[MUSIC] In this video, we are going to talk about risks in IT projects that make it difficult to assess the returns from any project. And the projections themselves are uncertain, they largely represent the inability to predict the future perfectly. But in reality, there are a number of external factors beyond our control that will affect these cash flows. Even if you do an excellent job projecting future cash flows and unexpected impact due to these external factors, it will affect the project's cash flow. We will look at some of these external uncertainties and the consequences of these uncertainties on project cash flows, and this we do. One type of risk that all projects face is people risk. Trained and experienced employees may leave suddenly for better employment opportunities. This is likely to result in cost and schedule over-runs and also required additional investments as we manage to train existing employees or hired, and train new people. Our second type of risk is regulatory. Government said, regulators from time to time changes the regulations or introduces new ones. These changes could impact the project’s cost and schedule as the company's required to make changes to meet the new regulations. These new regulations may also require additional investments. A third type of risk is technological risk. One big reason for this is that technology becomes obsolete very quickly in today's fast changing world. A top of the line computer becomes obsolete in terms of its technology within a year, as better technologies emerge. During the project's life, a company may have to constantly keep adapting the technology it uses to keep itself relevant and competitive. This may delay project completion and also increase the cost to the company. And because of these additional costs and delays, a project that was attractive at its start may no longer be profitable. Not keeping up with changing technologies may impact market share and revenues, and lead to bad publicity for the company. Another risk that a company faces is outsourcing risk. This is especially true of the IT function in a company has been outsourced to another company. The company may not have complete control of the quality of services provided. It is also possible that the company providing IT services may just shutdown, because of large losses. This leads to additional cost to the company to find a new vendor to provide IT services, which could further lead to delays. Which in turn, could lead to loss of market share and revenues. A related risk is value chain risk. Anything that impacts the companies involved in the value chain will affect a project's attractiveness. This in turn lead to loss in market share, because of not being able to deliver the product or service on time or of the promised quality. The final type of risk is competitive risk. A company's competitors are constantly innovating and adapting to the changing market. Today, a company may have the best network routers, but there is no guarantee that the competitor cannot come up with a better product soon. A competitor introducing a better product or service will lead to erosion and market share, and revenue. While I haven't illustrated every single risk factor and company faces, these are some of the more common type of risk a company faces. Most of these risk come beyond the companies control. However, they may have processes in place that react when such situation arise. Here are a few recent examples where investment in IT projects didn't turn out as anticipated. Cigna had this customer data integration project on which they spent a billion dollars. However, due to various reasons, the expected benefits did not accrue, which led to Cigna losing market share. Nike spent $440 million on a supply chain redesign. It was supposed to improve the efficiency of its supply chain. Here again, the expected benefits did not accrue, which resulted in a 20% temporary decline in its stock prices. A third example of a failure in IT investment is Hershey's $125 million investment in an enterprise resource-planning project. They rushed to meet the deadline, but it resulted in a negative impact on order processing and fulfillment. In this video, we have talked about typical risks companies face. Usually companies may not be able to control the risk, but there are ways in which a company can resolve some of these uncertainties. We will talk about this next time. [MUSIC]
