The CIO and the risks of unwarranted optimism

Dave ThomaeDave Thomae, Global leader for Program Assurance at EY, reveals five ways for CEOs to minimize the risk of project failure.

The basis of competition is changing, and the CIO is in the thick of it. Who can out-manage their competitors when it comes to successfully deliver major business programs? Which companies can execute their programs more quickly, achieve more benefits and then move on to the next challenge? Whether they involve product development, business model transformation or internal efficiency, all major business initiatives have a large technology component. Those companies who can consistently outperform delivering on programs tend to be the industry leaders.

CIOs must make sure that they properly assess all the complexities of these programs, and adapt and design them appropriately to achieve the desired business benefits. If they don’t, and a program fails, it will be the CIO who has to answer for it.

It’s not getting easier

Program performance and failure rates have remained fairly constant over the last two decades. While CIOs and IT professionals have learned much about how to avoid pitfalls, the complexity of programs has increased enormously, thanks to such factors as globalization and the accelerated pace of innovation. As a result, the amount of waste occurring due to technology program failures is enormous: roughly US$680b globally, a result of projects being delayed or requiring overhaul. It gets worse: up to a fifth of programs fail so badly that they threaten the very existence of the company. Clearly, with the increase in complexity of programs has come an exponential increase in the risk of failure.

A portfolio and predictive analytics approach

A typical organization will have many large technology projects running. A useful approach for the CIO, then, is to view them as a portfolio. To unlock all the program investments – and minimize the risk of failures – the CIO should ask five basic questions about the portfolio:

  1. Are we doing the right projects? The effective screening and analysis of projects will suggest which are most likely to be successful, and ensure that resources are allocated to the project ideas that have the greatest merit.
  2. Are we ready to run a major project? If complexity analysis identifies high residual risks in certain areas of projects, the governance, processes, tools and team maturity of each should be adapted to match the level of complexity being undertaken.
  3. Are our projects set up for success? Predictive risk analysis conducted before the start of projects should identify the most likely areas where problems will arise. This will ensure that the project team is ready for them rather than having to firefight unexpected emergencies.
  4. How well are our important projects doing? It is important to look beyond the usually over-optimistic status reporting for projects and identify the project’s true risk state and risk interdependencies across several dimensions. After determining the initial risk state and the desired risk state, remediation plans can be put in place to improve the chances of project success.
  5. Are our people aligned toward success? Most decisions are made by the project team and only a few by executives. It is therefore critical that priorities are aligned throughout the project so that the project team makes decisions that are aligned with leadership’s definition of success to avoid decision delays, decision revisiting and stakeholder frustration.

Not only must CIOs ask the right questions, they must increase the likelihood that they’ll get the right answers. The use of portfolio management and predictive analytics makes it more likely that the risks to IT projects are well understood at the outset, and that remedial steps are at the ready should the risks materialize. Unwarranted optimism has undone more than a few CIOs when major projects have failed. A systematic approach to risk can help them avoid such a fate.

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