1. Knowledge Management Systems Lecture 7 Payman Shafiee

2. Failing Projects Information technology (IT) projects can fail for any number of reasons, and can result in considerable financial losses for the organizations that undertake them. One pattern of failure that has been observed but seldom studied is the runaway project that takes on a life of its own. Such projects exhibit characteristics that are consistent with the broader phenomenon known as escalating commitment to a failing course of action. Slides by Payman Shafiee

3. Failing Projects theories offered to explain this phenomenon: self-justification theory sunk cost effect  a high level of sunk cost may influence decision makers to escalate their commitment to an IT project Question: whether the phenomenon of escalating commitment could be observed in an IT context Slides by Payman Shafiee In economics and in business decision-making, sunk costs are costs that have already been incurred and which cannot be recovered to any significant degree. Sunk costs are sometimes contrasted with variable costs, which are the costs that will change due to the proposed course of action. In microeconomic theory, only variable costs are relevant to a decision. Economics proposes that a rational actor does not let sunk costs influence one's decisions, because doing so would not be assessing a decision exclusively on its own merits.economicscostsvariable costsmicroeconomic

4. Failing Projects Although runaway IT projects are eventually terminated or significantly redirected, anecdotal data suggest that many of these projects are allowed to continue for too long before appropriate action is taken. Consider the following examples: Slides by Payman Shafiee

5. Failing Projects Slides by Payman Shafiee California Department of Motor Vehicles (DMV): In 1987. California's DMV began developing a new distributed information system that would combine the state's driver and vehicle registration databases [13, 19]. By 1990, after $ 14.8 million had already been spent, there were warning signs that the project was in serious trouble. Yet, according to a recently released state auditor's report on the project, these problems were ignored. Even In the face of new reports in 1991 and 1992 showingmoreevidenceof"seriousproblems with the project," DMV officials pushed on. Instead of terminating or redirecting the project, they "continued to pour money into the project..,and,asaresultspent an additional S34.6 million on a project Uiat ultimately failed" AMR Information Systems (AMRIS): In 1988, AMRIS began developing a state-of-the-art reservation system integrating airline, car rental, and hotel information. The $125 million project known as Confirm, was to be a joint effort with substantial funding supplied by partners Hilton, Marriott, and Budget Reni-A-Car. Shortly after the project was initiated, a host of problems began to emerge involving technical design flaws and project management difficulties. Still the project continued. Finally, in 1992, after several years of work, the Confirm project was terminated, resulting in numerous lawsuits and countersuits among the companies involved in the project [21,22,30].

6. Failing Projects Slides by Payman Shafiee U.S. Department of Health and Human Services (HHS): In 1992, the General Accounting Office (GAO) criticized HHS for failing to pull the plug on several state child support enforcement systems. GAO investigators put the spotlight on three state systems that "continued for a period ranging from three to eight years, at a total cost of more than $32 million in federal funds, before the projects were stopped and redirected" [6].

7. Failing Projects Slides by Payman Shafiee THESE ARE AALL EXAMPLES OF ESCALATING COMMITMENT TO A FAILURE COURSE OF ACTION MANY “IT” FAILURES CAN BE DESCRIBED IN SUCH TERMS

8. Escalating Commitment to Failure Course of Action What factors promote or inhibit escalating commitment on the part of individual decision makers? What theories best explain the phenomenon of escalating commitment? Does the phenomenon occur less frequently in some cultures than in others? Are IT projects any more susceptible to escalation than other types of projects? Slides by Payman Shafiee

9. Self Justification Theory (SJT). is based on the notion that "individuals seek to rationalize their previous behavior... against a perceived error in judgment" [39] and suggests that in the presence of negative feedback, individuals who have made a prior commitment to a project are more willing to commit additional resources than those without any prior commitment Slides by Payman Shafiee

10. Prospect Theory In short, prospect theory suggests that individuals will exhibit risk-seeking behavior in choosing between two negative alternatives (especially when the choice is between a sure loss—the initial loss on the investment—and the possibility of a larger loss combined with a chance to return to the reference point Slides by Payman Shafiee

11. Prospect Theory Slides by Payman Shafiee

12. Prospect Theory Slides by Payman Shafiee

13. Prospect Theory Slides by Payman Shafiee

14. Reference: Understanding Runaway Information Technology Projects MARK KEIL, RICHARD MIXON, TIMO SAARINEN, AND VIRPITUUNAINEN