The Standish Group estimates that in 2004, U.S. businesses spent 100 billion dollars on marginal and inactive requirements for new and revised software applications. We had a theory that considering cost, risk and gain would help determine the priority of requirements and reduce failures.
The Standish Group has been collecting case information on real-life IT environments and software development projects since 1985. Standish’s cumulative research encompasses 12 years of data on why projects succeed or fail, representing more than 50,000 completed IT projects. Through CHAOS University, The Standish Group has hosted almost 500 workshops, as well as focus groups, project ”group therapy” sessions, and executive retreats that focus on particular issues of project management.
The following excerpt from my new book, My Life is Failure (Standish Group International, 2006), illustrates the risk/reward idea as it relates to requirements.
Sometimes you keep the panda bear; sometimes you don’t. Consider cost, risk, and gain collectively in your decision-making.
To test our theory and find out how it might work, we conducted three workshops at one of our CHAOS University events and followed it up with several other events. At each event the group broke into groups of five to 10 participants. We set up a program to build a zoo called Cat Mountain Zoo. Cat Mountain Zoo had five exhibit projects, such as a bird aviary. Each of the exhibit projects had five requirements: for example, the monkey compound project had accommodations for chimpanzees, baboons, spider monkeys, gorillas, and lemurs. The Bear River exhibit included a panda bear.
Every requirement was assigned a cost, a return rate, a net gain, a risk percent, and the amount of money at risk. There are a few ways to calculate money at risk. In our workshop, we used the project cost, added the average overrun, and multiplied by the percent of risk. The total cost of the program was $5 million. In the first workshop the participants’ task was to reduce the cost to $4 million while maximizing the net gain. One person from each of the groups was given a project; the remaining participants were users. For the most part, the groups accomplished the first task fairly easily. For example, every group kept the panda bear, which had the highest return rate and a solid net gain.
In the second workshop, the task was to reduce the money at risk while cutting the budget to $4 million dollars. The risk had to be cut from almost $2 million to $1 million. Again, the groups worked hard and, after some negotiating, got their risk down to under a million. It should be noted that the first animal to go was the panda bear, which also had the highest risk.
In the third workshop, the task was to maximize the return and minimize the risk. This proved to be a most daunting task. The panda bear turns out to be a pivotal decision since it represented the highest cost, risk, and gain. Those who could tolerate higher risk kept the panda bear, while others sent it back to China. As the teams worked, they realized in order to optimize your requirements you must look at the aspects of cost, risk, and gain.
My Life is Failure, a summation of more than a decade of work on project failure, looks at 100 things project managers can do to improve their chances of success. The above excerpt is one of the 100 points. Standish’s mission is to make you, the IT professional, more successful and help improve the value of your IT investments and project leadership skills.
Johnson is the founder and chairman of The Standish Group. He has been professionally involved in the computer industry for over 30 years and has a long list of published papers, articles and speeches. More information about the company and My Life is Failure can be obtained at www.standishgroup.com. Click on the Store link.
