The hidden costs of digital transformation projects

Recent MinterEllison Consulting research reveals a troubling trend: only 32% of digital transformation projects now deliver on time, down from 42% in 2020. With 73% of projects experiencing staff shortages and 51% facing cost escalations, most Australian organisations enter transformation without understanding their true baseline ICT costs.

Across government, financial services, transport, and education sectors, the same pattern emerges repeatedly: transformation initiatives built on assumptions and anecdotal evidence, rather than market-validated cost baselines.

The baseline knowledge gap

Standard transformation planning assumes an organisation knows:

• its current ICT expenditure patterns;
• whether vendor pricing represents fair market value;
• how the service and capability mix compare to industry best practice; and
• the objective performance benchmarks for measuring success.

However, organisations typically do not know:

• the hidden operational costs scattered across budget lines;
• if the current contracts reflect competitive market rates;
• if service delivery models align with transformation objectives; and
• what realistic performance targets should look like.

Our 2024 CIO Sentiment Study reveals that almost half of Australian CIOs report low to very low confidence in their team's ability to defend transformation decisions. This "decision defensibility risk" stems directly from inadequate baseline understanding.

Why baseline understanding matters: A hypothetical example

Consider a typical scenario in the financial services sector, an organisation is planning a $15M digital transformation to improve customer experience. Initial planning assumes current ICT costs of $8M annually will reduce to $6M post-transformation.

However, when comprehensive ICT benchmarking is conducted, factors such as:

• contract obligations extending beyond transformation timelines;
• hidden support costs embedded in other budget categories;
• vendor pricing being ~25% above current market rates; and
• service mix inefficiencies adding unnecessary complexity

result in a different picture emerging: actual baseline costs are $10.5M annually, and transformation savings potential is significantly different to what was originally projected.

Typical outcome: A recalibrated business case with reduced ROI expectations that results in reduced transformation scope to ensure the original funding envelope can be met, which substantively moves the initially committed outcomes from being strategic to more tactical.

What if the reverse could be true? A well-constructed, comprehensive business case and ROI that results in a properly funded transformation program with realisable and measurable benefits that support the initial outcomes.

The comprehensive benchmarking approach

Effective transformation planning requires three layers of baseline analysis:

Layer 1: Cost and price benchmarking

Establishing an accurate understanding of current ICT expenditure through comprehensive spend analysis and market rate validation against peer organisations.

Layer 2: Cost and service level benchmarking

Establishing cost and service level baselines for the organisation's specific context, across key parameters:

• service complexity: current service levels, integration requirements, user diversity;
• regulatory environment: Compliance frameworks, audit standards, data sovereignty and security requirements;
• operational factors: Geographic coverage, availability requirements, support models; and
• technology maturity: Legacy system constraints, vendor relationships, transformation readiness.

Layer 3: Strategic transformation alignment

Translating benchmarked baselines into transformation planning insights, will ensure realistic:

• cost reduction opportunities;
• performance improvement potential;
• risk mitigation strategies; and
• investment priority frameworks.

Beyond assumptions: Enabling decisions

Typical transformation planning relies on assumptions and anecdotal evidence. Benchmarked transformation planning enables informed decisions supported by real data.

Example scenario: Government Digital Transformation

• Standard planning assumption: "Current vendor arrangements will transition to the new platform to keep up with PSPF (security) requirements, the incumbent is best placed to uplift the current environment and ensure costs are optimised."

• Benchmarked analysis:

• Insight - Current vendor pricing exceeds market rates by 30%, by changing platforms, costs will increase as the current state is already uncompetitive, and the incumbent may not provide the best value for money solution in light of tightening regulation.
• Recommendation - Transformation provides opportunity to reset commercial arrangements while improving service delivery. Consider competitive procurement for new platform implementation.

• Value-add form benchmarking: Transformation budget that accounts for market realities rather than internal assumptions.

The cost of getting the baseline wrong

Poor baseline understanding leads to sub-optimal transformation outcomes at both ends of the cost-return spectrum:

Under-budgeted scenarios, later manifest in:

• scope reduction to meet unrealistic budget constraints;
• quality compromises affecting user adoption; and
• extended timelines due to unforeseen cost pressures.

Over-budgeted scenarios reduce value for money and left unchecked end up in:

• inefficient resource allocation reducing transformation value;
• gold-plated solutions beyond actual requirements; and
• substantive opportunity costs from misallocated transformation investments which later become more difficult to secure for future projects due to finite funding.

What comprehensive benchmarking delivers

When transformation planning includes proper ICT benchmarking, organisations will be on the front foot, having:

• accurate cost baselines across ICT expenditure that reflect the true total cost of ownership;
• market-validated pricing to inform vendor negotiations and procurement strategy;
• service level and cost benchmarks for measuring transformation value;
• service mix optimisation recommendations aligned with transformation objectives;
• risk assessments with supporting mitigations that are specific to the operating environment;
• investment prioritisation guidance linking transformation spend to business outcomes; and
• procurement intelligence for selecting transformation partners and technology platforms the best align with strategic and operational outcomes.

The benchmarking advantage

Organisations using comprehensive ICT benchmarking before transformation consistently achieve:

• significantly improved transformation budgeting accuracy through market-validated baselines;
• reduced vendor negotiation risk through market intelligence;
• clearer transformation success metrics through established cost and service level baselines;
• better alignment between transformation investment and business outcomes;
• improved procurement outcomes through data-driven vendor selection; and
• higher transformation project success rates with validated business cases.

Getting transformation planning right requires more than assumptions

The difference between successful and sub-optimal digital transformations comes down to one word: baseline!

Each organisation's ICT landscape is unique, across ICT costs, vendor arrangements, service delivery models, regulatory frameworks and performance expectations. Transformation planning should reflect that reality, not ignore it.

When transformation planning is grounded in comprehensive benchmarking, it becomes what it should be: a strategic investment with measurable outcomes, not just another technology project.

The 2025 transformation landscape demands accuracy in decision making. With digital transformation spending reaching record levels globally, organisations can't afford to base multi-million-dollar decisions on unchecked assumptions and anecdotal evidence. The complexity of cloud migration, AI integration, and cybersecurity requirements demands transformation planning that understands each organisation's unique starting position.

Australian organisations face specific challenges that traditional transformation planning cannot address. From regulatory compliance in financial services to geographic service delivery requirements across government, baseline understanding isn't optional—it's essential.

The most successful transformation leaders in 2025 will be those who move beyond asking "What should we build?" to asking "What should we change?" That shift requires benchmarking that reveals the true starting point, not assumptions about it.

Our ICT Benchmarking & Analytics services provide the market intelligence foundation that supports confident decision-making across all three phases of technology transformation:

• DECIDE: Market-validated assessments of current technology investments and performance
• PROTECT: Risk-informed investment planning with benchmarked cost and performance frameworks
• EVOLVE: Performance tracking and optimisation using industry-standard metrics and peer comparisons

Key insight:

ICT Benchmarking serves as the analytical backbone across all three phases, providing market-validated data points that inform strategic decisions, protect against investment risks, and measure transformation success.

Contact MinterEllison Consulting to discuss how comprehensive ICT benchmarking can strengthen your transformation business case and improve your strategic outcomes.