HB 2802006

Case Studies How Boards and Senior Management Have Governed ICT Projects to Succeed (or Fail)

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HB

HB 2802006

Handbook
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Case StudiesHow Boards and Senior Management Have Governed ICT Projects to Succeed (or Fail)

First published as HB 2802006.

COPYRIGHT Standards Australia All rights are reserved. No part of this work may be reproduced or copied in any form or by any means, electronic or mechanical, including photocopying, without the written permission of the publisher. Published by Standards Australia, GPO Box 476, Sydney, NSW 2001, Australia ISBN 0 7337 7708 2

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PREFACE
Dr Raymond Young developed this Handbook for Standards Australia while undertaking PhD research on the management of ICT projects. Dr Young is a member of Standards Australia Committee IT-030, ICT Governance and Management. The Handbook provides insight into the lessons learnt by a number of major Australian organizations when implementing information and communications technology projects. It is a rare resource, as many organizations are guarded about sharing details of their internal project successes and failures. Standards Australia acknowledges the generous input of the participating organizations. Committee IT-030 provided review comment to this Handbook and Companies involved in this area of ICT Governance provided information freely to the production of this Handbook. Due to the sensitivity of the projects discussed, Standards Australia is unable to acknowledge and publicly thank the many contributors to Dr Youngs work. Many have taken personal risks to share their experiences and we are grateful for their contribution. This Handbook draws on the underlying principles in AS 80152005, Corporate governance of information and communication technology. The opinions expressed in this Handbook are those of the author and are not endorsed by Standards Australia. Names of organizations and individuals in case studies and examples have been changed.

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HB 2802006

CONTENTS
Page FOREWORD............................................................................................................................. iv EXECUTIVE SUMMARY......................................................................................................... v SECTION 1 INTRODUCTION ............................................................................................... 1 SECTION 2 EXPOSING THE ICT BLINDSPOT 2.1 CASE 1TECH SERVEROUTINE PROJECT FAILURE ................................. 4 2.2 CASE 2TECH MEDIAINSUFFICIENT BUSINESS ACCOUNTABILITY ....... 6 SECTION 3 EXPLAINING TOP MANAGEMENT SUPPORT 3.1 CASE 3SKYHIGH INVESTMENTSA MODEL PROJECT.............................. 14 3.2 CASE 4THE AGENCYSUCCEEDING IN NON-STRATEGIC PROJECTS .... 26 3.3 CASE 5THE AUSTRALIAN BUREAU OF STATISTICSLEADING EDGE PRACTICES.............................................................................................................. 40 SECTION 4 THE ICT PROJECT GOVERNANCE FRAMEWORK 4.1 INITIATE AND EVALUATE................................................................................... 54 4.2 SUPPORTSTRUCTURAL AND CULTURAL ..................................................... 56 4.3 SOFT PROJECT GOVERNANCE SKILLS.............................................................. 57 4.4 DIRECT AND MONITOR PROJECT....................................................................... 57 4.5 MONITOR BENEFITS REALIZATION .................................................................. 59 SECTION 5 CONCLUSION.................................................................................................. 61 APPENDICES A WAR STORIES......................................................................................................... 64 B SUMMARY OF PRESCRIPTIONS FOR TOP MANAGEMENT SUPPORT ............................................................................ 72 C REFERENCES .......................................................................................................... 75

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HB 2802006

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FOREWORD
The motivation for this Handbook started when, as the CIO of a major ICT vendor, I experienced enormous frustration with the business risks created by poor ICT advice. It led me to undertake a PhD to understand why ICT advice was so ineffective. When approached, Standards Australia immediately saw the value of collaborating in the research and so too did 170 ICT and business professionals who responded to Standards Australias expression of interest to form the IT-030 committee on ICT governance. We all recognized that although ICT is one of the biggest success stories of our era, behind the successes lay a long and seldom mentioned list of project failures (Appendix A). The overall promise of success outweighs the risk of failure so we undertake new projects with optimism and overlook the fact that we have no real assurance that will not join the growing list of failures, of which the RMIT [5], NSW Water Board [14] and NAB [4] projects are just the tip of the iceberg. This situation is unacceptable given that about half of all capital expenditure is on ICT. ICT is mission critical and a major potential source of competitive advantage. This Handbook goes beyond the simplistic technical and project management solutions promoted in the trade literature. It puts into perspective current advice and focuses attention on the crucial role of the board and senior management in an organizations success. The guidelines in this Handbook reflect not only the participants in the case studies but also the insights and experiences of the IT-030 working group. The advice, though simple, may challenge many boards, CEOs and senior managers to do things differently. War stories make the perfect complement to this Foreword because they can provoke us to change by reminding us that the next ICT disaster could be ours. The few people I am able to acknowledge are my supervisor, Professor Ernie Jordan at the Macquarie Graduate School of Management, who has guided me every step of the way, my peers at MGSM who have helped me proofread this handbook and my wife Lucy, who has borne my share of my family obligations over this time. I would also like to thank Elize Malan, John Englaro, Maria Pyta, Ed Lewis, John Sheridan, Mark Toomey, Chris Skinner, Alistair Tegart, Mark Bezzina and the many other members of Committee IT-030 who have reviewed my findings, encouraged me and helped me shape the presentation of this Handbook. Dr Raymond Young

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HB 2802006

EXECUTIVE SUMMARY
It is the responsibility of the board and senior management to ensure resources and investments are made wisely, and that value is both preserved and enhanced. This responsibility has been particularly difficult to fulfil with IT projects. Around two out of every three IT projects fails to produce any discernable benefits whatsoever. It is only a matter of time before the demands of Sarbanes-Oxley, ASX guidelines, CLERP9 and other corporate governance reforms will force boards to be more accountable for the inability to implement strategy efficiently and the massive waste (which in some organizations is as high as one third of the total capital expenditure; 40% of which is approved at board level). A major problem is that the plethora of expert advice to boards and top managers has been unreliable. There are examples of projects that fail despite following all the expert advice and projects that succeed without following the expert advice. This Handbook provides examples of both types of projects (Case 2 vs. Case 4) and explains through case studies why the expert advice is largely ineffective unless boards and top managers address the socalled soft-issues. It summarizes the key issues into six governance questions that must be addressed at different stages in a project. The Handbook is based on four years of intensive empirical research conducted in collaboration with Standards Australia. It represents a major breakthrough because it provides the first substantial evidence that top management support really is the most important success factor and it explains in detail how boards and top managers influence projects to succeed. The findings have major implications for board and senior management practice: (1) Boards and top managers need to accept that they personally have the most influence on whether a project succeeds or fails. This Handbook illustrates how boards and top mangers can predispose projects to succeed or fail at the time of approval (Case 3, 4, 5). Boards, top managers and their advisors need to accept that the current expert advice has less impact on success than previously believed. A business focus rather than a project/technical focus is required. This Handbook illustrates how boards and top managers have succeeded (Case 3) or failed (Case 1) to deal appropriately with technical advice. The issue goes to the heart of governance which is to steer an organization toward superior performance (while taking account of risk).

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(2)

This handbook presents a set of relatively simple guidelines for boards and top managers to meet their responsibilities. They have been framed to be consistent with the ASX guidelines on corporate governance. Board members and top managers are encouraged to read the Handbook to understand the subtleties in interpreting the guidelines and why they have been emphasized over other recommendations. At a high level they are summarized in Table 1:

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TABLE 1 HB 280 GUIDELINES

ASX corporate governance framework Benefits Risk

HB 280 project
framework

Key Governance Question

Initiate Evaluate Support structure

What are the expected business benefits (and how do they contribute to a strategic organizational goal)? How much organizational change is needed to realize the benefits (and what are the other risks)? Who should sponsor the project and be accountable for the benefits? How will the benefits be measured (and how will the sponsor and other stakeholders be rewarded)? Is the culture right for unexpected issues to be raised? (and is there a well considered project plan?) Are the benefits [on target or] being realized?

Management Support motivation

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Disclosure

Monitor project Monitor benefits

Since completing the Handbook, further analysis suggests that effective project governance should lift project ROIs from current levels of around 30% to 135% initially and to 240% with maturity. It remains to be seen how much can be realized in your specific organization but the opportunity for very large improvements with relatively little effort is attractive. Whether your motivation is to realize these potential strategic and financial benefits or simply to implement good governance down operational and project levels, HB 280 is sure to be an important contribution to your effort.

Reading Guide
It is recommended that HB 280 be read in conjunction with Australian Standards AS 8015 [3] (on the corporate governance of ICT and ICT projects) because HB 280 has both informed and been informed by their development.

Board members
May find it easier to read HB 280 by starting with the conclusion in Section 5. This section presents the key governance questions and explains why they are more important that other issues and some of the subtlety in interpretation. Section 5 provides pointers to the most appropriate sections in the Handbook where clarification is needed.

Senior managers
May find it easier to start with the ICT project governance framework in Section 4. This section summarizes all the lessons developed in Sections 1-3 and explains in detail how boards and top managers influence projects to succeed. The summary provides extensive referencing to the earlier sections to allow a reader to explore real life examples of how a guideline was implemented.

Managers/Practitioners with IT and project management experience

Are advised to read from Section 1 through to Section 5. The ideas and concepts presented include both conventional advice and radical refutations of the accepted wisdom. Experienced audiences often need to unlearn the conventional wisdom before they fully appreciate the value of the ICT project governance framework in Section 4. The Handbook has been specifically structured to present evidence that our existing concepts are wrongly framed, then to present evidence step by step to develop the framework in Section 4.

HB 2802006

STANDARDS AUSTRALIA Australian Handbook Case StudiesHow Boards and Senior Management Have Governed ICT Projects to Succeed (or Fail)

SECT ION

I NTRODU CT IO N

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Since the collapse of Enron and the introduction of the Sarbanes-Oxley Act in the USA, the HIH failure and the introduction of both AS 8000 on corporate governance [1] and the ASX corporate governance guidelines in Australia [2], boards* are willingly addressing their standards of corporate governance. Good corporate governance has been shown to result in a 1012% increase in market value on average (and much more outside North America or Western Europe) [9, 15]. The corporate governance of ICT, however, is another matter. From a board and top management perspective, the corporate governance of ICT is problematic. For many organizations, ICT represents not only a major cost and a major risk but also a major source of opportunities. The evidence suggests that the forces favouring ICT investment will continue for at least the next two decades [6, 7]. Organizations can no longer operate without ICT and it is common for boards to oversee around half of an organizations total capital expenditure being spent on ICT. Overall this is acceptable because every dollar invested in ICT produces around 130% ROI [8, 9] but the return for specific ICT investments is unreliable, extremely variable and exposes organizations to high risk. Some would even like to turn back the hands of time where we dont have to worry about this whole thing [16]. With technocrats, the only three things you can be sure of are: nothing would get finished on time, it would always cost vastly more than predicted and it would never do what it was promised to do (senior board member) [10]. Boards know their role is to ensure corporate management is continuously and effectively striving for above average performance, taking account of risk [11]. In principle the implementation of ICT governance should not be an issue, but in practice it is a major issue because boards and top management are are dependent on the advice they receive [12] and the advice from ICT professionals over many decades has proven to be ineffective. This can be seen from the following widely accepted statistics: (a) (b) (c) (d) 1528% of ICT projects are abandoned before completion[17, 18]. 3040% of ICT projects experience some form of escalation [19] with cost overruns averaging 43189% [17, 18]. 3040% of projects are implemented without any perceptible benefits [20]. 8090% of ICT investments fail to meet their performance objectives (although project management methods and tools are in widespread use) [21].

* The term board will be used to denote the highest level of supervision or monitoring within an organization. This may be a formal board of directors in a private company or the executive management in a public sector organization.
www.standards.org.au Standards Australia

HB 2802006

Within Australia, if the same ratios apply, the size of the waste in 20022003 can be estimated* to be $1.4b on terminated projects and $3.2b on projects that deliver no benefits. This is probably more than in 19981999 (when an estimated $2b was invested in projects that delivered no benefits). Most ICT people are not consciously aware, or have difficulty acknowledging, that success or failure largely depends on factors outside their control [22]. It has long been recognized that problems are more organizational than technical [23] and that success is attributable more to management than project staff [24]. Senior management support in particular has been recognized as a crucial factor that leads to ICT project success or failure [25]. Despite this, ICT professionals remain focused on the standard project-centric engineering solutions and even abuse their expert-power [26] by failing to engage business users sufficiently. The typical prescription for senior management support (Appendix B) is simplistic and ineffective because senior managers are too busy to provide an unending supply of senior management time [27].
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Effective ICT governance is almost certainly needed where the right people are engaged at the right time in decision-making. Effective ICT governance has been shown to correlate with a 20-40% greater return on ICT investments [9]. Unfortunately, implementing effective ICT governance is often difficult and frustrating and demands commitment over a long period. One strategy to overcome the difficulties is to focus on ICT project governance (the selection and implementation of business applications) first. ICT project governance is the least mature of the five ICT decisions related to ICT governance yet it generates the most direct value [9]. It deserves more management time. This Handbook is conceived in this light. It can be thought of as a primer to implementing ICT governance. It is intended to complement the more prescriptive ICT governance offerings by describing in detail how senior managers influence project outcomes. It is intended to guide both boards and senior managers on how to evaluate the many ICT governance prescriptions and choose governance mechanisms that might work in their organization, to show has to be done personally to make mechanisms work, to help make sense of ICT-related advice and to help recognize important details that might not be considered by ICT advisers. This Handbook makes extensive use of case studies to take readers from the familiar to realize what is really happening. The case studies are summarized in below.

* The amount spent on ICT projects in Australia has been estimated by assuming 60% of the $15.1b of IT consultancy industry revenue (ABS category 8126.0, ANZSIC 7834) is spent on IT projects. It is difficult to compare between years because the 19981999 data (ABS 8669.0) is not directly comparable with the 20022003 data (ABS 8126.0). They are, however, quite similar because telecommunications revenue included in the earlier figure was relatively small in 1998-1999. COBIT [28], Standards Australias ICT governance standards, Weill [9].
Standards Australia www.standards.org.au

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HB 280-2006, Case Studies - How Boards and Senior Management Have Governed ICT Projects to Succeed (or Fail)

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