‘Black Swans’ sink Projects!

Black SwanRecent research published in the Harvard Business Review Magazine asserts that ‘black swans’ – low probability high impact events – are sinking many projects, particularly in the IT sector. The research considered 1,471 large-scale IT projects and suggests that they are three times more likely to spin out of control than construction and other major projects.  The lessons drawn from the research include the need for stress testing, breakdown of projects into smaller more manageable elements, contingency planning and use of best class forecasting techniques.

As recent articles in PM Insight have covered project failures and lessons learned, readers might be interested in this research which covered 1,471 IT change projects with costs averaging $167 million with the projects’ budgets and estimated performance benefits being compared with the actual outcomes.

The authors found that the average project’s cost over-run was 27%, but this average hid a ‘fat tail’ of one sixth of projects, which they dub ‘black swans’, where the cost averaged 200% above budget and the time over-run was 70%.

The article details a number of cases including: Levi Strauss; Hong Kong Airport; Hershey; Kmart; Auto Windscreens; and, Toll Collect.

The authors suggest that companies contemplating large scale technology projects should take stress tests to confirm their readiness to survive a ‘black swan’ project by asking themselves if the company can absorb the impact of: its biggest technology project going over budget by 400% or more and realising only 25% to 50% of the projected benefits; and, 15% of its medium-sized tech projects exceeding cost estimates by 200?

They also suggest that managers: break big projects down into more manageable units of limited size, complexity, and duration;  recognize and make contingency plans to deal with unavoidable risks; and, make use of the best possible forecasting techniques.

More information can be found in the article by Bent Flyvbjerg and Alexander Budzier published in the Harvard Business Review Magazine, September 2011.

The Last Word

The last word in this post goes to Martina Horner (1939 – ):

“What is important is to keep learning, to enjoy challenge, and to tolerate ambiguity. In the end there are no certain answers.”

About Sandy McMillan

Sandy, who semi-retired in 2011, is the former COO of development and project management businesses operating in the construction and real estate sector throughout Europe, the Middle East and North Africa.

He holds university degrees in civil engineering from the Universities of Strathclyde and Glasgow, and is a Chartered Engineer, a member of the UK’s Institution of Civil Engineers, and a Member of the Association for Project Management.

Since graduating, Sandy has more than 35 years management experience with the last 20+ years being in the fields of development and project management. While his early experience was in the heavy civil engineering sector e.g. power stations, he has operated primarily in the building sector since 1988 where he has managed development of retail, office, residential, and industrial properties.

When Sandy’s not travelling around EMEA on business, he has a home in Warsaw, Poland.

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