Here’s a situation that may be playing out in companies globally:

A company is on the verge of bankruptcy. It has been particularly hard hit by the global financial crisis and is losing several million dollars a month. It desperately needs to reduce costs and their accounts are not up to the intense scrutiny. A number of key initiatives are being undertaken and the auditor has added the requirement to consolidate the accounting systems. The board has no choice but to agree, but there couldn’t be a worse time to do a new IT project. The chairman has overseen a number of IT projects and “not one of them has succeeded”.

IT said that the systems can be integrated in two months so the edict from on high is that it has to be done before Christmas. The new boss is claiming not to be on top of the detail and plans to delegate responsibility for the accounting system project to a manager. The manager understands the business processes but hasn’t been involved in the decision.

It wasn’t so long ago that the press was reporting on a similar IT project that failed just before Christmas.  I helped Standards Australia produce a handbook for boards and top managers of lessons learned from a whole range of similar disasters (HB280-2006).  In the case above, not one of the guidelines is being followed. It seems no one ever learns. The price this time will be jobs, followed soon after by bankruptcy.

For many, the GFC has all but removed any margin for error. Will boards also pay the price? The precedent was set in 2006 when the CFO, CEO and chair of the audit committee resigned from Australian Pharmaceutical industries following an IT project failure.

Where are the auditors?

My friendly advice in such cases is often rejected with the put down “have you ever implemented XYZ system?” There is little understanding that the real issues actually relate to governance. People fall into the trap of thinking they are IT projects, deferring to the vendor and assuming the business benefits will flow automatically from implementing a system. Fifty years of experience proves it doesn’t.

Perhaps we in the profession need to do more. It is disturbing that I often hear that auditors are not suggesting clients follow the 2006 guidelines in HB280 nor the related Standard on the corporate governance of projects (AS8016 forthcoming).

In the building industry, clients are not expected to know whether concrete has been poured correctly or the steel is of the right thickness. We have building inspectors to certify minimum standards have been met. It is completely dysfunctional to defer to vendors just because it is an IT project! Why aren’t our auditors providing ‘project inspectors’. It is not part of the formal auditor training, but it is common practice for audit firms to subcontract specialists when they don’t have the expertise. I’m arranging to provide these services for a mid-tier firm as I write, so clearly it can be done. Why is this not a common service?

Where were the directors?

Perhaps the most disturbing thing of all is that boards know projects have a high failure rate [i]. Why do they and senior management expect a different result when they continue to follow the same process? Governing projects is not rocket science. There are only six basic issues that have to be addressed:

1. Make sure you know what success looks like (IT is generally only an enabler, it is rarely the real objective).
2. Make sure you know what has to change for the benefits to be realised.
3. Make sure you appoint a sponsor who is personally motivated to make the changes happen, and make them accountable for the benefits.
4. Make sure you have a way to measure if the benefits have been realised (Do not use on-time on-budget. This is desirable but not the ultimate objective).
5. Make sure you listen. Establish the right culture so that bad news is not filtered out.
6. Make sure you monitor and intercede as necessary (Something always goes wrong and there are times decisions can only be made at the board and top management level. Political considerations cannot override the need to have the right person accountable. When the consequences include bankruptcy, we all lose).

This advice is usually enough for most people, but there are times more detailed help might be required. We have developed 6Q Governance™ to be the project inspector’s toolkit and when appropriate, we can work with you to transfer our skills.

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[i] R.C. Young and E. Jordan, “Lifting the Game: Board views on e-commerce risk,” in IFIP TG8.6 the adoption and diffusion of IT in an environment of critical change, (Sydney: Pearson Publishing Service, 2002), pp. 102-113

Executive Summary

Victoria is considered to be one of the international leaders in New Public Management and their approach to project investments was expected to be at the forefront of practice. Our research has shown however, that their key investment frameworks (based on tools developed by the UK’s Office of Government Commerce) do not adequately support their strategic goals.

Our evidence suggests there are major deficiencies with best-practice. We are taking the lead to address this by developing approaches to help boards and top managers to govern projects effectively. However the significant deficiencies with program and portfolio management have yet to be addressed. A call is made for others to contribute.

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No adequate tools to govern programmes/portfolios to realise strategic goals

Projects in the public sector

We were recently commissioned by the Victorian Auditor-General’s Office to undertake a study to explore ‘The role of projects within the Victorian Public Sector’. We subsequently extended our study to include New South Wales and found that projects are increasingly important across the whole public sector. Projects now consume around 20-30% of budget[i] and are the main enabler of government policies such as improving health/education and reducing crime/traffic congestion.

The significance of the studies is that they have highlighted a very major flaw in the way projects are typically managed. Victoria is considered to be one of the international leaders in New Public Management and their approach to making project investments was also expected to be at the forefront of practice. It was therefore a revelation to discover their key investment frameworks (based on tools developed by the UK’s Office of Government Commerce) did not adequately support their strategic goals!

The deficiencies can most clearly be seen by considering the impact of the huge project investments over past decade in education and health (estimated to be between $10-20b). The Victorian Department of Education and Early Childhood Development is considered one of the best in Australia, and their effort is undeniable, but their results have not contributed to the government’s 10-year goals. Literacy has generally not improved and numeracy has actually decreased [ii]. Waiting times for health services appear to have been largely static despite almost a billion dollars a year being poured into health related projects. What is going wrong?

Projects in general

Please understand I am not taking the boot to public sector. As a citizen of NSW I am envious of the quality of life the Kennett, Bracks and now Brumby government have delivered for Victorians. A quick comparison with the post-melt-down corporate sector reveals the Victorians govern better than almost anyone in both the public and private sector. Yet their track record with project investments echoes the dysfunctional pattern found all over the world (where half to two-thirds of project investments fail to deliver any benefits at all [iii]). If the ‘best’ cannot get it right, there must be something wrong. Something is missing.

What we have found is that the Victorian investment frameworks are “directed mainly at asset investments”. Their strength is that they select investments based on the benefits to be delivered rather than the cost or the time. Their weakness is that selection is at the project investment level rather than at the program level.

• Asset investments alone (such as IT, schools, hospital or roads) seldom directly lead to the realisation of strategic goals such as reduced crime, increased literacy, or reduced waiting times.
• Programs of projects are almost always required (e.g. build school + change bus routes + recruit quality staff + develop and implement quality curriculum + manage parent/community perceptions = increased literacy). It is pointless to fund an individual project unless all the other critical inter-related projects are also funded.
• Effective governance is also required. Organising and funding whole programs is important, but can easily go off track after approval. Strategy is emergent and needs to respond to the changing environment. Governing is the high-level ‘steering’ of the program through the emergent issues that cannot be planned for (e.g. bushfires, swine flu, global financial crises, etc.)

Deficiencies in best-practice?

Our studies suggest there are major flaws in the way projects are managed. Value is reported to be lost in three major areas [iv]:

• The traditional emphasis on project management has the potential to increase value by 15% (by avoiding rework and over engineering).
• The approach taken by the Victorian government is better and may represent current ‘best-practice’ because it has the potential to increase value by 33% (by investing to reduce underutilised infrastructure).
• The most potential value to be realised is in avoiding duplication of project effort through governance of programmes and portfolios (52%)

This understanding is show schematically below:

New program / portfolio tools needed?

The solution appears to be more effective governance using programme and portfolio tools as appropriate [v]. e8 Consulting has been focussed on developing governance guides such as 6Q Governance™ to supplement the governance Standards AS8016 and HB280. However, further study has revealed that the disciplines of portfolio and program management to be very immature.

• The leading programme methodology Managing Successful Projects (MSP) is overly mechanistic and not closely followed by practitioners because it is relatively ill suited to implement strategy [vi].
• The dominant portfolio approach in practice seems to be based on the selection of projects and more suited to new product development than the implementation of strategy [vii].

These and other early findings [viii] suggest we may have to develop the tools ourselves. We hope it isn’t so and post this blog in the hope that others can comment on our findings and collaborate to find a faster way forward.

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[i] We estimate project expenditures to be around $6-8b pa in VIC and $8-12b pa in NSW

[ii] VAGO, Literacy and Numeracy Achievement (Victorian Auditor-General’s Office,  2009)

[iii] R. Young, “What is the ROI for IT Project Governance? Establishing a benchmark.,” in 2006 IT Governance International Conference, (Auckland, New Zealand, 2006)

[iv] Doug Watters, “IBM Strategy and Change, survey of Fortune 1000 CIOs.” August 17, 2004

[v] Sergio Pellegrinelli and Cliff Bowman, “Implementing strategy through projects,” Long Range Planning,  27 (1994), 125 – 132

[vi] Sergio Pellegrinelli, David Partington, Chris Hemingway, Zaher Mohdzain, and Mahmood Shah, “The importance of context in programme management: An empirical review of programme practices,” International Journal of Project Management,  25 (2007), 41 – 55

[vii] Michel Thiry and Manon Deguire, “Recent developments in project-based organisations,” International Journal of Project Management,  25 (2007), 649 – 658

[viii] Alan Stretton, “Program Management Diversity – Opportunity or Problem?,” PM World Today,  11 (2009)

For any investment to deliver the expected benefits, top management have to play their part. They have to govern the investments that have been authorised. Boards have to have ways to hold sponsors accountable for the promised benefits and have ways to intercede effectively whenever the expected benefits turn out to be unrealisable.

My research has shown that Boards and top managers have the most influence whether a project succeeds or fails [i]. However, other research suggests the governance of investments is far from adequate:

Expected benefits are only ever documented 67% of the time (but 27% of the time the benefits are exaggerated to get funding [ii]). Board members openly admit there are times when “we knew we were being lied to but no one was willing to raise the issue” [iii] and major auditing firms have suggested the common practice was “tantamount to negligence [iv]“.

Only 5-23% of boards hold project stakeholders responsible for the promised benefits [v] and fewer than 13% of organisations track the benefits through to realisation [vi]. None of the board members I spoke to said they had a consistent mechanism to terminate projects.

Major cultural change in board practice is required. Are boards ready to govern projects? My answer is yes. My early research has shown:

1. Director education supports the concept of project governance (through the concepts of Strategic Execution and Decision Making, both of which are major modules in the AICD Company Directors Course).
2. Three out of four directors acknowledge that projects seldom deliver the expected benefits.
   1. Their review of the new Australian Standard (AS8016, HB280) was positive because “it provided the right guidance for boards”.
   2. They rated project governance as a medium priority for the board.
3. The main issue identified was a lack of mental bandwidth because of the heavy burden of compliance with new regulation.
4. The solution presented was to keep things simple:
   1. talk about strategy and focus on what success looks like,
   2. talk about the role of the sponsor and the board,
   3. focus on the other HB280 questions:
      1. How much change is required?
      2. How should success be measured?
      3. Is there the culture to surface and resolve unexpected issues?
      4. Are the benefits on track to being realised?

These findings were presented at ISACA’s Oceania CACS conference on ‘Delivering Value’ held in Sydney from 8-10 September 2008 (see below). The research confirmed the trend identified in my earlier presentation ‘The emerging demand for business project audits’ (14 March 2007).

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[i] Raymond Young and Ernest Jordan, “Top management support: Mantra or necessity?,” International Journal of Project Management,  26 (2008), 713 – 725

[ii] Chad Lin, Graham Pervan, and Donald McDermid, “IS/IT Investment Evaluation and Benefits Realization
Issues in Australia,” Journal of Research and Practice in Information Technology,  37 (2005), 235-251

[iii] Standards Australia, HB280 How Boards and Senior Management Have Governed ICT Projects to Succeed (or Fail) (Sydney: Standards Australia,  2006)

[iv] Deloitte, What the Board Needs to Know About IT: Phase II Findings: Maximizing performance through IT strategy (Deloitte LLP,  2007)

[v] J. Thorp, “Unlocking Value – Delivering on the Promise of Information Technology” (Sydney, 2008)

[vi] KPMG, “Global IT Project Management Survey: How committed are you?.” 2005

Boards appear to be genuinely interested in improving their performance [i]. They are also looking for guidance on IT issues but (a) their experience with IT advisers had been disappointing [ii] and (b) ‘best-practice’ had been found to be of little practical utility with no consistent impact on success [iii].

However new governance Standards (ISO38500, AS8016, HB280) are emerging that address board-level concerns and are focused on the realisation of above average returns. Within Australia, because of the large investments in IT, effective governance of projects could lead to 1-3% increases in GDP. It will be a major breakthrough if boards start to follow these guidelines and require business process audits as part of the regular governance process.

The leading indicators of change might be:

• appointment of board members with IT experience,
• business project auditing being offered by major consultancies,
• widespread adoption of the new governance Standards,
• the term ‘business projects’ entering into the common business language
• significant negative press over new project failures.

These suggestions were originally presented at an ISACA professional development session in Sydney on 14  March 2007. The slides can be seen by clicking on the link below.

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[i] R. Leblanc and J. Gillies, Inside the Boardroom: the coming revolution in corporate governance (Toronto: John Wiley and Sons,  2005)

[ii] R.C. Young and E. Jordan, “Lifting the Game: Board views on e-commerce risk,” in IFIP TG8.6 the adoption and diffusion of IT in an environment of critical change, (Sydney: Pearson Publishing Service, 2002), pp. 102-113

[iii] Raymond Young and Ernest Jordan, “Top management support: Mantra or necessity?,” International Journal of Project Management,  26 (2008), 713 – 725

Executive Summary

• Following the GFC – governance practices will almost certainly be questioned
• New governance requirements are likely to be introduced
  • Historically new requirements are introduced reactively
  • There is a risk new requirements will not add value
• We should anticipate these developments
  • It takes longer for management to respond than for the board to ask
  • We should identify the key areas that need to be governed
  • We should check we have effective systems to monitor the key areas, and introduce new mechanisms where necessary
  • Governing major projects is one area worthy of attention
  • New Standards AS8016, HB280 have much to offer.

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A backlash against lax governance

The Global Financial Crisis (GFC) will inevitably lead to higher levels of scrutiny. It is likely to expose the high rate of failure of large investment projects. The Australian Institute of Company Directors highlight the problem in a number of modules in their highly regarded Company Director Course:

• ¾ of mergers and acquisitions never pay off
• most large capital projects fail to live up to expectations
• majority of efforts to enter new markets are abandoned in a few years
• 70% of new manufacturing plants are closed in their first decade

Leading audit firms have commented that management of such large-scale expenditures is a fiduciary duty and imply that current practice, with IT projects in particular, is “tantamount to negligence” [i]. Until now this matter has not received much attention and boards have not been held accountable. The backlash following the GFC is already being felt and the lax levels of supervision are unlikely to be tolerated in the future.

Boards and their advisors are strongly encouraged to implement regimes that will increase the success rates of their investments. The six questions from Standards Australia’s handbook on the corporate governance of projects [ii] is a framework that would make a difference. In the presentation below, some of our early work is presented to suggest how the questions could be implemented in practice.

A version of this article was originally prepared for submission to the Australian Company Director Magazine. The key points were also presented at an ISACA Summit held in Sydney on 31 March 2009.

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[i] Deloitte, What the Board Needs to Know About IT: Phase II Findings: Maximizing performance through IT strategy (Deloitte LLP,  2007)

[ii] Standards Australia, HB280 How Boards and Senior Management Have Governed ICT Projects to Succeed (or Fail) (Sydney: Standards Australia,  2006)