September 2012, NASA Inspector General Paul Martin released the results of an investigation that looked into why the U.S. space agency has had long-standing problems in meeting its programs’ cost, schedule and performance goals.
For instance, in 2009, it was estimated that the James Webb Space Telescope (JWST) would cost US $2.6 billion to develop and launch by 2014. At the latest count, the tab has ballooned to over $8 billion for development (not including $940 million contributed by international partners) and another $800 million for five years of operational costs.
The huge cost overrun on JWST—as well as many other projects—has not helped win the friends in Congress that NASA needs in order to maintain its funding.
Many large ERP implementation projects suffer from such cost explosions as well. See for example Case Study 7: The $2.5 Billion Cross-Border Expansion Mistake by Target, Case Study 6: How Revlon Got Sued by Its Own Shareholders Because of a Failed Sap Implementation, and Case Study 3: How a Screwed-Up SAP Implementation Almost Brought Down National Grid.
And although the parties involved in these projects typically don’t need friends in the US Congress, they sure do need some friends in the organization implementing the new ERP system.
The NASA report is an interesting read and gives a number of explanations for why these cost explosions happen. A culture of optimism, lack of experienced personnel, technological complexity, and constant changes in funding to name a few.
Many of these reasons apply to large ERP projects as well and are not new insights. But one paragraph of the report really got my attention. It states that one of the primary causes of NASA cost/schedule problems is what the inspector general calls the «Hubble Psychology» that is common among the organization’s managers.
“… Many project managers we spoke with mentioned the “Hubble Psychology” – an expectation among NASA personnel that projects that fail to meet cost and schedule goals will receive additional funding and that subsequent scientific and technological success will overshadow any budgetary and schedule problems. They pointed out that although Hubble greatly exceeded its original budget, launched years after promised, and suffered a significant technological problem that required costly repair missions, the telescope is now generally viewed as a national treasure and its initial cost and performance issues have largely been forgotten.”
How pervasive is this psychology? The report noted that, “when asked whether their projects had been successful, every project manager we interviewed answered in the affirmative, regardless of the project’s fidelity to cost and schedule goals.”
I have observed the same psychology with program, project and workstream managers of ERP implementations. The same for system integrators and suppliers that are involved in the project.
Because the investments in these programs are so large, the sunk costs of these programs after they have run for a while are significant for most organizations. And that is why these projects are almost never cancelled after they have run for longer than 6-9 months. Financial and reputational losses are just too big.
And everybody involved in these programs knows that. So why worry about going over budget and moving the go-live date a few times?
And it seems that after an ERP system actually goes into production, no one actually remembers how much it overran its budget or schedule. Or that the budget was ridiculously high from the get go. So also after going live there is nobody that holds anybody accountable for overspending.
To fix this you will need to find ways to reward managers and suppliers for good stewardship of your organization’s resources as enthusiastically as it does for successful implementations and to hold managers and suppliers appropriately accountable for mismanagement of resources.
In a nutshell: Spend what you need, not what others want you to spend.
