aga presentation 05212015 final
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AGA Conference 2015 May 21, 2015
Oh No, Not Another Over-Budget IT Project!
Building Better IT Project Cost Models
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s
Catch 22 IT Project Costing
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Technology Demand
Technology
Increased Demand
Changes in Strategy
New Leadership
New Services Modernization,
Operational Improvement
Regulatory
Changes
Technology Obsolescence
Technology Advances
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What Could Possibly Go Wrong?
SOURCES: ZDNET , 2009; McKinsey and Company, 2012
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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.
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What are the key issues with IT project business cases ?
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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
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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
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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
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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
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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
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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.
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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.
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I can answer all your questions, as long as we agree
that I dont know is an answer.
Isaac Asimov
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3773 Cherry Creek North Drive Suite 575 Denver, Colorado 80209
888.998.0008
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What are the key cost considerations in IT projects?
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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
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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
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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
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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
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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.
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