You've heard of total cost of ownership for IT, well now we may be approaching a new IT metric -- the total cost of failure (TCF). According to US-based software expert Roger Sessions, the cost of failed IT investment is much, much higher than many would realise when total failed investments and their opportunity costs are included.See also: $5.4 billion -- the cost of IT failure in NZ.
Computerworld New Zealand questioned Sessions about the methodology used in his white paper "The IT Complexity Crisis: Danger and Opportunity" and the implications of his findings:
You put the cost of IT failure in New Zealand at US$3.9 billion a year (NZ$5.4 biulion). How solid do you think this figure is?
In order to be more confident about this number, we would need a lot more research. There is interest on the part of Universities in conducting this research, but it will take time. When I discuss this with other experts in the area of IT cost, as many think I am too low as those that think I am too high. Most agree that the range of error is within 30 percent. We shouldn't focus so much on the exact number as much as the magnitude of the number. Whether the number is as low as US$2.6 billion or as high as $5.2 billion, is not the point. The point is that a very large amount of money is being lost to the New Zealand economy through complexity related IT failure.
Keep in mind that this $3.9 billion includes not just the cost of the IT failures themselves, but also the indirect costs to the economy as a whole. Large IT failures ripple out in many directions, and the larger the failure, the further the ripples travel.
Have you ever seen anyone else try to quantify the cost of IT failure? If not why not? If so, why do you think your approach is superior?
The most often quoted numbers of IT failure are the Standish CHAOS numbers. They look at IT failure from a different perspective, namely percentage of successful projects rather percentage of successful IT budget. So, while they consider rate of failure, they don't consider the cost of that failure.
My approach makes more sense. When you just look at percentage of failure, as does Standish, you don't get an accurate financial picture. The reasons is that your statistics are skewed by low-end, inexpensive projects that have relatively little risk but also relatively little impact regardless of whether they succeed or fail.
Still, their numbers back up my analysis. They find that large complex projects of over $10 million in cost have less that a two percent chance of being completed successfully. Would you buy a top of the line automobile if you knew that you had less than a teo percent chance of being happy with your purchase?
What are the elements of the opportunity cost of IT failure? Are organisations aware of this or do they just try not to acknowledge it?
When a large, complex, expensive IT system fails, the last thing anybody wants to understand is the cost of that failure. At the executive level, most energy is spent showing that first of all, the failure wasn't really that bad, and second of all, it was really somebody else's fault. Blame avoidance, not failure avoidance, is the standard operating procedure in most large organisations.
You seem to think New Zealand is in a great position to break the mould of ICT failure, but we have our share of IT disasters. If we have all these benefits, how come we still get it wrong so often?
It's not enough to have a winning hand. You need to know how to play it. And you must have the will to accept risk.
Politically, risk is anathema. Most politicians and corporate executives would rather listen to the same large consulting organisations and follow the same procedures as they have in the
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