HBR: Why Your IT Project May Be Riskier Than You Think
Any company that is contemplating a large technology project should take a stress test designed to assess its readiness. Leaders should ask themselves two key questions as part of IT black swan management: First, is the company strong enough to absorb the hit if its biggest technology project goes over budget by 400% or more and if only 25% to 50% of the projected benefits are realized? Second, can the company take the hit if 15% of its medium-sized tech projects (not the ones that get all the executive attention but the secondary ones that are often overlooked) exceed cost estimates by 200%? These numbers may seem comfortably improbable, but, as our research shows, they apply with uncomfortable frequency.
Even if their companies pass the stress test, smart managers take other steps to avoid IT black swans. They break big projects down into ones of limited size, complexity, and duration; recognize and make contingency plans to deal with unavoidable risks; and avail themselves of the best possible forecasting techniques—for example, “reference class forecasting,” a method based on the Nobel Prize–winning work of Daniel Kahneman and Amos Tversky. These techniques, which take into account the outcomes of similar projects conducted in other organizations, are now widely used in business, government, and consulting and have become mandatory for big public projects in the UK and Denmark."