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Software and
Procurement
Paul Matthews, IITP Chief Executive
A Procurement Presentation
This is not
Detailed review of international research
+
Survey of 534 New Zealand software and
procurement professionals
Is there another way?
Context of traditional procurement
Why software projects “fail”
What’s the problem?
What’s the problem?
IT Project success and failure
42%
21%
37%
Major
cost/time/functionality
issues
Canceled before
completion
Success
Source: The Chaos Report 2012
Project success over time
0%
10%
20%
30%
40%
50%
60%
1994 1996 1998 2000 2004 2006 2008 2010 2012
Successful
Failed
Challenged
Source: The Chaos Reports and Manfesto 1995-2013
Other software project stats:
 McKinsey (2012)
– Average cost overrun: 66%
– Average time overrun: 33%
– Limited functionality: 17%
 Gartner (2012)
– Project failure: 20-28%
– Heavily reliant on project size
McKinsey. (2012). Delivering large-scale IT projects on time, on budget, and on value.
Gartner. (2012). Survey Shows Why Projects Fail. In L. Mieritz (Ed.): Gartner.
Fact 1:
Too many software projects fail.
Few would argue that something
isn’t wrong – software projects are
failing at an alarming rate.
But why?
Why projects fail
42%
27%
23% 4%
Leadership
Organisation & Culture
People Issues
Technology
Source: Organisation Dynamics / Jim Markowsky
Success vs Failure: 5 Characteristics
Size Complexity Methodology
(eg Agile vs Waterfall)
Cost
Estimation
Team
culture
Results by project size
71%
38%
19%
2%
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Under $900k $900k to
$3.6M
$3.6M to
$12M
More than
$12M
Failure
Success
Converted to NZD - Source: The Chaos Report 2010
Fact 2:
Big, complex projects usually fail.
Another context: Our current approach
to large and complex software projects
doesn’t work.
Cost estimation
How often is price estimation right?
0%
10%
20%
30%
40%
50%
60%
70%
Never Sometimes Usually Always
Small
Large
Source: IITP Software and Procurement Survey (2014)
0%
10%
20%
30%
40%
50%
60%
70%
Never Sometimes Usually Always
Large
Source: IITP Software and Procurement Survey (2014)
How often is price estimation right?
Vendor reaction to price overrun
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Do Nothing Renegotiate Cut corners Inflate costs Withdraw
Small
Large
Source: IITP Software and Procurement Survey (2014)
Fact 3:
We generally can’t predict the cost
of [complex] software up front.
So… Why do we use cost as a criteria?
Agile Methodologies
Project success over time
0%
10%
20%
30%
40%
50%
60%
1994 1996 1998 2000 2004 2006 2008 2010 2012
Successful
Failed
Challenged
Source: The Chaos Reports and Manfesto 1995-2013
Project success over time
0%
10%
20%
30%
40%
50%
60%
1994 1996 1998 2000 2004 2006 2008 2010 2012
Successful
Failed
Challenged
Source: The Chaos Reports and Manfesto 1995-2013
2% of all
5% of new
9% of all
22% of new
Source: The Chaos Manfesto 2012
Agile and NZ Procurement Compatibility
0%
10%
20%
30%
40%
50%
60%
70%
80%
Not compatible Reasonably Very
Source: Those with Agile experience from IITP Software and Procurement Survey (2014)
Fact 4:
Agile works better for software.
Agile succeeds 3x as often as Waterfall,
but isn’t very compatible with how we
[currently] procure software.
To summarise…
Too many software projects fail.
Big, complex projects usually fail.
We generally can’t predict the cost of
[complex] software up front.
Agile works better for software.
1
2
4
3
Mandated competitive cost-based
approach for larger projects.
Software Procurement in NZ
Agile and NZ Procurement Compatibility
0%
10%
20%
30%
40%
50%
60%
70%
80%
Not compatible Reasonably Very
Source: Those with Agile experience from IITP Software and Procurement Survey (2014)
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
Never Sometimes Usually Always
Large
Source: IITP Software and Procurement Survey (2014)
How often is price estimation right?
Vendor reaction to price overrun
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
Do Nothing Renegotiate Cut corners Inflate costs Withdraw
Small
Large
Source: IITP Software and Procurement Survey (2014)
Urk!
Qualifications-Based Selection(QBS)
Find a partner,
not a solution
Qualification
approach
No price
discussions
… Then pricing *terms* discussed
Qualifications Based Selection
Completely compatible with Agile
Deals with cost estimation issues
Deals with scope changes
Ideal for large and complex projects
Usage
NZ Roading Projects
Low Risk
Risk and Innovation
High Risk and Complex
Traditional Procurement
Alliance Model (= QBS)
Design and Build
Risk and
Complexity
Fact 5:
QBS is a credible alternative
Qualifications-Based Selection is
proven successful in high-complexity
scenarios, and deals with the “big 5”.
QBS in the Alliance Model
has a 100% success rate in
the NZ roading sector
Questions
Thanks!
ceo@iitp.org.nz @nzPaulm www.iitp.org.nz
Thanks!

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Presentation to ALGIM conference - Nov 2014

  • 3. Detailed review of international research + Survey of 534 New Zealand software and procurement professionals
  • 4. Is there another way? Context of traditional procurement Why software projects “fail” What’s the problem?
  • 6. IT Project success and failure 42% 21% 37% Major cost/time/functionality issues Canceled before completion Success Source: The Chaos Report 2012
  • 7. Project success over time 0% 10% 20% 30% 40% 50% 60% 1994 1996 1998 2000 2004 2006 2008 2010 2012 Successful Failed Challenged Source: The Chaos Reports and Manfesto 1995-2013
  • 8. Other software project stats:  McKinsey (2012) – Average cost overrun: 66% – Average time overrun: 33% – Limited functionality: 17%  Gartner (2012) – Project failure: 20-28% – Heavily reliant on project size McKinsey. (2012). Delivering large-scale IT projects on time, on budget, and on value. Gartner. (2012). Survey Shows Why Projects Fail. In L. Mieritz (Ed.): Gartner.
  • 9. Fact 1: Too many software projects fail. Few would argue that something isn’t wrong – software projects are failing at an alarming rate.
  • 11. Why projects fail 42% 27% 23% 4% Leadership Organisation & Culture People Issues Technology Source: Organisation Dynamics / Jim Markowsky
  • 12. Success vs Failure: 5 Characteristics Size Complexity Methodology (eg Agile vs Waterfall) Cost Estimation Team culture
  • 13. Results by project size 71% 38% 19% 2% 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100% Under $900k $900k to $3.6M $3.6M to $12M More than $12M Failure Success Converted to NZD - Source: The Chaos Report 2010
  • 14. Fact 2: Big, complex projects usually fail. Another context: Our current approach to large and complex software projects doesn’t work.
  • 16. How often is price estimation right? 0% 10% 20% 30% 40% 50% 60% 70% Never Sometimes Usually Always Small Large Source: IITP Software and Procurement Survey (2014)
  • 17. 0% 10% 20% 30% 40% 50% 60% 70% Never Sometimes Usually Always Large Source: IITP Software and Procurement Survey (2014) How often is price estimation right?
  • 18. Vendor reaction to price overrun 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Do Nothing Renegotiate Cut corners Inflate costs Withdraw Small Large Source: IITP Software and Procurement Survey (2014)
  • 19. Fact 3: We generally can’t predict the cost of [complex] software up front. So… Why do we use cost as a criteria?
  • 21. Project success over time 0% 10% 20% 30% 40% 50% 60% 1994 1996 1998 2000 2004 2006 2008 2010 2012 Successful Failed Challenged Source: The Chaos Reports and Manfesto 1995-2013
  • 22. Project success over time 0% 10% 20% 30% 40% 50% 60% 1994 1996 1998 2000 2004 2006 2008 2010 2012 Successful Failed Challenged Source: The Chaos Reports and Manfesto 1995-2013 2% of all 5% of new 9% of all 22% of new
  • 23. Source: The Chaos Manfesto 2012
  • 24. Agile and NZ Procurement Compatibility 0% 10% 20% 30% 40% 50% 60% 70% 80% Not compatible Reasonably Very Source: Those with Agile experience from IITP Software and Procurement Survey (2014)
  • 25. Fact 4: Agile works better for software. Agile succeeds 3x as often as Waterfall, but isn’t very compatible with how we [currently] procure software.
  • 27. Too many software projects fail. Big, complex projects usually fail. We generally can’t predict the cost of [complex] software up front. Agile works better for software. 1 2 4 3
  • 28. Mandated competitive cost-based approach for larger projects. Software Procurement in NZ
  • 29. Agile and NZ Procurement Compatibility 0% 10% 20% 30% 40% 50% 60% 70% 80% Not compatible Reasonably Very Source: Those with Agile experience from IITP Software and Procurement Survey (2014)
  • 30. 0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Never Sometimes Usually Always Large Source: IITP Software and Procurement Survey (2014) How often is price estimation right?
  • 31. Vendor reaction to price overrun 0% 10% 20% 30% 40% 50% 60% 70% 80% 90% Do Nothing Renegotiate Cut corners Inflate costs Withdraw Small Large Source: IITP Software and Procurement Survey (2014)
  • 32. Urk!
  • 33. Qualifications-Based Selection(QBS) Find a partner, not a solution Qualification approach No price discussions … Then pricing *terms* discussed
  • 34. Qualifications Based Selection Completely compatible with Agile Deals with cost estimation issues Deals with scope changes Ideal for large and complex projects
  • 35. Usage
  • 36. NZ Roading Projects Low Risk Risk and Innovation High Risk and Complex Traditional Procurement Alliance Model (= QBS) Design and Build Risk and Complexity
  • 37. Fact 5: QBS is a credible alternative Qualifications-Based Selection is proven successful in high-complexity scenarios, and deals with the “big 5”.
  • 38. QBS in the Alliance Model has a 100% success rate in the NZ roading sector

Editor's Notes

  1. Intro – me / IITP
  2. Procurement – eyes glaze over. Sorry to Procurement folks, but this is NOT a presentation about procurement. Well, mostly. In fact, it’s a talk about software projects and more importantly, why they fail.
  3. So the first half of this presentation is going to be about facts and figures – lots of graphs and numbers Then we’ll talk about what this means in the context of procurement, and also about some of the industries that have had this problem before us and what they did about it
  4. *** 5 FACTS So do software projects fail more than other projects, and how bad is the problem? Then “characteristics” of successful and failed software projects So if we define the characteristics of project failure, how compatible are they with price-based procurement? And from a procurement sense, are there lessons we can learn from other sectors – is there a way that’s more compatible with the point in 2
  5. DEFINE!!! Chaos Report: Successful: Projects that don’t experience significant cost overruns, time overruns or loss of significant functionality; Failed: Projects that are discontinued (cancelled) before they are successfully implemented; Challenged: Projects that experience significant cost or time overruns or are implemented with significantly less functionality than intended. Note on Chaos Report Hazard a guess
  6. Can you imagine if this was a roading project?
  7. Is improving over time – some good solid reasons for that.
  8. A couple of different contexts Anyone want to hazard a guess at the proportion of tech projects fail because of technology (vs people)?
  9. Software projects are inherently difficult to price up-front Constructive Cost Model (COCOMO)
  10. So if we take away small projects for a minute, given we know the biggest issue is with large ones
  11. Again, large projects far less likely to “take it on the chin”
  12. What is Agile? Proposed: 2001, 12 core principles “Agile Manifesto” Acceptance of rapid change Small self-selecting teams and iterative development Focus on rapid prototyping Frequent delivery of working software Working software over and above any other measurable outcome
  13. Not: 69% Very: 4% So, why not? Generalisation: Procurement focuses on defining a project up front, pricing it, then delivering to spec. Software simply doesn’t work that way.
  14. **IRONY** - larger the project, more process New Zealand mandates a cost-based approach, generally meaning cost-up-front (although there are some exceptions). Cost isn’t usually 100% of the rationale, but as with the Unions and the Labour Party, even 20% can be the deciding factor.
  15. And… So we have to ask, is there a better way?
  16. So let’s change gears a little and talk about a thing called QBS. Basic concept: Purely a “qualifications-based” approach. Find the partner, not the solution. No price discussions (specifically banned). Create an ordered list by competence for job. Pricing *terms* are negotiated with top place in list, rather than price. Both parties share in success or failure Bridge
  17. Two examples of usage. US Federal Govt for “traditional” Engineering projects – since 1972. But not for software due to “IBM Effect” NZ Transport Authority for roading projects