The work we’re doing over at Options touches on something very close to my heart - IT project overruns. Aside from it being an area most CIOs, COOs and even CEOs spend a great deal of their time attempting to navigate; it’s always been of particular interest to me for a number of personal reasons:
(i) Firstly, I’ve always had a love of execution, which often means delivering difficult projects on time and under budget.
(ii) Secondly, at Wombat our software was often only a relatively small part of much bigger and more complex solutions (at one point we estimated that ticker plant software was only 10% of the total cost of an enterprise system, albeit a very critical component). Crucially, however, we generally didn’t get paid until the whole project was completed, which meant, in short, we carried massive commercial exposure to overruns in other parts of the project, and spent many years of our lives helping customers deliver on their overall solutions.
(iii) Finally, I was a principal on teams that delivered a number of huge technology and infrastructure projects as part of the NYSE-Euronext merger. Many of these were careering out of control with massive overruns when I got involved, and we had delivered on the big ones by the time I left the company.
Certainly, the breadth of my experience indicates that crisis management, and in particular the ability to bring home transformational projects that have run into trouble (and over budget) is one of the defining skills in financial technology. These are skills that all too few executives possess.
One my former colleagues in NYSE sent me a link to an illuminating Harvard Business Review paper that examined the true cost of project over-runs in the corporate world, the aptly titled:
“Why your IT project may be riskier than you think - New research shows surprisingly high number of out-of-control tech projects - ones that can sink entire companies and careers”.
The authors looked at over 1400 projects and concluded that “fully one in six of the projects had a cost overrun of 200 %, on average, and a schedule overrun of almost 70 %”. Incredibly, one project had an overrun of $33 billion! It’s a terrific article and should be recommended reading for anyone in the delivery business, or any executive trying to assess the potential risks of a “boil-the-ocean” project.
Here’s a link to the original HBR article: http://arxiv.org/pdf/1304.0265v1.pdf
Looking back to Options, the beauty of our approach is that we have productised the key components of a capital market firm’s technology infrastructure. This massively de-risks delivery because the lion’s share of any infrastructure deployment is composed of components that we’ve already deployed to production somewhere else. In reality, the majority of firms are deploying the same “wheel” as their competitors, which means that the sector as a whole carries enormous cost & execution risk incurred while attempting to “re-build the wheel”. Working with a provider like Options, who can deliver services over a component based platform removes an often tremendous level of risk
Commercially, barring scope creep we also carry the burden of the overrun at Options. If we don’t deliver on time or within budget, we carry the costs. Assuming the results observed in the Flyvbjerg and Budzier report are broadly representative, the commercial impact of going with a tried and tested provider could be profound.
Critically, this alignment of interests with the customer makes for a different ‘texture’ of engagement Bear in mind that even though these projects can bring down companies, a lot of people stand to benefit from overruns (that 400% increase in budget will be spent somewhere!). These beneficiaries usually range from the raft of consultants who will happily help when things get rough at one extreme, to staff that will be out of a job if a project is completed on time. Both are happy for these things to drag on indefinitely.
Getting a key vendor aligned with your key project opens a whole new world of efficiencies, one where things can happen much quicker than you would ever have imagined. It’ll likely be on budget too!