By Philip Quigley, CFPIM

A large IT project must have a logical, rational business justification. This is simple — the project will either cut costs or increase revenues so that the cost of the project is met and a return is made to stockholders. In the realm of cutting costs, you either reduce labor costs, reduce mistakes or improve the quality and/or timeliness of decision-making. Reducing labor is simple to quantify. A flowchart or process map of the current and proposed systems should be able to prove that case. If a flow chart cannot be produced, then, more than likely, there will be no reduction in labor. Reducing mistakes can also be documented by the use of flow charts and standard TQM tools to show root causes, etc. The last place to reduce costs — improving decisions — can also be documented. A good example is the use of bar coding systems at food stores. Originally thought to reduce labor, the actual benefit has been in better inventory control and product management.

Increasing revenue means that you will be offering a new service or product, or are somehow enhancing your relationship with customers. Whether to introduce new products will be decided based on customer demand, but desperate decisions can be made regarding when and how to increase the depths of relationships with customers and suppliers. These could include online ordering and tracking, or building loyalty with customers by offering clubs that give discounts or gifts based on purchases (e.g., the airlines' frequent flyer programs).

The second part of the analysis is calculating the total cost of the project. The simplest part of this is understanding how much money will be spent on hardware, software and salaries for employees and consultants on the project. A major factor here in some of the IT project failures is underestimating the total cost, which can happen for many reasons. Sometimes the technical difficulties are greater than expected, other times the cost is deliberately underestimated because of the perception — or the reality — that management does not want to hear the real numbers. The only way to ensure that the true cost is correctly estimated and adhered to is to choose a seasoned project manager who understands IT project management and will closely manage these costs to meet the budget. This is not the time to broaden the skill base of a high-potential manager who has never undertaken large project management.

But there are two other areas of cost that also come into play. One is the cost of having good personnel work on this project. Large IT projects that succeed have the full dedication and support of hand-picked team members who make sure the project is designed precisely and implemented perfectly, on time and within budget. These high-quality people are almost certainly fully engaged in other worthwhile endeavors, and could be doing other things for the organization. If these people are shifted back and forth between projects and tasks, which happens all too often, then all work will suffer and the large project will almost certainly miss the projected dates.

The second major unknown cost area is conflict in the organization. Any large project will require change in the organization: changes in how things are done; changes in relationships between groups; and changes in relationships with customers and suppliers. Some groups or individuals will think they are going to lose power. This conflict can tear a project or an organization apart. When the conflict continues unabated or without resolution, IT projects tend to stretch out, and that runs up costs exponentially. Executive management must be aware of the conflict being caused and, when appropriate, must step in to resolve the problem.

All of these costs can be anticipated and managed if proper attention is given throughout the entire life cycle of the project. Successful IT projects have sponsors that are fully engaged and can assist the project manager in controlling and minimizing all costs and conflicts. Projects whose managers cannot fully estimate and present these costs and their plans to manage them should not be authorized to do so.

When the benefits and costs have been thoroughly documented, executive management then must complete the analysis. The question is, "Will this project make a return that justifies its total costs in terms of both hard and soft dollars?" The answer to this question will never be totally black or white. There will be areas of risk and areas of unknown consequences that have to be decided. Based on this analysis, the decision can then be made on whether to proceed or not. And this decision must be made like any other business decision — do the benefits outweigh the costs? If they do, your large IT project may just go down in business history alongside of the other famous projects frequently discussed in the media.