Tower Group estimates that the U.S. banking industry will spend more than $15.2 billion on projects for the development and maintenance of systems in 1998.
Using historical data available from industry sources, one can project that only 16% of these projects will be completed on time and on budget. More than 31% - approximately $4.7 billion - will be canceled before they are completed.
These statistics create more than apprehension. Many banking executives have watched as information technology organizations fail to deliver mission-critical projects on time, on budget, and with the required functionality.
Bankers should not feel too lonely, given that they are on par with the majority of other businesses. However, some sectors of commerce are pulling ahead.
The defense industry first faced this issue in the late 1970s. Software development difficulties in delivering major defense systems caused project delays and massive cost overruns. In response, the Department of Defense funded the establishment of the Software Engineering Institute (SEI) at Carnegie Mellon University in 1984.
The SEI developed an industry recognized yardstick to measure the risk of a software development organization successfully completing a given project.
This yardstick has evolved into the comprehensive framework known as the Capability Maturity Model (CMM). As outlined by the SEI, the CMM defines a set of five maturity levels. Data gathered by the institute over the last 10 years suggests that organizations that put forth the effort to advance in their maturity levels will receive a fourfold to sixfold return on their investments.
Motorola, whose government electronics division was recently rated CMM Level 4, found that each succeeding level of the CMM improved quality by a factor of two. The resulting reduction in rework because of decreased defects can help organizations reduce costs.
So what is the CMM? Specifically, three things:
*A description of behaviors demonstrated by software organizations as their process capability matures through the definition, implementation, measurement, control, and continuous improvement of the software processes.
*A guide for selecting process improvement strategies and identifying the issues most critical to software quality and process improvement.
*A standard against which current process capability can be measured.
With a few exceptions, it appears that banking has lagged behind other industries in the use of this model. In the recently published SEI 1997 midyear study, Process Maturity Profile of the Software Development Community, less than 4% of the 606 organizations responding were in the financial industry. Defense, aerospace, and manufacturing companies saw CMM's applicability early on.
However, this model is not a panacea. Ultimate benefits come from a sustained effort to move from one maturity level to the next, a process that can take 24 months to 36 months.
An investment in organizational change that takes 36 months to show a strong return may be difficult to justify, given the competing demands for developmental resources in today's banking evironment.
It is important to balance expectations of CMM investment return with an up-front focus on efficiencies, cost reduction, and resource redeployment.
The benefits of the CMM are clearly out there. However, initial successes are necessary to sustain long-term support and gain the maximum benefits of structural efficiency and time-to-market advantage.
Although all development groups can benefit from implementing the CMM discipline, there appears to be a set of criteria that would indicate which banking organizations can benefit most from such an effort.
If you have 300 systems professionals or more, if you are supporting significant change within the bank, if you have a decentralized IT structure, or if your organization tends to develop systems or heavily modify third-party packages, you are a candidate for a CMM assessment.
This is especially true if you have just come through a set of acquisitions or if you have recently consolidated your application development organizations.
Most of the major IT service suppliers have SEI-authorized CMM assessors, and they offer programs and assistance in implementing the CMM.
The banking industry today is on strong economic footing, but that footing is built on a market that demands responsiveness to rapid change. Being hamstrung by late product delivery or cost overruns is a software development problem other industries have sought to resolve. Banking can gain by leveraging that experience.
Mr. Littell is president of Electronic Data Systems Corp.'s U.S. banking division.
