Why Your IT Project May Be Riskier than You Think

4 Pages Posted: 8 Mar 2013 Last revised: 22 Nov 2013

See all articles by Bent Flyvbjerg

Bent Flyvbjerg

University of Oxford - Said Business School

Alexander Budzier

University of Oxford - Saïd Business School

Date Written: September 1, 2011

Abstract

Out-of-control information technology (IT) projects have ended the careers of top managers, such as EADS CEO Noël Forgeard and Levi Strauss’ CIO David Bergen. Moreover, IT projects have brought down whole companies, like Kmart in the US and Auto Windscreen in the UK. Software and other IT is now such an integral part of most business processes and products that CEOs must know their IT risks, which are typically substantial – and overlooked. The analysis of a sample of 1,471 IT projects showed that the average cost overrun was 27% — but that figure masks a far more alarming “fat tail” risk. Fully one in six of the projects in the sample was a Black Swan, with a cost overrun of 200%, on average, and a schedule overrun of almost 70%. This highlights the true pitfall of IT change initiatives: It’s not that they’re particularly prone to high cost overruns on average – it is that there are a disproportionate number of Black Swans. By focusing on averages instead of the more damaging outliers, most managers and consultants have been missing the real risk in doing IT. In conclusion, the article outlines ideas as to what can be done to avoid Black Swans.

Selected by HBR as featured lead article for the "Ideas Watch" section, presenting the most important new ideas in business and management.

Keywords: IT projects, decision-making, risk

Suggested Citation

Flyvbjerg, Bent and Budzier, Alexander, Why Your IT Project May Be Riskier than You Think (September 1, 2011). Harvard Business Review, vol. 89, no. 9, pp. 601-603. Available at SSRN: https://ssrn.com/abstract=2229735 or http://dx.doi.org/10.2139/ssrn.2229735

Bent Flyvbjerg (Contact Author)

University of Oxford - Said Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

Alexander Budzier

University of Oxford - Saïd Business School ( email )

Park End Street
Oxford, OX1 1HP
Great Britain

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