Monday, September 28, 2009

Cost of IT Failure

What does IT failure cost us annually? A lot.

According to the World Technology and Services Alliance, countries spend, on average, 6.4% of the Gross Domestic Product (GDP) on Information Communications Technology, with 43% of this spent on hardware, software, and services. This means that, on average, 6.4 X .43 = 2.75 % of GDP is spent on hardware, software, and services. I will lump hardware, software, and services together under the banner of IT.

According to the 2009 U.S. Budget, 66% of all Federal IT dollars are invested in projects that are “at risk”. I assume this number is representative of the rest of the world.

A large number of these will eventually fail. I assume the failure rate of an “at risk” project is between 50% and 80%. For this analysis, I’ll take the average: 65%.

Every project failure incurs both direct costs (the cost of the IT investment itself) and indirect costs (the lost “opportunity” costs). I assume that the ratio of indirect to direct costs is between 5:1 and 10:1. For this analysis, I’ll take the average: 7.5:1.

To find the predicted cost of annual IT failure, we then multiply these numbers together: .0275 (fraction of GDP on IT) X .66 (fraction of IT at risk) X .65 (failure rate of at risk) X 7.5 (indirect costs) = .089. To predict the cost of IT failure on any country, multiply its GDP by .089.

Based on this, the following gives the annual cost of IT failure on various regions of the world in billions of USD:

REGION GDP (B USD) Cost of IT Failure (B USD)
World 69,800 6,180
USA 13,840 1,225
New Zealand 44 3.90
UK 2,260 200
Texas 1,250 110

Sunday, September 20, 2009

Sessions's Complexity Aphorisms

- Complexity is like heat. We need just enough to solve the problem. Any more kills us.

- The best IT solution is the simplest IT solution that solves the business problem.

- The simplest IT solution is the NULL solution, but that fails the effectiveness test.

- Complexity is the enemy.

- The cloud is a platform. Not a complexity solution.

- 60% of all IT budgets are invested in projects that are at risk for unnecessary complexity.

- Occam's Razor Applied to IT: When you have two competing architectures that solve exactly the same business problem, the simpler one is the better.

- Consulting organizations perpetuate complexity through fear: This project is too risky. You will fail and be blamed. Let us fail and be blamed.

- IT Complexity is a tax paid by everybody that benefits nobody.