How much do you trust your IT supplier?

How often do finance directors (FDs) invest in a software development project only to be disappointed with the result? You only have to see how HMRC reached a £71.25m settlement with EDS over problems with tax credit systems to realise the damaging effect of ploughing money into an IT project that fails to deliver business value.

Most software projects don’t result in lawsuits, but many cause headaches for IT managers and FDs that could be prevented through greater collaboration, reacting quickly to business change and showing continual demonstrations of progress. Building trust between the business and its supplier is vital. FDs rely on their IT department to manage the supplier relationship, but suppliers are often forced into a fixed-price contract for a project that promises to deliver more than the business needs.

Suppliers help the business define everything the system might ever need to do, providing a fixed-price quotation, resulting in a large budget allocation, and a contract being secured with the cheapest bidder, to deliver a system in the distant future. Unfortunately, this approach typically results in dissatisfaction for the business and a solution that does not reflect its future needs – or worse still, no solution at all.

This failure stems from a lack of trust, a flawed governance model, a false measure of progress and a misunderstanding of risk. With such a lack of trust, the business adopts a governance approach to oversee the project and keep the supplier honest, introducing “gateways” that require a measure of progress against governance objectives. While sound in principle, these gateways are often misinterpreted and misused by those performing the governance, leading to poor supplier behaviour, such as a focus on endless documentation as opposed to demonstrating working solutions.

While a one-shot procurement model with a defined budget need and no expected increases is an attractive option for the FD, little consideration is made for how the project will manage the change of business priorities.

Plus, by using a fixed price and scope delivery approach, it is difficult for an FD to determine an accurate ROI. FDs are often led to think the project is progressing well from measures of effort against plan. This lack of progress would become apparent by asking: what return would I get on a project if it had to stop halfway through?

FDs can halt this vicious circle by encouraging a more progressive funding relationship with the supplier. Before the project is contractually agreed, FDs should demand an agreement from suppliers where they regularly demonstrate an ROI.

This puts FDs back in control of the budget and relieves pressure on cashflow.

Julian Holmes is co-founder of UPMentors and a BCS contributor