Risks and rewards with IT
We all know that the bigger the project are, the greater the risk of failure.
Small teams, small deliveries is the essence of agile project, and they do succeed if they stay small.
But if you want to win big, you have to bet big is also a common wisdom, but how well does this work in software development?
Are IT-projects profitable? The statistics shows that only 18% of the project with less than $2M budget succeeds and only 2% of larger projects, but not if they are profitable.
Let’s go to Hollywood for their statistics for film production.
According to an article from Stephen Follows, 51% of Hollywood movies are profitable. What’s interesting is that films with a budget of $25M was as profitable as films with a budget of $100M. I.e. no difference in profit based on budget size. If we instead are looking at profitability for low budget films (< $3M) is the statistic show that only 3.4% are profitable. If we only look at profits for them with teathrical release, 30% is profitable. E.g. less profits with smaller budgets.
Profitability in Hollywood is on average 7% of the revenue. Compare with Spotify, a company celebrated for there software development, who turned profitable after ten years, with an operational margin of 3% for Q3 2019.
So far can we conclude that the dream factory is much more successful in running large projects that the IT sector, where large programs regulary fails.
Traditional banks have a profit margin of 10-15%, in spite of the fact that they usally can large IT projects. Most fintech companies are not profitable, so we don’t get any help from that sector.
Automotive, a sector as old as film have as an average a negative profit margin of -4.4% for the last ten years, but some smaller brands had profit margins near 10%.
Is your IT helping you to be profitable?