Investing in custom software is a big step for any company, regardless of size. The process can have significant risks, particularly for someone who doesn’t have experience overseeing a development project.
But you can protect yourself. By identifying your exposure to common threats and taking steps to manage your risk levels, you can avoid serious consequences for your business.
This article examines common risk factors in software development and five tactics you can use to mitigate those risks.
Common Project Risk Factors
Three specific issues affect software development projects most frequently. These are cost overruns, time overruns, and disappointing results.
Two-fifths (41%) of software projects experience cost overruns, according to a study by McKinsey. Worse yet, for those that do exceed budget, the average overage is 75%. Projects with longer timelines have the biggest average cost overruns.
Unexpected expenses can cause projects to exceed the initial budget estimate, and it can happen at any time during a project.
Typically, cost overruns are caused by specific factors, so it’s important to understand and address these to contain them. Some of these factors include:
- Estimation errors: One of the primary causes of higher-than-expected project costs, estimation errors often happen because of inexperience. New sponsors and project managers (PMs) miscalculate the project’s complexity and the cost of the total development. They may also make errors as a result of forecast bias.
- Scope creep: Having requirements added to a software development project after the budget has been finalized is a huge headache for every project manager. Sometimes, it’s inescapable because the business environment is constantly changing. Scope creep means setting new deadlines, revising activities, and even changing technologies, all of which cause additional expenses.
- Poor stakeholder communications: Company execs who sponsor projects often don’t fully understand how the software works, so they don’t communicate requirements properly. This leads to unclear instructions and inaccurate scoping of the project.
- Bad project design: The project design process needs to include all components of the project, how these are carried out, supervised, and completed, and the results they should produce. If a design process is flawed from the outset, problems might only be spotted at an advanced stage in the project. Wasting complete work and redoing tasks and testing all increase the costs and cause overruns.
In an ideal world, you’ll want to prevent cost overruns altogether. At the very least, identifying the risks presented by these common problems can help you mitigate them and reduce the impact on your company.
An accurate estimation of the time it takes to complete a software development project is critical to success. The McKinsey study found that 81% of software projects took longer than expected to complete, overrunning the original time estimate by 47%.
Time overruns can be compounded by interdependencies. For example, when one team member takes longer to complete a task, others waiting on the outcome of that task are also delayed.
Estimating a project’s duration depends on:
- Team makeup and experience
- Project complexity
- Number of iterations planned
- Methodology used, such as Scrum, Waterfall, Kanban, or Agile
- Number of system integrations required
- Budget available
If the circumstances are ideal for all of these factors, the team will have greater velocity and be able to make more progress in a shorter period of time.
There can be many reasons why a company’s executive team is disappointed with the results of a project. Some PMs choose developers who can meet aggressive, unrealistic deadlines. Often, these developers take technical shortcuts such as inadequate testing, code that’s hard to maintain, and bug fixes that don’t last.
Reduced functionality can occur from trying to avoid time and cost overruns, but whatever the reason, the outcome is unsatisfactory. Imagine investing in a software development project aimed at growing your ability to fill orders by 50%, only to have it deliver a 10% increase in fulfillment. That happened on Nov 17, 2020, when the Australian stock exchange had to be shut down after defective new software went live. Disappointment is an understatement in this instance.
5 Risk-Reduction Tactics to Consider
So, how do you manage these risks in ways that improve the chance of success? Here are some proven tactics.
1. Prioritize Investment in Design
“Getting it right the first time” is an age-old mantra for success because it avoids going back and fixing mistakes, paying people to redo tasks, and wasting precious work-hours you can never get back. To do so, a software development project must be accurately designed from the outset. This is not a task for a beginner, and even if your budget is limited, the design process needs to have the highest investment priority.
Good design starts with identifying the user’s requirements and finding ways to address them, which means understanding the problems and the goals. Most companies have processes that depend on flawed legacy systems. No software can overcome a flawed business process, no matter how well-designed. An experienced software design team asks questions to determine the root of the problem before trying to come up with a way to resolve it. This can involve analyzing the user’s ideal journey, designing an interface that follows it, and making it error-proof for maximum usability.
The design needs to be tested on users and their feedback incorporated into revisions before any final development work can begin. A good design process that addresses the right problems and delivers the right solutions is time-consuming, and it must be factored into both the budget and the schedule.
2. Opt for Agile Methodology
Agile project management is an iterative approach to product delivery, which builds up in increments from the project’s start to completion. It breaks tasks down into smaller pieces of functionality and delivers them in short cycles called sprints or iterations.
By opting for an Agile methodology, you benefit from:
- Having everyone involved at each stage of the process, so no important aspects are overlooked
- Early detection of problems before the development progresses too far to make changes without increasing the cost and time
- Rapid feedback for each cycle or iteration of the software, which the team can use to make immediate improvements
- An ongoing, iterative learning curve that allows the team to implement feedback immediately
- The ability to customize applications during development based on the feedback for each iteration
- A more predictable performance against budget and timing
The Agile approach enables development teams to concentrate on short-term cycles, identify problems early, make course corrections quickly, and deliver a higher-quality product with fewer defects.
3. Focus on Quality Communications
The success of a software development project depends on how effective communication is. Methods used in planning and execution can be verbal, written, electronic, or in-person interactions, but always involve the flow of information. Every team member needs full information to do their job; nothing must be misinterpreted or overlooked.
High-quality communication improves productivity and reduces wasted time. It helps prevent confusing or unclear instructions, which are two big productivity killers. Every team member should clearly understand their role and responsibilities to make the process run smoothly. All team members need to participate in planning, discussions, and feedback to face challenges and resolve potential issues together. Good communication between stakeholders and developers helps to keep everyone on the same track and to complete each task or project phase in a spirit of collaboration.
4. Appoint an Invested Product Owner
The Product Owner (PO) is a member of an Agile team responsible for delivering the final application on time and within budget. To achieve this, the PO oversees and maintains the technical integrity of the product during development. This includes presenting the goals at the start of each sprint and engaging with non-technical stakeholders to make sure the team is developing the right product for their needs.
The PO needs to be fully invested in the project, taking part in daily meetings, defining user stories, and prioritizing backlogs. By conducting frequent sprint reviews and resolving conflicts, the PO keeps their finger on the pulse of the project and delivers on the milestones.
5. Use Metrics to Track Progress
Data is the secret sauce when it comes to keeping track. Choosing the right metrics to monitor project progress enables you to identify risks before they escalate and become serious issues. The team can plan for identified risks from the outset, share them transparently with the project sponsor, and address them early using an Agile development approach. The right metrics make it possible to stay on top of both the C-Suite and the team’s “temperature.” They help to maintain morale, work ethic, and commitment, keep track of project scope, timeline, and budget.