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Chapter 1: Software Development Project Failures
Overview
The use of information technology (IT) has become pervasive in the management of organizations in the public and private sectors in today's information economy; it is impossible to imagine any organization, however small, not using computers in some manner to stay competitive. One of the main elements of the all-consuming influence of IT is software. Software is the collective term used to describe the set of program instructions that have turned the computer into such a formidable extension of the human capacity to store and process vast quantities of data. The increasing pressures of the information economy to make organizations more efficient and productive in the marketplace have driven executives in almost all organizations to look for that competitive and strategic advantage through the judicious use of software. Software has thus come to be viewed as a vital component of any organization's efforts to remain competitive in the information economy. New software projects are constantly being proposed for development in organizations to meet their computing and information needs. Despite the best efforts of these organizations, their well-thought-out plans for various software projects may end up as failures—sometimes monumental failures with unforeseen consequences, and with blame and recriminations throughout the organization. In some rare instances the software failures have even been known to endanger the very survival of the organization (the case of FoxMeyer Drug Company, reported in the Wall Street Journal, provides an example (Wysocki 1998)).Organizations in both the public and private sectors have often been forced to cancel software projects that have far exceeded their original cost estimates and schedule or time-of-completion estimates, or that have failed to achieve the desired minimal functionalities. The costs of such project cancellations have been staggering in recent years, owing in part to the increased size and complexity of new software technology. Most of the software failures, especially in private-sector organizations, remain unreported and are written off as part of the cost of doing business. However, in some cases the costs involved and the circumstances surrounding the failure are so spectacular that the details are reported in the news media, as happened for example in the cases of AMR Inc.'s CONFIRM (Oz 1994); FoxMeyer's Delta project, which contributed to its bankruptcy (Jesitus 1997; Wysocki 1998); Hershey Foods' ERP project (Collet 1999; Stedman 1999; Osterland 2000); IRS's Tax System Modernization (TSM) (GAO, 1995, 1996); Denver International Airport's Baggage Handling System (BHS) (Rifkin 1994); Bank of America's Masternet System (Szilagyi 1998); Pacific Gas & Electric's Customer Information System ("PG&E Dumps CIS Project," 1997); and the Medicare Transaction System of the Department of Health and Human Services (GAO, 1997). A number of studies have estimated the dollar drain on the U.S. economy to be in excess of several billion dollars a year. For example, in 1995 a study by the Standish Group of U.S. companies and government agencies found that 32 percent of corporate IT projects were abandoned before completion at a staggering cost of $81 billion. A later study by the Standish Group, reported on by Rick Whiting (1998, 20) in Software Magazine, showed similar figures for 1998. The failure record overall is not very encouraging, as they state: "In the United States, we spend more than $250 billion each year on IT application development of approximately 175,000 projects. …A great many of these projects will fail." They go on to describe the chaotic state of software development, warning that we can no longer ignore the problem of software failures (also see Standish Group, 1995; Johnson 1995; Wysocki 1998).Other studies have confirmed that the problem of software failures is not unique to the United States. In the United Kingdom, a study by the KPMG Consulting Company titled Runaway Projects found that "runaway projects have become the bane of organizations' attempts to transform their business" (Cole 1995, 3). The study goes on to provide more detailed statistics to support this claim, which we will discuss in a later section. Another UK study by a special interest group (OASIG) concerned with the organizational aspects of IT concluded that most investments in computer-based systems fail to achieve the objectives of the organizations using them (OASIG, 1996). Again, we examine the details of the study in a later section. A study of Canadian federal government IT projects reported on in Infosystems Executive by Erik Heinrich (1998) found similar disturbing news of several billion Canadian dollars spent on projects with questionable results. In some cases outright cancellation occurred, as with the Canadian Automated Air Traffic Control System (CAATS), which ended up costing more than one billion Canadian dollars over a ten-year period. Software failures are not limited to any geographic region, industry, or market group, nor are they restricted to specific organizational size. The Standish Group study reports failures in organizations of all sizes.
