AGA Presentation 05212015 Final

AGA Conference 2015 May 21, 2015

Oh No, Not Another Over-Budget IT Project!

Building Better IT Project Cost Models

AGA Conference May 2015- 2

s

Catch 22 IT Project Costing


Technology Demand

Technology

Increased Demand

Changes in Strategy

New Leadership

New Services Modernization,

Operational Improvement

Regulatory

Changes

Technology Obsolescence

Technology Advances


What Could Possibly Go Wrong?

SOURCES: ZDNET , 2009; McKinsey and Company, 2012


Warning: Results may vary based on project type, system complexity, level of integration, and availability and skill of resources. Not for the faint of heart. Approach with caution. Do

not try this at home.


What are the key issues with IT project business cases ?


Risks and Red Flags

Allowing the vendor to drive the process

Letting the vendor write the requirements for the RFP

Letting the vendor estimate internal costs and other third party costs

Assuming the vendor has your best interests at heart ( trust but verify )

Getting enamored with a particular vendors world view

Assuming the vendor will manage itself Forgetting that vendors understand

the game and will do most anything to win


Risks and Red Flags

Being overly optimistic Allowing inadequate time for planning,

requirements, testing and transition

Assuming no contingencies are needed

Ignoring risks Assuming the internal team can

handle this alongside their day jobs

Unjustified faith in new technologies or internal capabilities

Ignoring complexity


Risks and Red Flags

Getting Ahead of the Game Trying to get a firm price too early in

the process

Eliminating competition too soon Rushing to conclusion, crunching the

timeline, assuming costs wont change

Skipping steps: business input, testing, approvals; vendor due diligence


Risks and Red Flags

Dismissing or Minimizing Critical Activities and Costs

Training: End User, Technical, and User Support / Help Desk

Communications and Change Management with Operational Units

Business process re-engineering, optimization and synchronization to the new technology

Technology Adoption Oversight Vendor Governance and

Communications

Project Management and Reporting


Final Thoughts

Build your models to represent total cost of ownership with internal IT, business operations, third-party consultants, and hardware and software costs for both pre-project, project and post-project/steady state time frames.

Be sure to consider inflation in your model, different for hardware, software and professional services

Develop standard, fully loaded rates for all cost models during a budget year, e.g.

for internal FTE resources for end user hardware, software


Final Thoughts

Establish standard contingencies/ rules of thumb for your projects, based on your own experience if possible, or based on industry experience

Use multiple contingencies to build up overall contingency (i.e, dont just use 10% overall)

Hardware contingencies may be much lower than professional services contingencies

Base your contingencies on the level of experience of the internal group, the external vendor staffing, and the quality of the requirements.

Contingencies should reduce as phases of the project are completed.


Final Thoughts

Make sure your Current and Future State Models are in synch. For example, if you are including disaster recovery costs in the future model, you should include those costs in the current model if you have them.

The Total Cost of Ownership should sum both the project costs (e.g. preparation, planning and both internal and external project cost), as well as ongoing operating costs. These can be compared to the Current State Model to create a cost delta.


I can answer all your questions, as long as we agree

that I dont know is an answer.

Isaac Asimov

3773 Cherry Creek North Drive Suite 575 Denver, Colorado 80209

888.998.0008


What are the key cost considerations in IT projects?


Costs to Consider for Packaged Software Implementation Internal IT

Administrative and Project RFP Development, Review, Vendor

Demos, and Vendor Selection

Contract Negotiations Contract Administration Program and Project Management Implementation Management Communications with Business Users

Requirements Development and Prioritization Review and Finalization Socialization with Business

Technical Development Interfaces to Existing Tools and

Systems

Data Mapping, Conversion

Testing and Quality Assurance Functional Testing Integration Testing End-to-End Testing Interface Testing Security Testing Performance Testing (e.g. load, stress,

volume and configuration )

User Acceptance Testing


Costs to Consider for Packaged Software Implementation Internal Business Operations

Administrative and Project Review and Approval of Deliverables

Requirements Development and Prioritization Review and Finalization Socialization with Users

Organization Process Review and Optimization

Process Review and Mapping Process Optimization Synching of Business Processes with

System Processes

Organizational Addressing organization impacts Training time for staff

Testing and Quality Assurance User Acceptance Testing


Costs to Consider for Packaged Software Implementation External

Packaged Software License Maintenance

Legacy Systems Changes to Legacy SW required for

Package SW compatibility

Hardware and Infrastructure Infrastructure Upgrades,

Replacements, and Additions

Compute Platform Upgrades Network HDW and SW Upgrades Storage, Backup and Disaster

Recovery

Professional Services Installation of Base Software Configuration of Software Development/Testing Customizations Testing

System Testing, Configuration Testing, API Testing, Compatibility Testing, etc

Training and Documentation End User Technical Support Help Desk Support

Support for Business Requirements, Acquisition

Implementation / Integration Management


Costs to Consider for Packaged Software Implementation Ongoing Costs

Ongoing Internal or Vendor Support and Maintenance costs

Costs of User Support Technical Support

Costs of Legacy System (s) during development test, and transition

Duplicate costs during transition until the old system is decommissioned

Duplicate storage, backup and DR costs until data is converted and archived

Duplicate licensing, maintenance costs

Costs for Software Updates, Versions, and Patches etc.

Internal or external charges for installation if software has been customized

Some software updates will be included in maintenance, others will be charged.

Technology Refresh Will include both hardware and software New package upgrades may force

upgrades in other components

Vendor Governance/Contract Management

Level of effort will depend on involvement of vendor post-implementation


Contingencies

Software Implementation Risks and Costs increase

if customizations are included If requirements are not defined and

frozen prior to software selection and configuration activities

If the new application will be highly integrated with other legacy systems

If the business users are not agreed on the software, the requirements, or the delivery model

If multiple departments, stakeholders and users are impacted

Contingencies in your model should decrease as the phases are completed, for example, in traditional projects, contingencies change when:

Business and Technical Requirements Complete and Frozen

Business and Technical Design Complete and Frozen

Note: Agile Projects employ a different estimation methodology.

AGA Presentation 05212015 Final

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