Rise In Nation’s Inflation Rate – A Symptom For Software Project Failure


In the Information Technology (IT) industry, a number of both In-house and Offshore Software Projects have a tendency to get scrapped before their completion. To accommodate the ever changing business practices, software applications are designed to be more user-friendly. These flexible practices have been used as a reason for failure. A project that was canceled before its completion, or exceeds the original budget, or takes more than the estimated completion time, or couldn’t achieve the desired output as planned is considered to be a “FAILED PROJECT”. In the IT industry, most of the failures are covered-up, and/or ignored due to various reasons. This behavior leads to the same mistakes again and again. Organizations seldom spend time to identify the key ingredients that can reduce the number of failed projects. Analysts who did Failure Analysis often refer to various Management Indicators. Very few Analysts considered the Nation’s economic situation in the process. Though it does not have a direct impact , it can be considered as a symptom for failure. Inflation Rate, the key economic indicator plays a crucial role in Software Project Management. Inflation Rate effects a professional’s motivation to continue the same Project without a hike in salary. Inclusion of a new hire or loss of a skilled professional in the middle of the Project, hinders the completion time. Inflation Rate also impacts the Project cost. To minimize this impact, Project Managers implement cost reduction techniques without considering the long term consequences. The basic strategic deficiencies in mission and/or exit strategy are ignored.


It is presumed that most software projects fail due to lack of skilled professionals, incomplete requirements, high expectations, improper preliminary analysis, ever changing requirements. Projects with more than 5 years of Software Development Life Cycle (SDLC) are more prone to fail in any organization. Project requirements that change to cope up with the rapid technological changes both in Hardware & Software, may also be a cause for the failures.

Although all Project Managers follow the standard Project Management techniques, every project is unique and requires a different approach for a successful completion. Every decision made by the Project Manager involves a risk. Most of the Modern Project Management techniques minimize the possibility of risk if not fully error-prone.

Anecdotal studies for project failures are cited by “The Standish Group” – in June 1995 during the “Project Leadership” Conference in Chicago. The Standish Group also revealed that 31.1% of projects will be canceled before they ever get completed and around 52.7% of projects will cost 189% of its original estimates[ 1]. For most of the projects failed, lack of user involvement plays a vital role. Lack of proper documentation before the beginning of the project development and targeting unrealistic deadlines follows. Even though most of the software projects are developed using the same staff and management principles, each project has unique features for its failure.

Table 1: Project Cost Overruns (Source: The Standish Group)


Cost Overruns % of Responses


Under 20% 15.5

21 - 50% 31.5

51 - 100% 29.6

101 - 200% 10.2

201 - 400% 8.8

Over 401% 4.4


Based on the 1995 IT Industry data, the Standish Group research showed that the average cost overrun is 178% for large companies, 182% for medium companies, and 214% for small companies. Also, the same study revealed that in big Organizations, only 9% of software projects were completed on-time and on-budget. Projects completed by larger American Companies have only 42% of the originally-proposed features and functions. The average time overrun is 222% of the original time estimate. For large companies, the average is 230%; for medium companies, the average is 202%; and for small companies, the average is 239%.

The same study revealed that annually, in United States, Organizations together spend more than $250 billion each year on IT application development of approximately 175,000 projects. The average cost of a development project for a large company is $2,322,000; for a medium, it is $1,331,000; and for a small one, it is $434,000. Many of these projects end up without achieving the goals. After spending around $3.3 billions, IRS halted its Internal systems upgrade in 1996 [2].

With over 25% of Software Projects not being successful in the current IT industry, different methodologies were used to identify the failure symptoms and admonitory steps were identified to follow at different levels in Software Development Life Cycle (SDLC). Yet, the number of project failures keep increasing. The survey conducted by Spikes Cavell & Co -UK [3] during Spring 1998, revealed that 69% of IT Managers selected maintaining budget as a top success factor. The same survey also revealed that over one-third of the respondents had an opinion that a breakdown in communications is likely to lead to project failure.


A Nations economic performance is measured using Inflation Rate ie. how fast the overall price level of consumer goods increases. Uncertain economic situations, caused due to rise in inflation rate, tends to disturb not only the future plans of people with fixed income but also other nations that have trade contacts. These trade contacts have some annoying impact on jobs. Higher the inflation rate, slower the growth in exports [4].


The first impact with rise in Inflation rate is the Wage Rate. With the hike in Inflation Rate, the cost of daily commodities increases. The real value of the money starts to diminish. Citizens find it difficult to buy the same quantity of the products without change in Income. If the consumption is autonomous, the only alternative is

to search for opportunities to earn more. Either a hike in income from the current employer or demand for better pay-check in the new job are the only avenues open under these circumstances. When the wage rates are increasing, businesses attempts to reduce their manpower.

2.1.1 Effects on Motivation:

Motivation can be defined as a force originated in the brain consciously or unconsciously that directs a person how to behave. Motivation in employees is directly visible by their productivity. Earlier studies proved that low-motivation in employees can preclude the quality of work. There is a high degree of inverse correlation between Inflation Rate and Motivation.

In 1959, Herzberg concluded SALARY as a hygiene factor rather than a motivational factor. The research conducted by Tutor [5], revealed that salary as a hygiene factor does not seem to be true in case of Elementary & Secondary School teachers [6]. The highest need on Maslow’s pyramid is psychological – thirst, sex & hunger belonging to this category. In a unstable economic situation, Income being the highest need for survival, may also belong to this category. When the Software Professional perceives a strong relationship between his effort and reward, Money can also be a motivator.

Frustration can be defined as a state of anguish that one experiences when the desired result is not attained within the desired time. As the time to find a Job with better Wage get prolonged, the frustrated Software Professional will be forced to continue the same job, which in turn reduces his ability. Psychologically, frustrated employees frequently become rogues in the work environment.

2.1.2 Disadvantages of losing a trained professional:

The biggest detrimental factor in an Ongoing Project is losing a skilled Software Professional. This scenario motivates other team members to search for an alternate job. Team members who are already in the process of changing the present job but are not yet successful, face the phobia of failure, thus leading to decrease in motivation. This rife phenomenon causes emotional trauma in IT Project Manager .

2.1.3 Disadvantages of hiring a new professional:

The common phenomenon while managing a project is to add more manpower when the completion time is found to be unattainable. Adding a new Software Professional, in the Project after it began is a tough job. Though logically this works, psychologically the result is reversed.

Brook’s [7] Law states that “Adding manpower to a late software project makes it later”. The new hire needs certain amount of time to learn about the project, get used to the new environment and to freely communicate with his or her new colleagues. For every new hire, approximately the same amount of time will be non-productive. This time spent for learning is always a overhead to the project time and cost. Hiring an experienced Software Professional costs more financially, thus increasing further the cost of project. IT Project Managers tend to use cost-reduction techniques to overcome the extra burden, to stay within the estimated budget.


Rise in Inflation Rate increases the overall cost of the Project. This increase may be due to increase of salary to the team members to avoid them from being leaving the Project or hiring new professionals at a higher wage rate. To complete the Project within the specified Budget, IT Project Managers are compelled to implement cost reduction techniques.

Disadvantages of implementing Cost reduction techniques:

One of the classical mistake done by most Project Managers is to cram professionals into low-budget office space. Software Professionals in these office spaces are more inclined to noise hazards. Insufficient privacy in the workplace increases psychological stress. Any unwanted sound within the office space can be NOISE for a professional. Frequent rise in Heart beat for unpredictable noise can affect psychological functioning too. Inaudible noises diminishes the memory to perform mental arithmetic and makes it harder to concentrate. Building of Computer Algorithms and developing the source code are effected by these distracting noises.

Planning schedules are followed as long as there is no discrepancy between the planned work and work completed. Once a backlog builds up, most of the IT Project Managers concentrate to overcome the backlog and there by show less interest in the schedule.

For testing a Software Application, usually 40% of the Project time is allocated. A thorough testing identifies all undiscovered errors. The benefit of testing in this manner is that it authenticates that the Software is working as per the specifications laid by the end-users. A systematic testing procedure uncovers various types of errors in a minimum amount of time with a minimum amount of effort. When the Project is behind schedule, most of IT Project managers avoid full-fledged testing to reduce the testing time and in turn the cost. They prefer to test for interface errors & Data integrity errors only. This partially tested Software creates a chaos during the implementation process.

Aggressive schedules created by IT Project Manager leads to Job stress for a professional, which is defined as a particular stress of unpleasant nature called “Hurry Sickness” [8]. This causes the professional to hurry and do the job badly. A bad output further causes frustration of failure, that in turn causes more stress. This compounded stress give rise to temporary mental disturbances. It also results in spoiling of relationship with the Employer and sometimes the Software Professional’s family relationship.

Hurry Sickness in Project Managers often makes them impatient in meetings and view “hanging-out” by the sub-ordinates as waste of time and cannot get adjusted with people who are frequently late at work. Hurry Sickness is an epidemic which results in complete failure of project team work.


Although the impact of Inflation Rate is not noticeable directly, this is a catalyst for Software Project failure. Inflation Rate not only affects the Project budget, but also impacts the communication between team members, which is the prime cause for major Software Project failures.


1. The CHAOS Report, – Standish Group; [http://www.standishgroup.com/chaos.html]

2. Information Week, Page 160, Dec,14, 1998 edition

3. “The Bull Project Management Index” – Bull Information Systems – Spikes Cavel & Co – U.K

4. “Understanding US & GLOBAL ECONOMIC TRENDS” – A guide for the non-economists – Daniel Gaske (1996)

5. “The relationship between perceived need deficiencies and factors influencing teacher participation in Tennessee Career Ladder”- Doctoral Dissertation of Tutor, F.D

6. “Herzberg’s theory of motivation and Maslow’s hierarchy of needs” – Joseph E.Gawel , ERIC, Clearinghouse on Assessment and Evaluation – http://ericae.net/digests/tm9701.htm

7. “Mythical Man-Month” – Fred Brooks – Addison-Wesley, 1975

8. “Effective stress management – Environmental & Job stresses” – Mind Tools Ltd.

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