- Cost increases without increased value: The first form of value erosion pertains to cost increases within your project without an equivalent increase in the value or activities being delivered. With project delays, for example, there are usually additional costs incurred related to resource carryover because of the timeline increase. In this instance, the absence of additional work being delivered, or future work being pulled forward to offset the additional costs, is a prime illustration of value erosion.
- Decrease in value without decreased costs: A second form occurs when there’s a decrease in value without a cost adjustment. This can happen due to changing business priorities or project delays, especially within the build phase. As an alternative to extending the project timeline, organizations may decide to prioritize and reduce features to meet deadlines. This is especially true for organizations that may have more stringent timelines or budgetary restrictions. When reducing scope, there needs to be an equivalent consideration to the impact on the project costs, both within the current phase as well as downstream activities.
Regardless of which path leads your transformation to value erosion, the impacts of that decrease in value will adversely affect your business value case.
Impacts on digital transformation programs
The impact of value erosion on your program can be quite drastic, both to your program costs and timeline. In fact, it’s typical for large programs to experience up to a 50% cost increase to what was originally anticipated. It’s also not uncommon to see initial deployments of transformation implementations take a delay of three to six months. Unfortunately, many organizations aren’t properly equipped to proactively manage their SI relationships effectively, especially when you consider the project team will likely balance project responsibilities with any day-to-day operational activities they may still be accountable for.
Even with conflicting priorities addressed, it’s still unrealistic to expect the project team will be able to match the SI’s capabilities when it comes to negotiating and rationalizing any kind of cost changes related to the value you’re receiving. This makes it even more critical to prepare for your digital transformation initiatives by evaluating your proposals, accounting for risks through contingencies, and ensuring you have clear measurements of success that you can reference to hold your vendor accountable. Failure to do so can cost you millions.
