380 IT projects. Large company: > $500 million in revenue Medium company: $200 to $500 million in revenue Small company: $100 to $200 million in revenue 10
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 11
Standish Group CHAOS Report: IT Projects classification 12
Standish Group CHAOS Report: IT Projects classification 13
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 original cost estimate: Large companies 178% Medium companies 183% Small companies 214% 14
Standish Group CHAOS Report: Failure Statistics For Type II and Type III Projects: delivered at 222% of original time estimate: Large companies 230% Medium companies 202% Small companies 239% 15
Standish Group CHAOS Report: Failure Statistics For Type II Projects: Only 61% of content delivered Large companies 42% Medium companies 65% Small companies 74% 16
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 17
How do IT Project Success Rates Compare 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 outside of project manager’s control, such as government action, inflation, strikes, technical uncertainty, scope changes, weather. 18
Morris Study Factors Affecting Project Success ENVIRONMENTAL FACTORS Politics, Community, Environment, Weather FINANCING & ECONOMICS poor c/b analysis budget cuts EXPECTATIONS/ ATTITUDES PROJECT DEFINITION Requirements known Technology Proven PROJECT OUTCOME IMPLEMENTATION best practices such as top management support, user involvement, adequate resources, effective teams, quality assurance 19
Standish Group CHAOS Report: Success Statistics on Type I DOING THE THING RIGHT: • User Involvement • Executive Management Support • Clear Statement of Requirements • Proper Planning • Realistic Expectations • Smaller Project Milestones • Competent Staff • Ownership 20
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 21
Project Management: Three case studies 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 22
Project Management: Three case studies 23
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? ” 24
Old Claims Process at Insurance: Pay out £ 222, 000 year Honey, what else can we add to this claim? ? ? Throw in everything! Headquarters Mainframe 25
Old Claims Process at Insurance Headquarters Mainframe Claims typed in 26
Old Claims Process at Insurance Supervisor reads mainframe reports and assigns to a claims handler Headquarters Mainframe 27
Old Claims Process at Insurance Claims handler investigates the claim and decides on award Headquarters Mainframe 28
Old Claims Process at Insurance Looks good, cut them a check Headquarters Mainframe 29
Old Claims Process at Insurance Customer has time to exaggerate or make up claims Supervisor doesn’t assign cases based on expertise Headquarters Mainframe 30
New Claims Process at Insurance Customer must phone in claim Headquarters Mainframe Claim handler prints and sends to customer for 31 signature and also saves electronic copy of claim
New Claims Process at Insurance Signed customer document scanned and stored on image server Headquarters Mainframe program assigns complexity and expertise rating from 0 to 20 32
New Claims Process at Insurance Headquarters Mainframe Each claims handler has an expert rating to determine what claims they can work on 33
Manufacturing • 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 customerordering, 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 34
Manufacturing 35
Manufacturing Can I order 60, 000 wafers with these 200 parameters? 36
Manufacturing Let me check, I’ll get back to you… 37
Manufacturing Can you do 60, 000 wafers? 38
Manufacturing Well, let me see if I can get some crystal. . . 39
Manufacturing Hey Joe--can I have bunch of crystal by next week? 40
Manufacturing I can give you half what you need…try Ben 41
Manufacturing Ben--do you have x amount of crystal to ship by next week? 42
Manufacturing No, but I can make some within 3 weeks. Want it? 43
Manufacturing Let me get back to you 44
Manufacturing Susan, can I have x amount of crystal? 45
Manufacturing Sure I can ship today! 46
Manufacturing I can make 30, 000 wafers in 3 months, but the rest will take 5 months. 47
Manufacturing Let me try some other plants first. . . 48
Manufacturing THREE WEEKS LATER…. Great news we can do it! 49
Manufacturing Thanks but I went with your competitor--he gave me a quote the next day. 50
Manufacturing This is what you are going to make and when! 51
Manufacturing Yipee!!! Sir I am happy to confirm your order within 4 hours! 52
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” 53
Baking Headquarter Mainframe Daily sales, returns, orders 54
Baking Headquarter Mainframe Daily baking schedules, driver instructions, prices, discounts, etc. 55
Baking Headquarter Mainframe Daily baking schedules, driver instructions, prices, discounts, etc. 56
Original Plan at Baking 57
Denver Pilot at Baking Big success! 58
Revised Plan at Baking 59
PROJECT OUTCOMES But are they successes or failures? 60
PROJECT JUSTIFICATION PRACTICES Not just cost/benefit analysis Contribution to business strategy: develop new distribution channels 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? 61
REASONS FOR COST/TIME OVERRUNS 62
PROJECT JUSTIFICATION 63
Lesson: Companies needed to secure top management support in the project, primarily by having a senior-level project sponsor. 64
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) 65
Lesson: Business strategy drove technology selection in 2 companies 66
Lesson: All companies hired some outside experts, to varying success 67
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 68
Lesson: Each company implemented incrementally 69
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? ” 70
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. 71
Three “Successful” ERP Implementations “Material” “Valvo” “Asea” Transform a small branch to profit center with own selling & distribution Revenues $3. 5 Billion $430 Million 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 years ~4 months Sooner & on budget Outcomes On time & under budget (but increased 30% after planning phase) 50% increase in inventory Y 2 k compliance turns 35% reduction in 20% reduction in admin inventory costs Better order fulfillment $millions in logistical rates costs Allowed new profit center to get up and running with selling & inventory 72
ERP In Practice… 73 Source: www. freequality. org/beta%20 freequal/fq%20 web%20 site/ training/Enterprise. Resource. Planning 2%5 B 1%5 D. ppt
History Of ERP 1. Manual Intensive 3. Non-Collaborative 2. Not real-time 4. Multiple Application Source: http: //webprofesores. iese. edu/valor/Docs/EMBA/intro%20 ERPS. pdf 74
After ERP 1. Automated 3. Collaborate 2. Real-time 4. Single Application Source: http: //webprofesores. iese. edu/valor/Docs/EMBA/intro%20 ERPS. pdf 75
ERP Modules Managers and Stakeholders Human and Sales Resource Delivery Management Applications Customers Sales Force And Customer Service Reps Reporting Applications Central Database Financial Applications Manufacturing Back-office Applications Administrators And Workers Service Applications Human Resource Management Applications Suppliers Inventory And Supply Applications Employees 76 Source: Davenport, Thomas, “Putting the Enterprise into the Enterprise System”, Harvard Business Review, July-Aug. 1998.
my. SAP Business Suite Source: http: //www. sap. com 77
Noted Practices “Material” “Valvo” “Asea” Adoption Diffusion Lesson Early adopter achieves Success by learning by Doing with “freedom” To fail culture Early majority achieves Late majority achieve success by applying benchmarking templates. successful early adopters 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 78
Management of Global Large-Scale Projects Through a Federation of Multiple Web Based Workflow Management Systems Badir, Founou, Stricker, Bourquin, Project Management Journal, Sept 2003 Workflow Management System Providers E-Platform Project Mobile Management Updating Agent System Object-Oriented Database Graphical User Interface Sending Information Distribution Management Team Workflow Browse Management System Browse Workflow Management System 79
Workflow Management System Project Management System Task steps & assignments Identification of tasks Resource requirements & costs Schedules Percentage of work complete Budgets verses actual 80
Don’t forget the past. . . Best Practices on Project Management 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 81
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