”The black swan theory or theory of black swan events is a metaphor that describes an event that comes as a surprise, has a major effect, and is often inappropriately rationalized after the fact with the benefit of hindsight”.
The likelihood of black swan events seems particularly high for IT projects.
Research published by Saïd Business School of Oxford University, based on the analysis of nearly 1500 IT projects, shows that one in six ends up out of control.
Principal investigator Professor Bent Flyvberg said: “We were shocked when the data came in and we learned that large IT Projects are 20 times more likely than normal projects to spin out of control… Any company contemplating large technology projects should ask whether the company is strong enough to absorb the hit should it go over budget by 400%. Although this figure may seem excessive, as our research shows costs such as these can occur all too frequently.”
However, the budget overrun can be much larger. In 2003 Levi Strauss, present in more than 110 countries and facing growing problems with different software running in their worldwide organisation, decided to migrate to a single SAP system. The initial budget was $5 million. In 2008 the company took a $192.5 million charge against earnings and the CIO was forced to resign.
With EADS-Airbus, the delays in the development of the A-380 due, among others, to software problems, resulted in $6.1 billion of additional costs and a 26% drop of the stock price. This cost the job of former CEO Noël Forgeard.
In 2012 a software glitch in their trading system (the root cause of which was inadequate configuration management processes) caused high-frequency equities trader Knight Capital to lose of $400 million in just 30 minutes, 3 times their annual earnings.
In Luxembourg the cost of for the implementation of the “e-go” public transport smartcard, initially budgeted at €7.4 million, increased to €17 million. Instead of 3 years, it took 6 years to implement a solution with reduced scope.