The Australian commercial and public sector landscape continues to be dramatically affected by the global economic downturn, and the IT industry is no exception. Although some are optimistic that the worst of the downturn is over at least in Australia, the impact is expected to continue into 2010.
The economic downturn has seen the disintegration of a number of well-respected and established businesses and caused a great deal of uncertainty for many others, particularly as to likely revenue streams, and availability and price of capital. Both providers and customers of IT services are continuing to assess how these factors will impact on their businesses, and adapt accordingly. For a fortunate and nimble few, the crisis has presented unexpected new business opportunities, while for others, revenues have fallen dramatically. But all participants in the industry have experienced a closer eye being cast upon proposed investments and on budget controls.
This article briefly assesses the likely impact of the downturn on Australia’s IT industry and provides some survival tips.
IT expenditure in the downturn
Inevitably, the downturn has had a significant effect on IT expenditure in Australia, a sector that accounted for annual revenues of around $40 billion in 2008. Australian companies have been looking for ways throughout 2009 to increase efficiencies and, for some, this has inevitably meant putting IT projects on hold.
In a report published in March 2009, entitled Economic Crisis Response: What does the recession mean for the ICT industry in Australia?, IDC predicted that the global financial downturn would impact heavily on the revenue of the IT industry in Australia during 2009, as businesses delay new IT projects and investments, and cut back significantly on IT hardware costs.
Although some organizations have recently reported technology cuts as high as 30 per cent for the 2009/2010 financial year,1 the impact is not expected to be uniform throughout the sector. IDC expects spending on software such as database, enterprise resource management and customer relationship management systems to continue to grow throughout 2009 and 2010, albeit at a slower pace than previously expected. Similarly, large IT outsourcers expect their services to be in high demand as businesses look to continue to reduce spending for the foreseeable future.
Inevitably, Australian businesses have been keen to keep a tight rein on any IT projects that have survived the economic downturn. Effective project control has not historically been easy to achieve.
A survey published by Planit in October 2008 concluded that, despite the cost of software projects in Australia rising to an average of $17.8 million in 2008, approximately 54 per cent of projects were not completed on time or on budget. Over half of all projects included in the survey were completed with significant changes to the original scope, with the ‘de-scoping’ having a substantial bottom line impact (costing on average $197,000 per week).
In the current economic climate, customers are proving far less willing to accept lengthy project delays, project ‘de-scoping’ and the spiralling internal and external costs that inevitably accompany such troubled projects. It seems equally unlikely that IT suppliers will be willing, or able, to absorb any unplanned project costs themselves, as their own revenues come under pressure.
Finding the positives
These competing drivers provide an unwelcome but necessary opportunity to revisit the framework and processes which contribute to successful (and predictable) projects. The causes of poor outcomes are being more squarely confronted.
Our experience of assisting clients involved in troubled projects suggests that the seeds of unhappy outcomes are often found at the very start of the project. The following hints draw on that experience and will assist to generate confidence that any given IT project will deliver value and justify the expenditure. Importantly, they also focus on effective management of the project to ensure that outcomes align with expectations.
Plan before engaging: fundamental, but too often short-changed, is initial planning. The objectives and roadmap of the project must be well defined and understood before external suppliers are scouted or engaged. It is always useful to ensure that key stakeholders within the organisation understand and support the project from the outset, and that internal (and supplier) due diligence has been properly performed before the project begins in earnest.
Properly document the agreement: always document any agreement reached with the supplier before they are engaged (a standard form agreement will rarely be adequate for a project of any size or complexity). Thought should be given to (and proper advice received on) how to document the agreed deliverables and timetable, the consequences if they are missed, and on clearly defining any project actions that need to be taken by the customer.
Know and follow the agreement: resist the temptation to put the agreement in a drawer once it has been executed. It is essential that the key provisions of the contract are known and followed by the internal implementation team, to avoid muddying any legal rights or remedies that may otherwise have crystallised.
Fully document any changes to the agreement: follow the contractual process when agreeing any changes to the project. Particular attention should be given to any changes to the scope of the project, and any effect that this may have upon the delivery cost and timetable.
Manage the supplier: put appropriate procedures and personnel in place to manage the day-to-day relationship with the supplier, and to ensure that an appropriate communication and escalation protocol is established to manage the inevitable unforseen issues.
Manage the documents: make sure that communications with the supplier are documented and preserved, and that the project team are aware that even private documents may have to be disclosed to the supplier in the event of a dispute. Ideally, project documents and emails should be retained, organised intuitively and be able to be readily retrieved, even where no dispute is on the horizon.
Escalate issues when necessary: follow the escalation mechanism under the contract where appropriate, to protect and maximise your position. ‘All or nothing’ showdowns with threats of litigation are rarely optimal when the project is ongoing, and the relationship with the supplier has to be maintained. There are many alternatives that may help to achieve your commercial objectives, if implemented promptly on the identification of issues of concern.
Involve the legal team: when faced with issues on projects, the temptation is to try to sort them out within the project team before anyone else ‘finds out’. Value is frequently given away unnecessarily in these situations. Your internal (and, if appropriate, external) lawyers can often add value by presenting options at an early stage. This will allow problems to be managed with appropriate legal and strategic input, and will often increase the likelihood that commercial objectives can be realised before matters get out of hand.
These hints are simply that. Easy to give, and much more difficult to implement in real time. But with the increased scrutiny being imposed on IT budgets, and on those responsible for troubled projects, the discipline required to implement robust practices has perhaps never been more necessary.