How Much of Your SOW-Based Project Spend is Going Down the Drain? | DCR Workforce Blog

How Much of Your SOW-Based Project Spend is Going Down the Drain?

 

The overall statistics on the failure rates of projects are frightening.

  • A PricewaterhouseCoopers study finds that only 2.5% of companies successfully complete 100% of their projects.
  • A study published in theHarvard Business Review, found that 83% of the more than 1,000 projects examined had a cost overrun of 200% on average and a schedule overrun of almost 70%. They estimated the average cost overrun of all projects to be 27%
  • Gartner tells us that the failure rate of projects with budgets over $1M is 50% higher than the failure rate of projects with budgets below $350,000.
  • The 2015 Pulse Study conducted annually by the Project Management Institute finds that organizations continue wasting US$109 million for every US$1 billion invested in projects and programs. Their research also concludes that little, if any, improvement has been made since 2012.

When examining the results of outsourced projects, things don’t look much better. Aberdeen reports that 30% of web development projects fail, and the number rises to 50% when using offshore developers. They delved further into the root causes of the failure rate:

  • 76% of companies experienced higher than expected vendor management effort and costs
  • 30% reported inadequate governance and conflict resolution protocols
  • 51% reported dissatisfaction with the performance of the outsourced vendors

While much attention has been given to the challenges faced when outsourcing IT projects, the same issues occur in any outsourced SOW-based project.

Over the past few years, as companies have placed more focus on money spent on outsourced project services, there has been a movement to increase control over that spend. Many Procurement organizations have been charged with establishing enterprise-wide controls. In response, programs initially designed to manage the use of agency-supplied temporary workers have been expanded to include the non-employee labor used to staff project services. Specialized Vendor Management Systems (VMS) have been developed to support the management of project-based resources and spend, often tying directly to traditional project management software.

A solid blueprint, combined with significant advanced planning, is necessary to deal with the complexities associated with managing project resources and spend. Success is dependent on:

  • Clear definition of project objectives and scope tied to realistic budgets, schedules and resource plans
  • Ability to assess, select, and establish contractual agreements and Statements of Work with all vendors
  • Execution of successful change management and communication programs
  • Risk management procedures to verify vendor credentials, protect intellectual property, comply with government regulations, and adhere to corporate policies
  • Solid process for managing work activity toward project completion
  • On demand access to budgeting, spend and progress data in order to proactively make course corrections

Do you know how much money you spend annually on outsourced projects? For most large companies, the number is generally 4-5 times greater than the amount spent on traditional contingent labor. Management of the associated resources and spend is critical to your success.

To learn more about the best practices for establishing a successful project services management program, join DCR and Chris Dwyer of Ardent Partners in a webinar, “Secrets to Mastering the Art of SOW Management”, to be held on August 26th at 1 PM ET.


Disclaimer:
The content on this blog is for informational purposes only and cannot be construed as specific legal advice or as a substitute for competent legal advice. They reflect the opinions of DCR Workforce and may not reflect the opinions of any individual attorney. Do contact an attorney for advice specific to your issue or problem.
Lalita is a people/project manager with extensive experience in operations, HCM and training and development across industries like banking, education, business consulting, BPO and information technology. She believes in a dynamic approach to life and learning as change is the only constant.