European banks are failing to account for the risk or adequately measure the benefits of IT investments, according to research conducted by IBM Business Consulting Services.
The study of 165 large IT projects at European financial services companies shows that almost 70% of the time banks weren't able to quantify the benefits of IT investments due to a lack of data and business-oriented metrics needed to measure returns.
Cormac Petit, managing consultant, IBM Institute for business value and co-author of the report, says financial firms also don't seem to know how much of a budget should be set aside for contingencies.
"In some cases the contingency could in fact be reduced by up to 55% of the total budget, if managed correctly," says Petit.
The research found that, for a variety of reasons, a third of projects ran over time, a fifth ran over budget and a fifth fell short of planned functionality.
IBM says participants acknowledged their own responsibility for project underperformance, attributing it to overly optimistic business cases or unforeseen internal factors at least half of the time.
The research found that while banks are usually good at evaluating and prioritising business cases, few firms develop structured risk assessments before embarking on IT projects. Even fewer use the risk assessment to evaluate business cases and determine priorities.
IBM says the study shows that return on IT investments could be improved if banks used portfolio management strategies to focus on business initiatives, to consolidate and reduce overall risks and to make more efficient use of capital and resources.
The vendor recommmends that banks continually measure the benefits or failures of IT projects and suggests that firms keep projects short and small - with a maximum time of two years or cost of EUR5 million - as anything more than this quickly becomes unwieldy and difficult to manage.