$5.4 billion a year: the cost of IT failure in NZ

New analysis attempts to calculate the total cost failed IT spending

ICT failures can be costly disasters, but quantifying the total cost of failed IT investment is incredibly difficult.

That hasn't deterred software architect Roger Sessions, the CTO of ObjectWatch and a frequent visitor to these shores. In a new report, "The IT Complexity Crisis: Danger and Opportunity", Sessions has calculated the cost of failure globally, for the US -- and for New Zealand.

And our share of the bill, according to Sessions, is US$3.9 billion ($5.4 billion).

"The United States is losing almost as much money per year to IT failure as it did to the financial meltdown," Sessions writes. "However, the financial meltdown was presumably a one-time affair. The cost of IT failure is paid year after year, with no end in sight."

Sessions calculates the US failure bill at US$1.2 trillion and the worldwide cost at $6.2 trillion. One reason the numbers are so high is because Sessions has included what many people don't even think about: the opportunity cost of failure.

"When thinking about indirect costs, you need to include the costs of replacing the failed system, the disruption costs to your business, the lost revenue because of the failed system, the lost opportunity costs on what that lost revenue could have driven, the costs to your customers, lost market share, and on and on," he writes. "And you need to consider these costs over the number of years the system would have been functional had it not failed -- or at least the number of years until you can put another system in place."

New Zealand plays a curious role in Sessions' report too. He writes that he loves the coffee here, but he has another reason to love New Zealand: "I see New Zealand as offering the world a glimmer of hope of escaping the coming meltdown of IT."

Sessions says the solution to IT failure is IT simplification and New Zealand is well placed to do that because of a number of factors: we are big enough to support large IT projects; have a healthy preference for local expertise and knowledge; have a strong enough economy to support a healthy ecosystem of small and medium-sized consulting organisations; take pride in leading the world; have excellent education opportunities in IT and educational institutions willing to incorporate training into the importance of complexity control into their curriculums.

So how solid are these numbers?

"When I discuss this with other experts in the area of IT cost, as many think I am too low as those that think I am too high. Most agree that the range of error is within 30 percent," he told Computerworld last week. "We shouldn't focus so much on the exact number as much as the magnitude of the number.

"Keep in mind that this $3.9 billion includes not just the cost of the IT failures themselves, but also the indirect costs to the economy as a whole. Large IT failures ripple out in many directions and the larger the failure, the further the ripples travel."

When a large, complex, expensive IT system fails, the last thing anybody wants to understand is the cost of that failure, Sessions says.

"At the executive level, most energy is spent showing that first of all, the failure wasn't really that bad, and second of all, it was really somebody else's fault. Blame avoidance, not failure avoidance, is the standard operating procedure in most large organisations."

Sessions is an advocate of a methodology called Simple Iterative Partitions (SIP), which he wrote about in his book Simple Architectures for Complex Enterprises, to reduce system complexity and boost IT project success.

He says SIP is gaining in New Zealand, but "progress is frustratingly slow".

"I understand that it takes time to teach people new processes, even more so when these new processes are coupled with new ways of thinking," he says. "I should have more patience. But every day we put off solving this problem in New Zealand we lose another $10 million dollars. We could be putting that money into education, into public services, into healthcare. Almost anything would be better than what we are putting it into now, IT failure."

See Q&A: Sessions on the total cost of failure

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