A spirited conversation on Twitter with @PeterKretzman and Roger Sessions (@RSessions) led to a couple of updates:
Factor = 5.4 * .24 * .0275 = .03564
Total Yearly Loss: .03564 * $69.8T = $2.487T (round up $2.5T)
Editorial Comment: While $6.2T seemed too high , and $414B seemed a bit low, could this be the real number? Details below:
1. Updates to my math:
Roger's definition of indirect costs adds expended cost of failed project to both tangible and intangible benefits. So, to use my example of 50% ROI, 60% of benefits are intangible example, the multiplier would be 100% + 150% = 250% or 2.5.
That thought experiment assumes a very strong business case. Available research further confirms that experience: "Nucleus case studies reveal that, on average, indirect benefits account for half of technology ROI. " (Nucleus Research, 2004). In my experience, most organizations have hurdle rates around 20%, not 50%, so very few approved projects will have benefit case with 50% ROI. So, let's take 20% as our floor (2.2 multiplier). Example cited in Roger's white paper seems highly unusual, but it does provide a ceiling (9.6 multiplier). A question without a good answer is what is the distribution of project spend between 2.2 and 9.6 - my hunch is that even if it is a bell curve (normal distribution), it's far more weighted toward the floor in terms of number of projects, while far more weighted toward the ceiling in terms of spend. If we assume those two cancel each other out, the average multiplier becomes 5.4. I'd be interested if anyone has done a study to support/update this number, rather than using an assumption.
2. Updates to Roger's math:
I still find it curious that Roger and I are using the exact same research note from Standish Group to get the ratio of failed projects - but using different metrics from that note. I take the definitions from Standish more literally - it's hard for me to argue that their definition of "failed" is not sufficient, especially since they clearly delineate between "failed" and "challenged". So I'll stick with 24% failed metric from 2009 report. Whether there are some incurred indirect costs of "challenged" projects is an open question - it makes sense that there would be, but I'd love to see a study rather than make that assumption.
3. Open questions
First, it would be nice to have a metric supported by research on what the multiplier should be. That is the biggest weight in the equation, and it needs to be more than assumptions on all sides.
Second, there are obviously indirect costs to challenged projects. I'd be interested to see whether anyone (ahem, PMI?) has done a study that documents the costs of missing deadlines. That will also have an impact on the final answer, though probably not as much.