Determinants of budget overruns on IT projects F. Calisir, C.A. Gumussoy * Industrial Engineering Department, Faculty of Management, Istanbul Technical University,80680 Macka, Istanbul, Turkey Abstract Using data collected from a sample of 76 project managers from 64 firms, we explore the relative impact of project characteristics, frequency of problems encountered on the projects, perceived impact of these problems on the budget performance, project managers’ personal characteristics, and project managers’ conflict management styles on budget overruns on information technology (IT) projects. The study reveals that schedule overrun is the strongest predictor of budget overrun. Usage level of accommodation as a conflict management style, project team size, and project management experience were also found to be important, but to a lesser extent. We then utilize the findings to construct a model that predicts budget overrun as a percentage of the initial budget estimate. We conclude with recommendations for future research. q 2004 Elsevier Ltd. All rights reserved. Keywords: Budget overrun; IT projects; Conflict management; Project management experience 1. Introduction Over the past few years, firms around the world have made large investments in information technology (IT) projects as the use of IT based systems is now considered a major determinant of competitive advantage. Many of these projects, however, have been afflicted by budget overruns (Barki et al., 1993; Nidumolu, 1995). According to a study by the Standish Group, 52.7% of information systems (IS) projects overrun their schedules and budgets, 31% are cancelled, and only 16.2% are completed on time and within the budget (Johnson, 1995). Keil et al. (2000) indicated that 30–40% of IT projects showed some degree of escalation. Ambler (1999) reported an 85% failure rate in the development of large-scale software projects since the early 1980s. According to Sauer et al. (2001), underperformance on IT projects represents a considerable but, to a large extent, avoidable loss of economic value. In contrast, despite numerous advances in the field of IT project management, catastrophic failures continue to alarm the market at great cost to both individual firms and national economies. For example, the Denver International Airport, with IT auto- mated baggage-handling system, was initially scheduled to open in October 1993. However, problems with the IT based system delayed the opening by 16 months and cost the city about $2 billion more than the original budget (Montealegre and Keil, 2000). Another well-known and widely cited failure is a California Department of Social Services’ project. In 1992, the department started a Statewide Automated Child Support System project with the initial completion date of September 1995 and a budget under $75.5 million. This project was finally cancelled in November 1997 with the total cost estimated at $345 million (Newcombe, 1998). There are more examples of these failures in the literature suggesting that their causes are still poorly understood with effective solutions yet to be found. The IT project management literature has stressed the importance of project managers’ ability to manage conflicts as a critical success factor (Posner, 1986; Turner, 1993; Belassi and Tukel, 1996; Wateridge, 1997). According to Thamhain and Wilemon (1975), these conflicts may arise in seven fundamental areas: project priorities, administrative procedures, technical opinions and performance tradeoffs, manpower resources, cost estimates, scheduling and sequencing of work, and personality conflict. If project managers are aware of the various alternatives they can use, there is a real opportunity to resolve conflicts. Thus, how project managers perceive their environment, react to events, and cooperate with others influence the outcome of projects (Kliem and Anderson, 1996; Milis and Mercken, 0166-4972/$ - see front matter q 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.technovation.2003.10.011 Technovation 25 (2005) 631–636 www.elsevier.com/locate/technovation * Corresponding author. Tel.: þ90-535-652-5351; fax: þ 90-212-240- 7260. E-mail address: altinici@itu.edu.tr (C.A. Gumussoy).