Are IT Failures Costing $6.2 Trillion Per Year?

from the um,-no dept

Mon, Jan 11th 2010 9:52pm — Mike Masnick

I'm always quite skeptical about huge numbers that come out of studies, such as the "losses" claimed by the entertainment industry due to piracy. So I was pretty skeptical of a story (found via Slashdot) claiming that IT failures cost $6.2 trillion per year worldwide. If true, that would be a staggering figure. I have no doubt that IT "failures" are costly, but that number seems extreme. Just glancing over the report itself, it's definitely not based on any kind of stringent methodology, and seems to count any IT project failure as a total loss, and then adds in "indirect costs" which sound suspiciously like "ripple effects" which, as we've demonstrated before are actually ways to double- or triple-count the same dollars over and over again. It seems that many others see huge problems with the original report as well, even to the point of suggesting that its orders of magnitude off.

While the debate rages on over how to properly count the "cost" of such failures, I'm beginning to wonder how useful such a number is. Isn't a more useful discussion on how to prevent or minimize the impact of any such failures? The aggregate number may look good in being able to see some big number, but aggregate numbers can hide important details inside. For example, back in the early (and even late) 90s there were lots of reports about how computerizing your business was not shown to have added any productivity. A poor conclusion from this was that computering your business was not a smart idea. But the problem was that this was aggregate data. It failed to realize that many, many businesses had boosted productivity through the use of computers, and many of the large failures that wiped out the aggregate "gains" were from a few big businesses that did a really poor implementation. It didn't mean that computerizing was necessarily a bad idea, but that some of the biggest early players just did a bad job of it.

So, if we're going to be discussing IT failures, why not step away from that aggregate info and try to focus in on ways to actually minimize the impact of whatever IT failures might occur?

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Filed Under: costs, failures, it

18 Comments

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ZombieBoy, 11 Jan 2010 @ 11:31pm

I like Turtles
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Thomas, 12 Jan 2010 @ 2:19am

Critique of the numbers
This critique of the numbers in Sessions paper is worth a read: http://brucefwebster.com/2009/12/28/the-sessions-paper-an-analytical-critique/

In short: The numbers seems to be based on misreadings and false assumptions.
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Matt BLB, 12 Jan 2010 @ 2:42am

IT's half empty glass.
If IT were marketing, the headline would be 'IT: Generating 400 trillion dollars of productivity every year'. Because it's IT, where looking for problems is part of the job description, the headline is 'Bad IT: Costs 6 trillion dollars a year.' The net gain is so colossal, in any other industry, everyone would be crying with happiness.
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notthe600 (profile), 12 Jan 2010 @ 3:01am

failure
I believe in the long run IT failures, ans other business failures, should not be prevented or mourned, but seen as the opportunity for more productive ventures to rise in their place. Thus "creative destruction" moves on and the markets get a chance to show their efficiency, at whatever percentage that may be.
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Bob Roberts, 12 Jan 2010 @ 3:34am

Statistics
Welcome to the world of bull$hit economic statistics. The point of that number is to sell people more robust systems.
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MilkyBarKids (profile), 12 Jan 2010 @ 3:47am

2 + 2 =
$6.2 Trillion is just a number. On its own it means nothing. I wonder how much money was made from IT success. If it is 6200 trillion then I would not worry to much about this.

Maths never helped anyone. FACT.
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Anonymous Coward, 12 Jan 2010 @ 4:03am

Whats the author selling? A wild guess is that he is in the "failure management" business or something similar...
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cc, 12 Jan 2010 @ 4:58am

I had a quick look at the white paper and it is full of assumptions. I can't see the logic behind some of the bigger ones, so I can only warn not to take this paper too seriously.
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McCrea, 12 Jan 2010 @ 5:00am

Typo
I believe
not "orders or magnitude off"
but "orders of magnitude off"
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Liquid (profile), 12 Jan 2010 @ 5:06am

Only $6.2 Trillion?
Figure with all network downtime past 88 hours per year, and all the natural disasters, wars, etc... that happen around the globe every year. I really thought that number would be higher...

How does an IT meltdown occur? As I see it, and have been taught technology grows in a linear rate making the next step in evolution every 10 years or so. Then again that was a few years ago, and could be faster today. Or I could be wrong all together. Hey it's what I was taught.
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Ady, 12 Jan 2010 @ 5:20am

Who released this figure?

Was it Mike Myers in a bald cap?
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Anonymous Coward, 12 Jan 2010 @ 5:36am

Do these numbers have any real meaning?
There is a good paper by researcher David Notkin from the University of Washington called "Software, Software Engineering and Software Engineering Research: Some Unconventional Thoughts" http://www.springerlink.com/content/515055nv5864j345/ that looks at these numbers thrown around and tries to place them in context.
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August Jackson, 12 Jan 2010 @ 5:38am

"IT Failure" is neither IT nor failure... discuss.
I agree with the comments so far that point out that a headline number for "IT" "failures" is questionable and out of context. To get to any estimate like that you have to make many assumptions and estimates that can always be called in to question. As I have learned from exercises like this, definitions also matter A LOT. This author has done a great job creating a headline-grabbing figure that gets the blood pumping. Nothing succeeds like hyperbole.

Definitions matter, and this is something that often gets over-looked. While I have not read the white paper I'm going to guess that important concepts like "cost," "IT" and "failure" are either completely undefined or defined poorly because, well, we all know what these words mean, right?

Let's start with "failure." Who is the arbiter of whether or not an IT initiative succeeds or fails? Is it the IT team? The line of business? Some executive or corporate team that was not involved in the project? These different groups almost always have different criteria for success and failure. For example, the very different criteria for success:
IT: We plugged it in and turned it on. We pinged it on the network. It worked.
Line of business: We incorporated it into our business process and it delivered the desired improvements to our effectiveness or efficiency.
Corporate Finance: The project delivered returns that could be measured in currency in excess of the cost of the capital spent to buy and implement the solution on the breakeven timeframe that we designated.

Next, let's look at the question of "IT." In the context of complex business activities this label is applied to a particular organization and professionals applying a set of tools and principals. IT does not operate in a vacuum, and many of the so-called failures of IT are the result of poor process and communication between IT and the rest of the business.
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:), 12 Jan 2010 @ 5:49am

Funny.
It always amused me when people start "assuming" losses.

There was no way and there are no ways(yet) that one can input all the variables necessary to predict things with high margins of success else we would have nice weather reports for decades and not days and still people keep doing this kind of stuff.

I look at those things are gut feelings from the POV of the writer with whom I can agree or disagree and use my own but not as a proven scientific method that gives out real hard cold facts about some matter.
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NullOp, 12 Jan 2010 @ 6:20am

Failure
Any IT failure is really a management failure being misattributed! Management regularly has unreal expectations, unreasonable timelines and little if any desire to be "part of the team". Having unrealistic expectations goes a long way in the "Trillions" figure quoted. Management has never had a good handle on IT and its role in modern business. IT is never thought of by management as "part of the business". Usually they are thought of as some other group that is mostly spending a lot of money doing something none of the business people understand. So really its easy to see how so much money is lost but who loses it has been wrongly advertised.
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Mike Masnick (profile), 12 Jan 2010 @ 6:55am

Re: Typo
Oops. Fixed. Thanks for pointing that out.
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Derek Bredensteiner (profile), 12 Jan 2010 @ 1:37pm

Re: Failure
I think there's some truth to what you're saying there. I believe the failure is one of perspective. In many cases, IT is treated like a black box that you put requirements and money into, and get a product or hardware out of. In this scenario, there's little understanding on IT's part of what the business's real needs are (so that as an expert, they can provide a solution), and there's little understanding on the business side of how IT works.

The only place I've personally seen "IT" be the most successful is when it's either a core part of a larger department (such as a team of developers assigned to a department), or the core of the company itself (such as a software company).

In any case, I don't think the current paradigm of big-ass IT department that provides service X to the entire company is necessarily the most efficient or practical one. For IT to be successful, it has not only serve the requests of the business, but understand and provide solutions for their unstated needs. This is increasingly difficult as the size of the departments increase, and the size of communication channels between them decrease (in the name of efficiency of course).
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pr, 12 Jan 2010 @ 3:48pm

Just 1%
I'm entering the IT management business. If my firm can just reduce that by 1%, that's $62 billion saved. Every year. If I can get businesses to pay me 10% of that, that's $6.2 billion a year for me.

I'm submitted a patent on that business method, so don't try.
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