Monday, June 17, 2024

META Report: How To Ensure IT Projects Boost Profits

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By Doug Lynn

Information is a critical enabler to competitive success and overall prosperity. New organizations create prosperity by flexibly responding to increased business and societal uncertainty through their approach to information gathering, creation, management, distribution, and consumption. But the complexity of adopting this principle has made it problematic for large enterprises to realize consistent benefits.

Overwhelmingly, enterprises that regularly prioritize IT projects and services by their business impact are increasing shareholder value. These businesses have determined how best to configure their organizations to meet clear business goals.

As information becomes a critical response mechanism to external events and a driver of market value, users are accelerating requests for new IT services or service enhancements. Although the flood of requests is overwhelming, service delivery delays are increasingly exposing lost opportunity costs because little visibility into an IT project’s business impact is available.

Requests are too often accepted into the IT project schedule without approval or support from technology, business, and finance groups. After a project is completed, business units generally do not feed back information that compares a project’s expected and actual benefits. Through 2005, enterprises that follow this approach will inconsistently respond to external events and lose market share. By 2006, executives that fail to correct this situation will be unprepared to deal with the impact of transparent and permanently disruptive technology (e.g., techtonics) and business trends.

Although a formal project prioritization program can accelerate decision processes by as much as a five times, the overall benefit of such an endeavor will be problematic to realize if two fundamental activities are not completed:

  • Each project must have a thorough justification based on generally accepted business risk and reward parameters, and business, technology, and finance groups must perform a consistent and accepted approach (e.g., Control Objectives for Business and IT) that exposes the risk and rewards of each funding decision.

  • There must be a feedback loop in place through which business units can articulate the actual benefits and drawbacks of the new project.

The former requirement will minimize wasteful funding of projects with dubious business benefits that will consume scarce IT resources. The latter requirement will enable managers to better determine whether an IT project or service should be canceled or further invested in. Only then can managers claim they have a robust and effective portfolio management program in place.

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A META Group client has made exemplary progress in project prioritization, driven by managerial awareness of IT’s cross-business impact. The prioritization process includes all business unit directors and their respective management teams. All IT service requests are justified to finance, business, and IT managers prior to acceptance into project scheduling and funding. This approach reduced the company’s 2000 project agenda from 450 requests (e.g., 30,000 worker hours to complete) to 142. In 2001, it had similar influence on the proposed 2001 project agenda of 270 projects, estimated to cost $370 million.

To drive consistency and objectivity into project prioritization, IT managers decided a standard process (via a software tool) was needed. Business vision was transformed into strategy. Users defined eight business drivers and then mapped IT service requests to them. What-if scenario planning is regularly performed to provide deep business impact visibility driven by any combination of funding and scheduling constraints.

Indeed, the whole process reduces subjective approvals to an acceptable minimum. When the CEO ordered a $100 million across-the-board spending cut, the IT office completed the required activity, including business impact, in a quarter of the previously required time. However, the CEO claims the biggest benefit this approach affords is the prevention of dysfunctional or capricious business unit initiatives. Business units must now have a clear economic perspective (e.g., costs and benefits) about IT services. The IT office no longer supports every request it receives.

Though project prioritization has vastly improved IT decision making, challenges still loom. Business units have yet to commit to providing feedback on a project’s business impact. Although vendors such as UMT, ProSight, and Pacific Edge offer project prioritization technology, managers should plan to motivate individuals in other ways. Job requirements and compensation plans are popular alternatives in organizations where more structure exists. Adaptive organizations will rely on culture to achieve the desired result.

A well-defined, independent project prioritization process requires an equally independent process owner inside the IT office. CIOs should resist the urge to pass ownership of this responsibility over to the head of application development. This approach is self-serving to the VP of application development, who can use portfolio management to transparently create a massive application backlog and demand broad expansion of the application development function.

For best balance, we believe the enterprise program management office should own project prioritization and aggregate cost and scheduling input from application and infrastructure development management and operations personnel. This approach demonstrates the importance of key IT services.

Adopting project prioritization will be highly visible. Although large consulting firms will offer a highly detailed set of services, users will find plenty of independent consultants and software tools that diverge into niche offerings (e.g., project management, asset life-cycle management). Asset management programs and services will add such functionality into their suites. Longer term, project prioritization will be included as part of an asset portfolio management program, indicating boardroom-level perspective that IT is an asset requiring ongoing management.

Business Impact:The ability to make informed project prior-itization decisions through a consistent, business-facing method will enable managers to avoid risk-encumbered funding choices and optimally enable the enterprise to leverage external events as they dynamically occur.

Bottom Line:CIOs of adaptive enterprises should implement a process to optimize IT project prioritization based on generally accepted business drivers and performance goals.

Doug Lynn is a consultant for META Group, an IT consulting firm based in Stamford, Conn.

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