As we can see:

• 31% of the projects didn’t meet the Business Objectives
• 43% were over budget
• 48% didn’t finish on time

Yet the PMI’s data reported that only 15% of the projects in their survey were considered to be failures.

I’m sorry, but in my books, if you don’t deliver on the Business Objectives and Requirements, that is the most basic definition of failure.  That’s like saying the business asked and budgeted for a car, and we delivered a car, but with no engine or tires, usually at the cost of 2+ cars. Success…Yeah team.  To me that is ridiculous.

Furthermore, if you don’t finish on time or budget, that is also failure of a sort.  There is just no way that with those statistics anyone can claim only a 15% failure rate.  At a minimum the failure rate should have been reported at 31% and I would argue it’s probably at least the 48% and likely higher if you consider that the set of projects that failed in at least 1 of those dimensions is probably greater than the value in any one dimension.

What is particularly interesting is that in the 2024 PMI Pulse of the Profession report, the PMI found that the methodology used to execute the project had little to no impact on eventual success of that project.  Boston Consulting Group (BCG) reports similar findings. This is consistent with my personal observations.

IT Project Failure Statistics

In the IT world, where our team at Proceve have spent the past 4+ decades doing large scale projects, the numbers are much worse:

So globally, companies spend $1.6 Trillion annually on custom software development with a 70% project failure rate and $500 Billion written off annually as waste (compiled from Gartner, Forrester, IDC and others).

Digging in deeper, we find the following:

• 31% of software projects are cancelled before completion with no functional software being delivered. Source: Zipdo
• 52% of projects exceed their budget by an average of 189%
• Over 70% of projects run over on time Source: McKinsey
• 63% of software projects are over budget Source: McKinsey
• The larger the project, the more likely it is to fail. Source: Standish
• 17% of projects fail so badly they put the entire company at risk of collapse Source: McKinsey

Financial Impact

In the same PMI report, cited above, they reported that on average, when a project failed, an average of 32% of the total project budget was considered to be completely lost and written off. As with the overall project failure statistics, the cost numbers for IT projects are much worse.  As noted above, software development projects waste and write off approximately $500 Billion annually.  That’s almost 33% of the total global software development spend being written off annually.  This is massively more than in the PMI’s general project data indicates, which is that only about 5% of total global project spend being written off.   

Hidden Costs of Project Failure

While the direct financial costs are the most obvious and immediate, there are a number of other costs resulting from project failure.

Opportunity Cost

Opportunity cost, at its core, is about the potential benefits an organization misses out on when choosing one alternative over another. When a project fails, the opportunity cost isn’t just about the resources spent. It extends to the loss of potential revenue, market positioning, and innovation that could have been achieved had those resources been allocated differently.

Reputational Damage

Reputational damage comes from two potential directions:

1. If the company is technology focused and its project failure becomes public knowledge, this can have a direct, negative impact on its reputation in the market.
2. If the failed product is a client facing one and it is released into the market with reduced capability and/or significant bugs, this also has a negative impact on the company’s reputation and also may result in the immediate loss of customers, who are likely to be dissatisfied with the product.

Also (and I have seen this firsthand) when word gets out about the failure we often see the following:

• The company gets trashed in the press and rumor mill in the market
• The company has a hard time recruiting for IT roles going forward
• Companies shy away from working with the company for fear of being tied up in their next failure

Lost Business Value and Strategic Impact

A critical but less tangible cost is the loss of strategic value. Projects that fail or underdeliver might leave a company lagging behind its competitors. Effective IT projects are expected to streamline operations, enhance customer interactions, or drive data-driven decision-making. When these benefits fail to materialize, companies not only lose their initial investments but also miss out on the competitive edge those projects were supposed to bring

IT Project Failure Examples

To put all of this into more concrete perspective let’s look at some specific examples of where IT projects have failed, some in the public eye and some not.

UK NHS’s Electronic Medical Records System (NPfIT)

Probably one of the most spectacular failures on record, the NHS attempted to implement a National EMR , which is a good idea.  The initial budget was set at £6 Billion and it was finally shut down after 10 years of attempting to deliver with a final cost of £12.7 Billion (Source: IEEE)

FBI’s Virtual Case File System (VCF)

The FBI wanted to update their IT so that case files could be centralized and made available electronically.  Another great idea, and one I can relate to since my dad was involved in this type of IT activity for the RCMP in Canada. It was through his work, that I got involved in technology at such an early age.

The FBI started work on this with a budget of less than $50 million, by 2005 they had spent $170 million and had shut the project down completely (Source: CPI).  In 2006 they started a replacement project called Sentinel with a budget of $425 million to do the same thing VCF was supposed to do.  In 2012 that project was completed at a final cost of $525 million (and didn’t meet basic requirements according to later reports. (Source: IEEE).

Financial Service Projects

Just so you don’t think this kind of failure is limited to Government projects, I am aware of many such IT failures over the course of my career in Financial Services as well ( I will not provide specifics since most of these were not made public).

I can think of at least 3 projects since the 1990’s which spent over $1 billion each before being shut down with little or nothing to show for their effort.  I can probably name at least 15-20 more with budgets in the $100-500 million range that were also shut down and didn’t deliver against the business requirements.

Conclusion

The bottom line is that projects fail and IT projects fail often.  When they fail the costs can be enormous, both from a financial and a non-financial perspective.  Our job as executives, project managers, etc is to firstly, mitigate the risks associated with our initiatives so as to minimize the risk of failure.  To do this we need to understand what causes these projects to fail and what we can do to eliminate those causes of project failure, but more on that next time.