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How Business Automation Projects Fail, Part 2

22 August 2009

In part 1 of this series I wrote about a simple case where failure to define requirements for a software purchase ended up costing the business several thousands of dollars worth of wasted effort that had to be re-done. The software purchase price was just a few hundred dollars, so it seemed okay to take shortcuts in the selection process. The resulting loss was more than anyone bargained for.

In part 2, this post, I’m writing about a much larger purchase of custom-developed software. This is a true story of a project that could have turned into a disaster. It could have sunk a new startup company before it ever got off the ground. It could have failed badly. But this one actually has a happy ending. Disaster was averted because the business owner stopped in the middle of the process to ask some key questions, and he acted on the answers.

The Background

The owner had a brand-new startup company with little more than a business plan and some funding. The plan required a unique custom developed website with a high level of complexity. Here are some of the requirements in general terms:

  • A set of consumer-facing pages that could be branded with the company’s name or private labeled to business partners. In the case of private labeling, there could be differences in fuctionality.
  • A set of pages and communication protocols to manage data exchange with another set of business partners.
  • Very secure private communications and protected private logins for consumers and business partners.
  • A complex and secure administrative back end to manage the entire enterprise.

The Steps

Here are the steps the business owner took to begin the software project:

  • He prepared a Request for Proposal (RFP) that specified the requirements.
  • He identified several vendors who were qualified to do the work.
  • He submitted the RFP to the vendors and received proposals from them.
  • He evaluated each proposal and spoke with each vendor about details.

The Problem

This was a good process as far as it went. But it came to an impasse. The owner identified one vendor that he felt comfortable working with. But the vendor’s proposed price was well over the budget that the owner could commit based on his funding. The price was about $350,000 where the budget called for a maximum of $250,000.

The owner didn’t want to throw away the work spent in establishing a rapport with the vendor, but he just couldn’t agree to the price. It would have jeopardized the entire startup.

The vendor maintained that the system they were proposing met the specifications, and for the system they were proposing their price wasn’t flexible.

They couldn’t move forward.

The Solution

Then the owner made a great decision. He decided to bring in an outside consultant to take a fresh look. That consultant happened to be me, which is how I know the details of the case.

Here’s the process I followed:

  • I studied the RFP and the proposal in detail.
  • I asked the owner some questions to clarify details of the requirements.
  • I got on a conference call with the owner and the vendor to ask the vendor to explain how they were approaching key portions of the project and to explain why.
  • I pondered all the information I had gathered.

Here’s what I concluded. The owner had requested a secure, robust, flexible system. The vendor was proposing an approach that would create an extremely secure, very robust, and supremely flexible system. It would certainly work, and work very well, but it was on the order of a Rolls Royce level solution, where a Cadillac solution would have been sufficient.

I proposed some compromises in complexity, especially in the area of flexibility, and made sure that the owner and the vendor understood the ramifications of my suggestions. They did, and they both agreed that the changes in approach were reasonable.

The vendor reworked the proposal according to my suggestions. The new price was about $200,000, a reduction of over 40% and well under the owner’s budget.

Everyone was happy. The company launched under budget and is now well established. But it could have been a total failure, all because the vendor had over-designed the solution because they hadn’t asked enough questions about the real requirements. Another victory for proper requirements planning!

435 Comments to “How Business Automation Projects Fail, Part 2”

  1. Allen says:

    Do you think that if you would have had a guy inside the company that knew this better that you would have had this kind of trouble? I am wondering because this is a crucial decision that I have to make when it comes to hiring someone for just that position. This was a very good post and I am so glad that you left it out her for us.

  2. Mary says:

    Is there a way to sue a company that does this to you? I would assume the only way to do that would be if you had in writing what they were supposed to do or what they agreed to and then you would have to have proof they did more than that to your system. Wow this is a tough spot to be in and very difficult to deal with as well.

  3. Jerry says:

    In my opinion, failed projects, and projects running over budget, are not necessarily the sole fault of the employees or businesses creating the software. In some cases, problems may be due partly to problems with the purchasing organization, including poor requirements, over-ambitious requirements, unnecessary requirements, poor contract drafting, poor contract management, poor end-user training, or poor operational management. Nevertheless, custom software development projects can easily be mismanaged and go over budget. These kind of projects have sunk many small startups.

  4. Ella says:

    As I was commenting on part one of this issue I am hoping that by sharing this experience with the world they are preventing this from happening to other companies. It is good to know that there are people out there that can go to bat for you as well if you don’t know what you are doing. Keep up the good work this is very appreciated.

  5. Andrew says:

    It’s no secret that in today’s Web 2.0 world, the buyer is in control. When they are looking to make a purchase, they don’t pick up the phone and call a sales rep. Instead, they seek out online sources that provide the information they want. But what exactly is that? And how can you deliver that content effectively on your site? That is what I would like to find out

  6. Jeff says:

    This sounds to me like an issue with this business’ portal. At this point, every business should be offering a customer portal. In the past, portals have mostly been utilized by vendors who take orders online. Customer portals are used for managing customer interactions and answering their questions. There is no debating the benefits both vendors and their business customers receive, and more importantly, customers are beginning to expect it as an option for any vendor they work with.

  7. Francis says:

    I like to think of it this way, if you wanted to be a professional baseball player, would you show up to the field without a glove? When learning to be a professional in anything there are certain things that are mandatory. Taking short cuts because you don’t want to pay extra for something is going to do nothing but hinder your success. These expenses are just the cost of doing business. I believe this was one of several mistakes this company head made.

  8. Preston says:

    Did this cost anyone their job, I know at the place I used to work this would have cost someone to get fired right off the bat. I am hoping that they were at least allowed to fix the failure that was caused before the owner said they didn’t have a job anymore. This is another one of those epic failures that were mentioned in part one of this story.

  9. Marcus says:

    Custom software is an amazing, powerful option to make your business more efficient and capable and to offer your customers power and novel ways to engage with you which bring them enormous value. However, a custom software project is an expensive and risky undertaking and a badly failed custom software project can end up producing nothing of value at great expense. Unfortunately, I have seen this sort of epic fail happen all too often in this information age we now live in.

  10. Mary says:

    It’s no light matter to replace your enterprise software system. It’s essentially performing a heart transplant on your business. Replacement may appear to be a difficult and painful process, but done right, it can open numerous business opportunities. I was told that the trick to this effort is finding the partner that can show you how to make this hard transition easier, and a specialist with the confidence to walk side-by-side with you until your goals are achieved.

  11. Debra says:

    This story only illustrates the fact that some ineffective development practices have been chosen so often, by so many people, with such predictable, bad results that they deserve to be called “classic mistakes.” Most of the mistakes have a seductive appeal. Developers, managers, and customers usually have good reasons for making the decisions they do, and the seductive appeal of the classic mistakes is part of the reason these mistakes have been made so often.

  12. Charles says:

    Knowing that a software vendor understands what you are looking for and has something to fit your agency’s specific and potentially changing needs is vital. You need to wonder whether the software enables you to customize the system through a variety of modules, system parameters, and interfaces. Does your vendor offer one fully integrated system, or will you need to rely on multiple vendors for components that may or may not communicate well with each other?

  13. Charles says:

    Upgrading to a new operating system – whether it’s one personal computer at home or an office full of work stations – can be a stressful experience. You do it to take advantage of new features or to be able to run new applications, but you approach it with some trepidation because you know there are always things that can go wrong. I’m not quite sure if this was the problem with this incident, but it sounds related.

  14. Gerald says:

    So in your opinion is it better to hire this type of thing done from a company that is on the outside that you know can do it right or is it still safer to have this done by someone on the inside of the company that has been hired for this purpose and should have been honest about what they knew and what they didn’t?

  15. Roy says:

    Modern software systems are complex and with cloud services and all the mobile device platforms, it’s getting more complicated. Frequent upgrades are required to fix bugs, patch security vulnerabilities, and add or remove features. Unfortunately, many upgrades either fail or produce undesired behavior resulting in service disruption, user dissatisfaction, and/or monetary loss. To make matters worse, when upgrades fail or misbehave, developers are given limited (and often unstructured) information to pinpoint and correct the problems.

  16. Marcus says:

    I can’t believe this company and the nerve of the people that work there thinking they could do what ever they thought was best for the company and that the company would just so that’s alright and pay the up charges. This is a great post for letting people know what kind of people are out there and to keep their eyes open for this.

  17. Jerry says:

    These are scary situations but this is something that is very real and can happen in a blink of an eye. Thank you for putting this post out there if for nothing other than awareness on the part of the companies to pick the right people to do the job. Keep up the good work you have a great post here keep it going.

  18. Jeff says:

    This turned out to be a cautionary tale about taking shortcuts. I understand why it was easy for the persons in charge to be so loose and casual about their approach. After all, the project seemed like a minor expense, until they unexpectedly found themselves in a virtual money pit. That is a hole you don’t want to find yourself in. It’s kind of like a IT version of the real money pit, which I think is located somewhere in Canada.

  19. Debra says:

    Businesses that start with out having the right people internally to do the work on their computer system are just asking to be taken advantage of. You can’t expect a company that knows nothing about you are what your company does to come in there and be able to give you the system that you want. They are going to take advantage of you right away.

  20. Jack says:

    The fact that there are people out there that would come in and do this to another company is just a mind blowing situation to me. Would they like someone to do that to them? I wish that all the ripping people off the dollar would stop and people would just put in a honest days work for once and I do mean honest.

  21. Gerald says:

    The more I read about this the more it bothers me because these kinds of people are every where and I need to upgrade my software in my business. What is a sure fired way that you can hire someone to do this job for you and know that you are not going to get ripped off? I’m sure this has helped a lot of people but I want to know how to get started.

  22. Jeff says:

    This scenario can be likened to the dilemmas companies face with cloud services. Many already know that the most profitable companies from the first wave of cloud software were players in the horizontal space. Companies like Salesforce and Workday replaced on-premise solutions and won huge markets. This is old news. What’s new is the fact that there’s a second wave of disruption in enterprise cloud computing coming, and it’s going to be in the form of vertical SaaS solutions.

  23. Waylon says:

    The more information I get on how this company came in here and thought they knew what was best for this company and just took it upon themselves to do that is just mind blowing to me. If I was the boss of the people that did that they wouldn’t have a job anymore. The arrogance of people these days is just beyond me.

  24. Vernon says:

    The problems this company faced could be avoided if you buy a sophisticated software system that updates itself. It may be the start of a new trend, software that automatically upgrades itself silently in the background without ever bothering users. Google has been doing it successfully with its Chrome web browser, and soon Mozilla will jump on the bandwagon with Firefox. You may love it or hate it, but for most users, software that automatically upgrades itself can be a blessing, and in more ways than is immediately apparent.

  25. Francis says:

    When you need to upgrade a software system, the first consideration is: What tasks will the new system be performing, and does the present system meet the requirements of those tasks? If the current system comes up to scratch, there is no justification, other than replacement of dated or faulty components; or perhaps known future compatibility issues or performance degradation. If the current system does not come up to scratch, you should then identify it’s weaknesses in relation to expected future usage and performance requirements. Finance is obviously a major consideration when considering an upgrade.

  26. Kendrick says:

    I think as a business woman this is the most scary thing I can think of to have happen. People taking advantage of the small business is getting to be rather a problem and they need to be stopped, thank you for showing us here in this post that stopping them can be done. I will look for a consultant in my area that does what you do that is for sure.

  27. Roger says:

    Part of the problem many companies face are maintenance fees, which pay for two services from the vendor to the customer. First, they pay for ongoing product development that provides new product features, regulatory updates (e.g. tax table updates), and bug fixes. (That’s right. You pay for the software, and then you pay the vendor to fix defects in it.) Second, maintenance fees pay for phone and Web-based support for times when you need help with the system.

  28. Sandra says:

    This story shows that the toughest challenge facing executives and managers globally is to encourage and mobilize their teams to work smarter, faster and more competitively. Managers worldwide are always on the lookout for new methods to bring their teams up to a higher level of work efficiency. Executives focus on getting higher per employee revenue, per employee profit and better overall employee and business productivity. Organizations today need to work smart in order to remain competitive.

  29. Jerry says:

    This company ended up needing a consultant to rescue them because they didn’t execute process discovery and definition when handling their unexpected situation and defining a procedure. Business Process Modeling organizes these activities in a structured approach to systematically discover, document, analyze and optimize business processes to improve operational efficiency. When restructuring processes, companies transform the way of doing business, save money and time by streamlining business processes and increase quality of operations and products.

  30. Jose says:

    Even though this cautionary tale could have a way of paralyzing people with fear, as an entrepreneur, you can never let fear of failure discourage you from trying and risking. This is something I’m sure you have heard several times before (especially from other entrepreneurs) – don’t be afraid to fail. Failure is a great learning vehicle. If you fail at something, provided you understand the reason for your failure, you can then dust yourself off, get back up, and try again – mindful of what made you fail the last time. Provided that you learn from your failures, then it can actually be more constructive than being successful in something.

  31. Preston says:

    Any company can find it difficult to keep abreast of new technology. But the nature of the insurance industry creates a unique set of challenges around technology. I suppose that is why many insurance professionals gather each year, at the 2014 AAMGA Automation Conference in Orlando, to discuss how best to automate and bring together information technology and business operations. It’s become clear that agencies and insurers have moved past questioning the value or need for automation and are making significant progress automating many internal processes.

  32. Wayne says:

    Software requirements specifications (SRS) are hard to compare due to the uniqueness of the projects they were created in. In practice this means that it is not possible to objectively determine if a projects SRS fails to reach a certain quality threshold. Therefore, a commonly agreed-on quality model is needed. Additionally, a large set of empirical data is needed to establish a correlation between project success and quality levels. As there is no such quality model, you would have to define this based on the goal-question-metric (GQM) method.

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