Project managing businesses migrating onto the Internet

Introduction

Prior to 1998, more than $250 billion was spent each year in the United States (U.S.) on Information Technology (IT) application development of approximately 175,000 projects (Standish Group, 1995). The Internet subsector of the IT economy has exploded since that time.

Migration of existing businesses onto the Internet requires comprehensive project management expertise. Professional project management skills are uniquely suited to coordinate the strategic initiatives, implementation, and integration requirements for migrating businesses to the Internet.

This paper quantifies project and project management-related trends in the Internet economy. It focuses discussion on project management success and risk factors in E-commerce projects.

Trends in the Internet Economy

As a subset of the IT economy, the Internet economy can be described as the sum of the following components (Boston Consulting Group Canada, 2000):

Electronic commerce and intermediaries

Business-to-business, Business-to-consumer

Portals, brokers.
    Internet Applications

Software Development

Web development and consulting.
    Internet Infrastructure

Hardware

Network Software

Internet Access.

The estimated Internet U.S. Economy (billions US$) is presented in Exhibit 1.

Project Management in the Internet Economy

Let’s use the above numbers as the optimistic scenario in a business model for project management services in the Internet economy. If we assume that, on average, 20% of revenues represent project-related costs, and that, on average, project management costs represent 10% of project costs, then the following model, presented in Exhibit 2, is feasible.

The optimistic scenario presents that the project management economy for Internet-related projects will be in the $30B+ (US$) range in 2003. The majority of these projects will be concentrated in the E-commerce (45%) and Internet infrastructure (36%) sectors of the Internet economy. These represent two vastly different types of projects.

The Internet Infrastructure Projects

Internet infrastructure projects require creating networks in the case of new facilities, or laying down or upgrading networks in existing facilities with networking hardware, software, and services to provide connectivity to the Internet and other networks.

The scope of these projects can generally be captured through available product specifications and through existing or customized engineering specifications. Borrowing a common metric from the facilities management industry, 2% of the Internet infrastructure projects will occur in new facilities, and 98% of the projects will occur in existing facilities. If the specifications have been created with due engineering diligence, the major challenge of these retrofit projects is that complex coordination is required to manage existing field conditions and to minimize the impact of the retrofit on existing operations. Russ Anthony, President of RPA Projects Ltd., suggests that successful project management of Internet infrastructure projects will be natural entry points for professional project management firms to provide services to E-commerce customers.

Exhibit 1. Estimated U.S. Internet Economy (billions US$)

Estimated U.S. Internet Economy (billions US$)

Exhibit 2. Estimated U.S. Internet Project Management Economy

 Estimated U.S. Internet Project Management Economy

Exhibit 3. Reasons for IT Project Failures

 Reasons for IT Project Failures
E-commerce Projects

Of the $980 billion (US$) projected expenditure in the E-commerce sector of the Internet economy, the majority of it will be spent in the business-to-business sector (Baillie, 2000).

Small businesses should become a big target for IT vendors trying to profit from U.S. web spending. According to International Data Corporation, U.S. companies with fewer than 100 employees will devote more IT dollars to the web than any other segment except the government and spend almost 13% more than the next-largest market segment by 2003 (IDC, 2000).

Businesses in North America will continue to move to the public Internet network for business-to-consumer electronic commerce and will be expanding ways and means of using the Internet and other private, more secure means of transmitting large quantities of data in business-to-business electronic commerce.

This rosy financial picture is clouded in that IT projects have high failure rates throughout the industry and around the world.

Project Failures in the IT industry

A 1995 American study revealed that 31% of projects, representing $81 billion (US$), would be cancelled prior to completion. The study also states that only 16% of IT projects will be completed on time and on budget (Standish Group, 1995). In a subsequent study, the same researchers found that 28% of projects in 1998 failed to be completed while 26% of the projects were completed on time and on budget (Standish Group, 2000).

As well, in 1998, Australia lost $2 billion (AUS$) on a total IT expenditure of $19.5 billion (McIntosh, 1998).

The average cost of an IT development project for a large company is $2,322,000 ($US); for a medium company, it is $1,331,000; and for a small company, it is $434,000 (Standish Group, 2000). Software development projects are expensive investments, and more so when they fail.

In many ways in the execution of projects, IT professionals face similar obstacles to those who try to ascend Mount Everest. Sheer vertical ice, intemperate weather, oxygen-deprivation induced dementia, inextricable dependence on the efforts of teammates, are analogous to impossible goals, uncontrollable external forces, lack of perspective and/or leadership, and unpredictable team dynamics, in the context of project management.

Between 1921 and May 1996, 144 people died trying to climb Mount Everest. The peak was climbed 630 times, a ratio of one death to four successful ascents (Krakauer, 1997, 371). Most people died on the way down the mountain.

Why does someone have about the same chance in avoiding death on Mount Everest as bringing an IT software project to successful completion? Why do IT projects fail at such a high rate?

We can use some of the literature that is available regarding IT project failures to plan for some of the risks that project managers face as they assume responsibility for migration of businesses onto the Internet.

In the review of literature on IT project failures, which was not comprehensive, a variety of reasons for IT project failures were postulated.

The 1997 KPMG Study, “Survey of Unsuccessful Information Technology Projects,” revealed that “the three most common reasons for project failure are: poor project planning (specifically inadequate risk management and a weak project plan); a weak business case; and lack of top management involvement and support” (KPMG, 1997, 1).

In the previously cited American study, the respondents were asked to provide their opinions on why IT projects failed and were ultimately cancelled. The reasons and rankings are shown in Exhibit 3.

Exhibit 3 reveals that IT project failures are due to complex reasons both within and beyond the control of project management and organizations.

Within the Internet economy, I suggest that E-commerce projects and the Internet applications are riskier than the more traditional Internet infrastructure projects. The E-commerce projects will have greater rates of failure and greater rewards for success.

How can project management professionals position themselves to assume these risks and win these rewards for their customers and themselves?

Major Risk Factors in E-commerce Projects

The logical conclusion from the information presented is that customers undertaking E-commerce projects are chancing failure while pursuing the potentially large rewards of success. When project management firms assume responsibility for these projects, they also assume the risks. Ideally, project management organizations will develop a set of strategies to address risks to completion of projects, assign these risks appropriately to stakeholders, and develop contingency plans.

Some specific Internet project risks are presented next.

Working to Internet Time

A major assumption in the marketing of IT/Internet products is that the only way to compete today is to be faster to market with better features. The impact of this strategy warrants discussion, in the context of risk in software development projects. The faster-to-market product with better services is not necessarily, in the long run, a profitable product. If the time to market is the driving corporate strategy, higher failure rates must be accepted.

Hidden Costs or Inaccurate Cost Estimates

Software development programs can be broken down into planning, programming, testing, installation, education, support, consulting, operations, and maintenance (Keen, 1991, 157; Wysocki, 1990, 296). Keen demonstrates that a large portion of the full cost of software development occurs outside of the cost of programming. “Few projects, for instance, budget twice as much for education as for programming the computer code” (Keen, 1991, 156). Keen (1991, 157) suggests that the ratio of actual to hidden costs can range from 5% (for testing) to 160% for maintenance.

Difficulties in Software Development

Software design is an iterative nonlinear process. “Like art, software is subject to bursts of creativity and individual genius rather than teamwork and engineering discipline. In addition, software is used to solve problems of unthinkable scope compared to only ten years ago” (JLS, 2000, 1).

Unexamined Risk to IT Projects

Project management techniques may fail if the level of uncertainty exceeds a threshold, beyond which the project manager, and possibly the business, has no control.

As an example, the U.K. has its famous TAURUS (Transfer and AUtomated Registration of Uncertificated Stock) project. This project was designed to introduce paperless trading to the London Stock Exchange. It was meant to link 280 financial organizations and provide a central repository for shareholding information. It was never completed.

There were a numbers of reasons quoted for its failure, including design by committee, the sheer scale of the project, and the number of participating organizations. But in its failure we can draw some key skills about the ideal project manager. Prime among these is the ability to determine risk.

“In the TAURUS project, leading edge technology, goals that were too all-encompassing and a business environment that was changing faster that the project team’s ability to implement it, should have flagged the project as high risk right from the start, and not only flagged it, but identified a suitable solution. None of this happened” (Scottish Computer Headline, 1998).

Rapid Development of Technology

Processor speed and mushrooming software RAM and memory requirements have been unchecked. The consumers have accepted that their software and hardware edge into obsolescence six months after purchase (Sadleir, 1999). This causes rapid deterioration in scope of IT hardware and software applications.

Business Unfamiliarity With IT

As mentioned in the KPMG study, the unfamiliarity of business is apparent in weak business cases, which are often reasons for failure. “The organizational IT infrastructure requires an entirely different kind of business justification than do specific business applications and incidental hardware” (Keen, 1991, 159). Staff unfamiliar with the “economics of IT” will struggle with matching IT projects to satisfying business needs.

Shortage of IT Trained Human Resources

Management of human resources issues is a significant contributor to project failures. Lack of resources, inexperienced staff, and staff turnover can devastate a project schedule, budget, and scope.

With project IT labor shortages, the IT industry faces the dilemma of finding skilled younger people who will work for less, or re-training older workers. Both the Canadian and United States government have increased the number of foreign high-tech work visas over the last year to provide some relief in this area.

Effective project management skills are essential. “Given the increased globalization of IT we might expect the ideal (project) manager to:

Have the verbal dexterity of an international politician

The situational awareness of a hostage negotiator

The IT grasp of a computer science doctorate

The management skills of chief executive, and

The numerical ability of a top-flight accountant! (Scottish Computer Headline, 1998).

Transience/Absence of Senior Management/Leadership

Although this trend may be less common lately, the immaturity of most IT firms has been reflected in the rapid turnover of executive staff. “Business Week, in 1990, reported that CIOs were being fired at nearly twice the rate of 1988 and 50 percent more frequently than other senior executives” (Keen, 1991, 159). Companies that expand too quickly without sturdy infrastructures are not able to effectively cope with uncertainty because of inexperienced staff and management. “Precisely because service companies now depend so much on computer systems, there is more to be lost as well as gained if technical bugs get out of hand. This is consistent with the shaky job security of chief information officers (CIOs), natural scapegoats for computer-related debacles even when other managers may be more at fault” (Tenner, 1996, 188).

Senior managers are the ultimate authority on the viability of a project that is intended to improve business processes. Project managers must benefit from leadership in senior management; those who have the overall business perspective are best suited to navigate projects through organizations, or kill the project if required.

Conclusions and Recommendations

Project management costs for the Internet economy is optimistically projected to be $30 billion (US$) in 2003. This represents a substantial market for project management services.

Within the Internet economy, customers undertaking E-commerce and Internet applications projects are chancing failure while pursuing the potentially large rewards for success. Organizations must examine whether the strategy of getting IT products faster to market is profitable in the long-term.

When project management firms partner with E-commerce clients, they become partners in potential rewards and risks. As project managers assume the responsibility of E-commerce, Internet applications, and Internet infrastructure projects, failure rates of 10–25% should be factored into program planning and risk management plans. Project failure rates can be decreased by study of previous project failures, and increased attention to risk management control and contingency planning.

The Internet economy presents exciting challenges to the project management industry. Leadership in the project management industry will strive to acknowledge and overcome barriers to successful Internet project management.

References

Baillie, A.C. (2000). Presentation to the Merrill Lynch Canada Banking Conference, Toronto Dominion Bank, Toronto, Canada (http://www.tdbank.ca/tdtoday/analyst.html).

Boston Consulting Group Canada. (2000). Report of the Canadian E-Business Opportunities. Toronto, Canada.

International Data Corporation. (2000). To Take Advantage of U.S. Web Spending, IT Vendors Need to Think Small, March 14, 2000, www.idc.com.

JLS. (2000). Technical Staffing Web Site (www.jlssoftware.com).

Keen, Peter G.W. (1991). Shaping the future. Harvard Business School Press, U.S.A.

KPMG. (1997). “What went wrong?” (http://www.kpmg.ca).

Krakauer, Jon. (1997). Into thin air. Anchor Books. Toronto, Canada.

McIntosh, Trudy. (1998). IT failures cost $2bn annually. Infact, www.infact.com.au/page25.html.

Sadleir, C.D. (1999). Lectures, information technology management strategies, MIE 1502S, University of Toronto.

Scottish Computer Headline. (1998, August 12). Desperately seeking superman? Headline, 37. www.sc-headline.co.uk/issues/issue37/feature1.htm.

Standish Group. (1995). The CHAOS report, http://www.standish-group.com/chaos.html.

Standish Group. (2000). www.standishgroup.com/visitor/chaos.

Tenner, Edward. (1991). Why things bite back. Random House, Toronto, Canada.

Wysocki, Robert, & Young, James. (1990). Information systems: Management principles in action. Toronto, Canada.

This material has been reproduced with the permission of the copyright owner. Unauthorized reproduction of this material is strictly prohibited. For permission to reproduce this material, please contact PMI or any listed author.

Proceedings of the Project Management Institute Annual Seminars & Symposium
September 7–16, 2000 • Houston, Texas, USA

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