Failure costs fall into four key areas:

Continuing expense of old systems. With 75 percent of the IT budget attributed to maintenance at most companies, there can be significant incentive for insurers to upgrade to modern platforms. However, when projects don't deliver on their promise to eliminate old systems, not only does this cost continue, but it is compounded by being added to the maintenance cost of the new system implemented.
Lost investment. Failed projects leave insurers on the hook for the expense of software, hardware, and other infrastructure costs. Additionally, the resource investment in integration, configuration, and customization work is similarly lost.
Operational costs. Projects have anticipated operational improvement returns. When those projects fail, not only are those benefits not realized, but processes may be made worse and more costly. Even more troubling, failures can increase both operational expenses and enterprise risk by creating regulatory and reporting challenges due to integration problems, data errors, or other newly introduced limitations.
Opportunity costs. The reduction in revenue or negative impact on time to market caused by project failure can be severe. While the hard numbers may show that an initiative took twice as long (and cost twice as much), resources of both personnel and time that were allocated to a failed project were also unavailable to be used elsewhere. Unfortunately, opportunity cost is also difficult to measure because it requires insurers to assess the impact of what they could have done if projects had turned out differently.

In just one example of these compounding costs, a regional P&C insurer came to us after it had spent tens of millions of dollars—300 percent over budget—on a project that had gone nowhere despite exceeding the timeline by 18 months. They fired the vendor and obtained the source code, essentially re-starting the project from scratch. Not only did this create additional cost and time to bring a viable system on line, but it prevented the company from moving into several planned new states because resources were allocated to the struggling project—representing substantial opportunity cost.

Special Reports /

Counting the Costs of Project Failure

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