Recession Causes Rising IT Project Failure Rates

Recession-related IT budget slashing and layoffs are taking their toll on IT project success rates, according to the results of the latest CHAOS Summary 2009 report from The Standish Group.

The Boston, Mass.-based IT project management research and consulting firm surveyed 400 organizations and found a decrease in IT project success rates and an increase in IT project failure rates during the past two years. Specifically, 32 percent of IT projects were considered successful, having been completed on time, on budget and with the required features and functions. Nearly one-in-four (24 percent) IT projects were considered failures, having been cancelled before they were completed, or having been delivered but never used. The rest (44 percent) were considered challenged: They were finished late, over budget, or with fewer than the required features and functions.

[ For related stories, see Common Project Management Metrics Doom IT Departments to Failure, How to Spot a Failing Project and Project Management: The Most Common Mistakes IT Departments Make. ]

Jim Johnson, chairman of The Standish Group, says this is the first increase in IT project failures that he’s seen “in a long time.” According to The Standish Group’s research, IT project success rates rose steadily from 1994 until 2000, when they dipped, and then began rising again from 2002 through 2006.

The last time The Standish Group released its CHAOS findings, in 2006, 35 percent of projects were successes, 19 percent were failures and 46 percent were challenged.

Johnson says he was so surprised to observe a dip in IT project success rates that he waited an extra four months before publishing the CHAOS report to make sure its findings were accurate. (The chaos report normally publishes in January; this year it published in April.)

He attributes the increase in IT project failures to the recession, which according to economists began in December, 2007, and subsequent budget cuts.

“A lot of the project cancellations are because of the economy,” says Johnson. “People are more prepared to cancel projects than they have been in the past. When they see a project that’s not going well, they have more political clout to cancel it and move on.”

Johnson admits that cancelling a project because funding has dried up or is limited is not necessarily a bad thing. He says the reason such projects get lumped into The Standish Group’s failure category is because the research firm can’t always distinguish whether a project was nixed because of the economy or because it wasn’t running smoothly. Johnson estimates that 20 to 25 percent of the failures during the past two years were caused by the economy forcing project cancellations, “but we’re still trying to figure that out,” he says.

Staff reductions within and outside of IT departments are also adversely affecting project success rates. With project managers and business stakeholders taking on more work due to layoffs, they have less time to devote to each project, to go to meetings, to help with requirements planning and to do all the other activities that promote project success, says Johnson.

Finally, the recession has engendered a risk aversion inside organizations that Johnson says has led them to overemphasize compliance and governance–to such an extent that too many checks and balances are slowing down projects.

And the longer a project takes, he adds, the more likely it is to fail.

“When a project is initiated, it has a certain business value,” says Johnson. “The business value can only be realized when the project is completed. If you add layers of red tape that cause the project to stall, it’s not [going to be perceived as] important. Too much governance and compliance bogs down projects. They don’t move forward fast enough to realize the business value.”

The end result of too much governance is a project that takes so long that stakeholders lose interest and eventually decide to cancel it, or a project that eventually gets delivered but doesn’t get used because it’s no longer relevant to the business, he says. In both situations, the project is considered a failure.

Despite the rise in IT project failures, Johnson says the cost and time overruns aren’t as bad they’ve been in the past.

“When we look at challenged projects, we’re seeing fewer overruns, and the waste to value ratio didn’t look too bad even given all the cancellations,” he says.

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