IT Pays a Price for Poor Requirements Practices
- By James E. Powell
- February 7, 2008
IAG Consulting's new Business Analysis Benchmark
makes one thing clear: almost 70 percent of companies surveyed set themselves up for both failure and significantly higher costs by their use of poor requirements practices. Moreover, failure came at significant expense. The average $3 million project costs companies using poor requirements practices an average of $5.87 million per project -- a $2.24 million premium.
The survey examined the importance and impact of business requirements on the success of enterprise technology projects of more than $250,000 and that added significant new functionality. The average project value for the 110 projects at 100 companies surveyed was $3 million.
The study analyzed business requirements quality in the industry and the levers for making effective change. It also addressed the following issues: the financial impact of poor quality requirements; the information needed to identify underlying issues critical to success; and the data necessary to target specific recommendations designed to yield performance improvements.
Projects fit two scenarios in the report. In the first scenario, project success is improbable. Company projects might be successful, but that's not by design. These companies -- comprising 68 percent of all examined -- are statistically unlikely to have a successful project. Half of these companies were likely to have a project "run-away," defined as having two of the following three conditions: a budget of more than 160 percent of the original; over 180 percent of estimated time expended; or delivering less than 70 percent of the expected functionality.
In the second scenario, of which 32 percent of companies fit, project success is probable, thanks to "superior business requirements processes, technologies, and competencies of people in the organization." In this group, 54 percent delivered on time, on budget, and projects met the expected functionality.
The report points out that effective business requirements are a process, not a deliverable.
"The findings are very clear in this regard -- companies that focus on both the process and the deliverables of requirements are far more successful than those that only focus on the documentation quality. Documentation quality can only assure that investment in a project is not wasted by an outright failure. The quality of the process through which documentation is developed is what creates both successes and economic advantage. To make effective change, companies must rethink their process of business requirements discovery."
Among the other findings in the study:
Poor business analysis capability will result in three times as many project failures as successes
Just over two-thirds of companies (68 percent) are more likely "to have a marginal project or outright failure than a success due to the way they approach business analysis"
Failure is costly: an enterprise may face a premium of up to 60 percent on time and budget when poor requirements practices are used
Over 41 percent of IT's development budget for software, staff, and external professional services is spent on poor requirements at the average company, using average analysts when compared to "optimal" companies
The study points to a deficiency in IT skills.
"The level of competency required is higher than that employed within projects for 70% of the companies surveyed."
And executives need to pay attention: "companies can, and do, achieve over 80% success rates and can bring the majority of strategic projects in on time and on budget through the adoption of superior requirements practices."
There's no silver bullet to fix the problem, IAG Consulting says.
"CIOs must look at making improvement across all the areas of people, process, and tools used to support processes to gain organizational improvement."
The group recommends a systematic change in terms of people, processes, and tools if an enterprise is to materially improve.
There are some simple steps that an enterprise can take. For example, auditing "three specific characteristics of business requirements documentation and forcing failing projects to redo requirements" can eliminate most IT development project failures.
Even though organizations understand that requirements are important, most don't change their behavior.
"Only companies that focus on both the process and the deliverables are consistently successful at changing project success rates."
Success doesn't mean all projects will meet delivery targets, however.
IAG Consulting expects that "including all failures, scope creep, and mistakes across the entire portfolio of projects," companies using the best requirements-gathering approach will still spend, on average, $3.63 million per project on a project estimated at $3 million. Still, that's far superior to being on budget less than 20 percent of the time and experiencing budget overruns on half of all projects -- the penalty most companies pay.
Further information about Business Analysis Benchmark, The Impact of Business Requirements on the Success of Technology Projects is available at http://www.iag.biz.