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Investment Prioritization and Planning: Picking the Best Projects

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Tom Bugnitz

November 2007

Revised February 2008

Summary: As an IT professional, the way to have an impact is to bring ideas to the table that solve business problems, and to explain them in ways that show business impact. (5 printed pages)

Contents

Introduction
Asking the Wrong Questions
Looking at the Current Process
Asking the Right Questions
Moving to Solution-Driven Processes
Conclusion
Lessons Learned and Takeaways
Critical-Thinking Questions
Further Reading

Introduction

No one goes to work each day thinking, "What stupid idea can I come up with today that will waste the company's money?" Most ideas have some merit to someone. The trick for both the company and IT people is to find and propose the best projects, out of all of the possibilities. This begs the question, "What is 'best?'"

Asking the Wrong Questions

The president of a large health-insurance company does not know what "best" means, either. He cannot understand where his IT investments are going, and what they are doing for the business. Every project that is proposed by any vice president (VP) somehow gets approved, even though the company does not have the money or the people to do them all. What he then sees is that all of the projects are being worked on to some degree, because that is what IT does: It tries to keep everyone happy.

That means that many "important" projects (that is, projects in which the president is interested) are completed later than they should be, and they cost more than estimated. Even worse, in his mind, only 10 percent of his IT budget is spent on new things that will move the business forward. The rest goes to keeping things running or enhancing existing technology, or toward break/fix efforts. He wants to know why more of his IT dollars cannot be spent on new things.

He also does not understand how infrastructure projects relate to his business. He does not care about server upgrades or bandwidth. When someone talks to him about money for new infrastructure, his standard question is: "So, what?" What he means is: "What happens to the business, when I spend that money?" Or: "What will happen, if I do not spend the money? Tell me about that—not about servers."

Looking at the Current Process

Out of frustration with the IT people—and his business VPs, who are approving IT projects—he asks the CFO to figure out how the IT investment decision process works, and how to improve it. His main goals are to:

· Pick the projects that will help the business the most.

· Stop doing things that are not helping the business as much.

· Put those dollars to better use.

The first thing that the CFO does is to look at how projects are approved. In most cases, it turns out that projects are proposed by business VPs and sent to a committee of those same VPs for approval or rejection. The problem here is that no one wants to reject another person's projects, as their own projects are also on the list for approval. In general, there is no consideration of budgets or resource levels, or of whether IT is too busy to do the projects that have been approved already. All that matter is: Did it seem like a good idea?

The problem is that almost all IT projects, whether infrastructure or applications, are good ideas to someone. The new customer-relations management (CRM) system looks like a good idea to Marketing. The server upgrade is a good idea to the IT operations people, who deal with old machines. Moving to Linux is a good idea to systems programmers, who have to keep things running. Unfortunately, the questions are: Given that we cannot afford to do everything, what are the best ideas for the company? Given limited dollars and time, how do we decide what are the best projects?

Asking the Right Questions

The CFO came to a couple of conclusions immediately. Firstly, approving projects line item by line item was ineffective. As they were all good ideas for someone, they were all approved—on an individual, anecdotal basis. The real question was: If we look at them all together, which projects should be at the top of the list? Secondly, he needed a way to consider the entire project list as a portfolio of projects, and then apply the same yardstick for "goodness" to each one. As a CFO, he was familiar with investment portfolio management: balance risk, performance, and cost across all investments, so that the entire portfolio performs well. Find investments that will pay off the most at an acceptable level of risk, and dump investments that will not help the portfolio. He wanted to do the same for IT projects. His next problem was to choose a yardstick for ranking the projects and finding the best ones.

Moving to Solution-Driven Processes

The solution was to tie the projects directly to the things that the company was trying to get accomplished, and then assess the impact that each project had on those things. The CFO, with the help of the senior executive team, developed six "strategic intentions." These strategic intentions were statements that described what the business intended to do in the next 18 to 36 months. They were broad statements, but they were specific enough to be useful in determining whether an initiative—be it business or technology—would contribute to moving the company forward, from the perspective of the strategic intentions.

The CFO now had the tools that he needed: a portfolio of projects, and a yardstick (the strategic intentions) to assess each project's impact on the business. He gathered the business VPs in a room, and asked: For each strategic intention, what impact will executing this project have on accomplishing what the company intends? Is it irrelevant (no impact), will it have an indirect impact, will it have a direct impact, or is it absolutely critical to achieving the company's strategies? While the mechanical details of the ranking are unimportant, the results were key: The VPs were able to assess the impact of every project on the company's strategies, and then develop a rank-ordered list—with those that had the greatest impact on the most strategic intentions as the most valuable, down to the least valuable. (Note: The projects that were at the bottom of the list were not declared to be bad; they just were not as valuable as the ones that were at the top).

Providing Business Context for IT Projects

Included in the portfolio were infrastructure projects, which few people thought had any connection to the company's strategic intentions. But, given the strategic intentions as the yardstick, the IT people were able to describe their projects in ways that the business people understood, and they were able to show relevance to the business. The server upgrades were not just to consolidate servers in the machine room. That was the technology view. From the business side, the reduced complexity, improved response time, and improved reliability translated to better customer response for Web access, more dependable information access for the field sales force (and, hence, better customer service), and faster turnaround on orders and accounts receivable. The VPs did not care about server consolidation, but they did care about better customer support and increased sales. Through the lens of strategic intentions, they were able to make intelligent business decisions about IT investments, including infrastructure projects, and choose those projects that had the greatest business impact.

Conclusion

The result of the CFO's adventure was not lost on the president. There were 50 projects on the list, which represented $75 million in new investment IT for the year. Unfortunately, the company had budgeted only about $50 million for new IT. The president asked the CIO and CFO, "How many of those 50 projects are we working on right now?"

"Well, all of them," the CIO said.

"So, let me understand this: We are starving the most valuable projects at the top of the list," the president asked, "so that we can make some progress on all of the projects—including the least valuable ones?"

"Well, yes," the CIO fumbled. "I guess you could say that."

The result: The CIO was instructed to allocate the budget to the top $50 million of projects, and to let the rest go idle.

Lessons Learned and Takeaways

So, what's the point of the exercise that the CFO performed? A couple of principles jump out for the architect:

· Projects, including infrastructure projects, are part of a project portfolio, and they compete with other projects for the company's attention and resources. It's not enough to be a good idea. The project must be one of the best ideas.

· The "goodness" of a project is determined by how much it helps the company achieve its strategies—not by how much it helps an individual, a department, or a business unit solve its local problems.

· The benefits of a project must be explained in business terms and in strategic-intentions terms—not in technology terms. Migrating to Linux might be a good idea. Improving customer access to 24/7 for all accounts and transactions, guaranteed (because you went to Linux), is the way to compete for money. That's what the business understands, and that's what they are willing to pay for.

· As an IT professional, the way to have an impact is to bring ideas to the table that solve business problems, and to explain them in ways that show business impact. In most businesses today, it is true that without the technology, there would be no business. But equally true is that without the business, there is no need for technology. Technology is part of the business fabric, so that the IT professional must think of technology in business terms. Think and talk business impact—not technology solutions.

Critical-Thinking Questions

· How does my company choose projects? What are the yardsticks that they use to determine whether a project is funded? Do I know the answers to those questions? If not, how can I expect to play the game of competing for resources?

· What are my organization's strategic intentions?

· How do the things on which I am working—whether projects, operations, research, and so on—contribute to achieving the organization's strategic intentions?

· What is our internal IT process for describing and proposing new projects? Do we tie things to the business or to our technology issues?

Further Reading

Benson, Robert J., Thomas L. Bugnitz, and William Walton. From Business Strategy to IT Action: Right Decisions for a Better Bottom Line. Hoboken, NJ: John Wiley and Sons, 2004. (ISBN: 0471491918)

Keen, Jack M., and Bonnie Digrius. Making Technology Investments Profitable: ROI Road Map to Better Business Cases. New York, NY: John Wiley and Sons, 2003. (ISBN: 0471227331)

About the author

Tom Bugnitz is the president of The Beta Group, a consulting company that is focused on strategic and financial IT management. Before going into consulting, he was a mainframe systems programmer for a number of large corporations, and he was director of computing for a large university. The Beta Group's Web site is www.the-beta-group.com, and Tom can be reached at Bugnitz@tbgmail.com.

 

This article was published in Skyscrapr, an online resource provided by Microsoft. To learn more about architecture and the architectural perspective, please visit skyscrapr.net.

 

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