23 September 2011

Uncertainty: The Elephant in the Room–Part 2

In a previous article on uncertainty, we talked about how uncertainty is viewed by the “customer” of IT versus how it is viewed by the information technologists (e.g., value-added reseller or VAR, IT department) themselves. We mentioned how the “buyer” or the “customer” may feel the only uncertainty for them is the questionable performance of the IT provider.

In this present article I hope to bring out some of the ways traditional methods of project management and corporate management may actually contribute to uncertainty rather than diminishing it. We will speak of this in the context of IT projects, but it actually holds true in almost any project environment (whether or not management recognizes that they have and manage “projects”.)

Uncertainty - elephant

Pretending about numbers

In out business dealings we like to think that our dealings—both internally and externally—are driven by numbers and facts. What management almost always fails to acknowledge is that a great percentage of our dealings are as much driven by intuition as they by numbers. In fact, intuition frequently ends up driving the numbers.

Take for example the VAR who brings a prospective deal to his project managers (or equivalent) and asks them for an estimate for the services on a project that includes development, training, deployment and post-go live support. The project management (PM) team does its due diligence and comes back with an estimate: “We think it’s going to take $278,000 in services to get this done right.”

The sales managers and executives put their heads together and, purely out of intuition, say, “We can’t sell this project for that much money, but we really need the work right now.” Then, based on the sales department’s intuition and clout with the executives, the PM team is “encouraged” (read: “pressured”) to reconsider their estimate to see if they can’t get the project done for $232,000—which the salespeople believe is the number the prospect will “bite on.”

To make a long story short: the deal gets done and the client is quoted $232,000 in services for the project.

Now, even though the final number was not predicated on numeric calculations and numerical estimates—no, indeed, it was based almost entirely on intuition—there is nothing imprecise nor “intuitive” about the $232,000 figure that was written into the agreement.

The intuitive number now bears pretends to be a precise calculation—an “estimate” or a “project budget.”

In so doing, the reseller has just introduced at least $46,000 in uncertainty into the project. At a typical billing rate, let’s say 250 man-hours or about six-and-a-half man-weeks.

There are no “price complaints”

Several decades ago I had the privilege of working with the national sales manager of an organization with which I was doing considerable business. The gentleman told me something that I will never forget. He said, “There is no such as a ‘price complaint.’ There are only ‘value complaints.’”

I bring this up because the “pretending about numbers” scenario I mentioned above happens more frequently than most folks in the IT business care to admit. But, I don’t believe it has to happen.

Why is it that, most of the time, folks in the IT business never have any real discussions about the “value”—the hard ROI—that their solutions will deliver?

I believe that they do not have those discussions for a couple of very elementary reasons:

  1. The customer doesn’t ask. Of course, one of the reasons the customer doesn’t ask is because they’ve heard all the typical “rules of thumb” benefits already. Another reason is because many executives and managers do not even believe in ROI from IT. They consider it a “cost center” and just throw money at it whenever they think it might help. These managers and executives frequently see adding new “IT stuff” or replacing their ERP systems akin to pouring an engine additive into their car. They expect if they do that their engine (their company) will run smoother, faster, longer and get better mileage, but they have no idea how to measure the benefits of “smoother,” “faster,” or “longer.”
  2. The IT folks don’t know how to calculate it. No, I’m not saying that the executives and other folks in IT don’t know the formula for “ROI.” I’m saying that they are (generally) unwilling or unable to walk their clients or prospects through the process of developing the performance metrics by which the results of their combined (i.e., IT or VAR together with the firm or business unit affected) efforts will be measured.

If both parties—the customer and the IT service provider—are unwilling to confront the subject of real ROI from IT investments openly, objectively and with the aim of mutual agreement on the intended measurable results for the investment, then how can the VAR (or IT department) expect to build “value” in the mind of the buyer to support the “investment” required?

In my opinion, they can not. So, instead, they reduce their “estimates” and cut corners to make it fit into someone else’s “intuitive” budget constraint that is generally predicated entirely on “cost” and almost never on anything like a hard ROI.

Isn’t it time to stop doing business this way? It’s just adding more to the uncertainty in every project. No wonder there are so many IT project failures—or self-proclaim or assumed “successes” with no substantiation—all around us.

Let me know what you think.

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