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on area, as in the typical company IT spend Development, typically
10% of the IT Spend
shown in Exhibit 8.2, management tends to
focus on the new investments in projects. We Enhancement, typically
15% of the IT Spend
recommend careful examination of both.)
That this comprehensive portfolio analysis
can address senior management questions about Lights-On,
IT spending is illustrated by comments from typically 75%
of the IT Spend
three CEOs who participated in Prioritiza-
tion and Alignment activities. The first, when
shown an aligned lights-on portfolio based on
the specific business strategies for his company,
remarked, “This is the first time I™ve under-
stood what IT is contributing to our business
success.” The second, when working on the
prioritized portfolio which had more projects than the company had resources
to do them, asked whether work was proceeding on projects that fell below
the affordability line. When told the answer was yes, he said, “Stop them. We
want to work on the most valuable projects, so put the resources from those
lower-value projects to the higher ranked projects.” The third, when shown the

prioritization results, commented on the new credibility of the portfolio™s con-
nection to business strategies and goals and then increased the budget available
to development.
Side benefits include giving a common view to the management team of all
IT projects underway, since the development portfolio displays the complete set
of projects, with connections to business strategy and goals. A second benefit is
to make resource assignments less of a political process (responding to the most
vocal manager) and more of a joint management team process.

Decisions about strategies, plans, and budgets, where resource allocation is the
key outcome, occur throughout the management processes in the Strategy-to-
Bottom-Line Value Chain.
In all these cases, management needs to decide among alternatives and choose
the “best” use of company resources. Strategic decisions determine choices of
strategies and the use of IT to fulfill those strategies. Decisions during annual
planning determine the projects to be undertaken and the lights-on budget com-
ponents to be supported and used in operations. Decisions about budgets deter-
mine exactly how much should be spent in projects and lights-on. The possible
outcomes include:

Development Insure a high level of strategy support
Projects Make stronger business cases
Minimize and/or mitigate business and technical risk
Balance the overall project portfolio
Enhancement Invest in applications based on strategic intentions
Projects Invest in well-performing applications
Balance the overall project portfolio
Lights-On Squeeze out poor performing applications
Reduce support of underutilized applications
Understand where costs are, and control them

While Prioritization and Alignment highlight these outcomes, the final deci-
sions occur in the context of the management processes portrayed in generic
terms in Exhibit 8.3. Budgets define the lights-on expenditures and the overall
project pools. Annual project plans define the selection of projects to be done,
based on factors like scheduling, skills available, and required sequencing. Strate-
gic plans define the basic directions for development projects and building infra-
But the overall purpose of right decisions is to be sure that the lights-on and
project budgets are at the right levels and that the choices within the lights-on
Elements of Right Decisions

and project budgets support the strategic directions of the company. Right
decisions should lead the company into the IT Improvement Zone, where IT
spending is effectively controlled and IT™s bottom-line impact is improved. See
Exhibit 8.4.

EXHIBIT 8.3 Decision Points in the Value Chain Management Processes

Strategic Business Unit Planning
Capital Budget


Strategic Business Projects
IT Agenda Unit Budget
Annual Plan


Strategic Annual Lights-On
IT Plan Plan Budget

Enterprise Architecture Systems Development IT Finance
IT Procurement
Project Management (PMO) IT Planning IT Measurement

EXHIBIT 8.4 IT Improvement Zone
Higher Growth:
Higher Cost
Higher Impact

Stable Cost:
Same (current) Cost
Cost Higher Impact
IT Improvement

Sweet Spot:
Lower Cost
Reduced Cost: Higher Impact
Lower Cost
Same (current) Impact

Lower Higher
Impact Impact

The Use of Strategic Intentions
Making right decisions is based largely on connection to strategic intentions.
Earlier chapters established the importance of strategic intentions; here, we
apply them in prioritization and alignment.1 Exhibit 8.5 gives an example of
strategic intentions for a particular company. These would then be applied to
Prioritization and Alignment.

EXHIBIT 8.5 Examples of Strategic Intentions
Strategic Intention Description Goal Key Metric Wt
Wholesale Market Attract, retain, and Strengthen the Wholesale market 50
Share provide high-quality product line available share
service to wholesaler. to dealers. Wholesalers™
Build the relationship satisfaction
based on wholesaler
financial incentives.
Retail Market Attract, retain, and Improve ease of Retail market 20
Share provide high-quality doing business. share
service to end Provide effective
customers. products and Customer
financial incentives. satisfaction

Securitization/ Capability to Reduce cost of funds. Time to market 15
Funding securitize Cost of funds
Efficiency receivables.

Reduce Losses/ Receivable portfolio Reduce collection Collection losses 10
Improve Portfolio quality and collection losses. Wholesale losses
Quality efficiency. Improve collection Residual losses
Reduce Management and Reduce the total cost Administration 5
Administrative performance of all of doing business. percent of revenue
and Operating organizations and
Costs functions.

The Use of Prioritization and Alignment Assessments
The context for “Make the right decisions” is resource allocation. For Priori-
tization, the resources are allocated to new IT projects. For Alignment, the
resources are the lights-on budget allocated to the applications, infrastructure,
services, and management components of the company™s existing IT activities.
Resources can be funds, staff, or both.
In both cases, the notion of a right decision is directing the allocation of
finite resources to the projects (Prioritization) or lights-on budgets (Alignment)
that have the greatest potential bottom-line impact. A number of factors enter
into the assessments that support such decisions, such as risk, quality, service-level,
performance metrics, and status of the technology (e.g., obsolete, unsupported,
Elements of Right Decisions

etc.). The Prioritization and Alignment practices offer many options for deci-
sion factors to include in the process, to match the requirements of the man-
agement team making resource allocations.
Furthermore, the right decision framework emphasizes broad business man-
agement participation in the decision-making process and applying portfolios
that cover 100 percent of the IT spend, representing both new development and
the ongoing lights-on budgets.
If the alternative projects or lights-on line items are so compelling that the
finite resources are determined to be inadequate, the management team can
increase the resource pools available. The right decision framework assumes that
IT is competing for resources against every other possible use of company re-
sources. When confronted with a candidate pool of projects that, together, rep-
resent tremendous potential bottom-line impact, the management team is capable
of comparing that against the other demands on resources. This is a very impor-
tant aspect of the Right Decision/Right Results approach.

Right Decisions: Development and Enhancement
Consider a set of proposed IT investments for a manufacturing company. Through
a planning process, a set of strategic IT requirements2 has been identified. The
business organization, with the assistance of the IT organization, has produced
a set of proposed projects based on those strategic IT requirements. These proj-
ects are put forward as the starting point for an annual project plan. Each proj-
ect has a defined and acceptable business case.
Using the Prioritization Practice instruments and processes (described below),
each project is assessed against business strategic intentions. This company also
has chosen to assess the risks to success associated with each project. In this case,
a higher Risk number means lower risk and higher potential for success.
Exhibit 8.6 shows the projects sorted in bottom-line Impact sequence. This
sequence is the outcome of assessing each project against business strategic
intentions. The exhibit also shows the results of the risk assessment. In this case,
the company has chosen to combine all risk assessment categories into one sin-
gle number. The higher the number, the higher the risk. The Dependency col-
umn identifies projects that have interdependencies. The Portfolio column
indicates the business portfolio classification.
Exhibit 8.7 graphically displays the results, showing Risk (a higher number
means lower risk, greater potential for success), Bottom-Line Impact, and Cost
(the size of the bubble). Using this, management can discuss which projects to
include in the annual project plan. Assuming that resources available will not
cover all projects, some projects will need to be put on hold.
Exhibit 8.8 displays the projects in a portfolio view. This gives management
insight into the relative investments in the specific portfolio categories such as
strategic or business infrastructure. We identified several kinds of portfolio clas-
sifications in Chapter 4; here, the company chose the strategic-to-infrastructure

EXHIBIT 8.6 Development Investment Portfolio
Full Project Name Impact Risk Cost Dependency Portfolio
Customer Information System 326 7 892 Strategic
Plant Information System 320 46 2,382 Business Infrastructure
Commodity Code 311 3 654 New Strategy
Marketing”Shipping 301 14 447 Business Infrastructure
Genesis Installation 293 3 213 New Strategy
Manufacturing Management and 269 40 8,523 Strategic
Planning System
Product Costing 258 47 333 Business Infrastructure
Replacement Genesis Analysis 237 36 2,099 8 Mandatory
Maintenance Review 233 28 112 Business Infrastructure
Automated Purchasing 229 4 395 Business Infrastructure
Marketing and Sales Region/AR 222 17 433 New Strategy
Laboratory System 222 13 803 Mandatory
Genesis Installation 207 59 1687 8,13 Strategic
Bar Coding in Stores 203 31 3,594 Mandatory
Manufacturing Data Management 198 51 4,016 New Strategy
Procurement 196 10 998 Business Infrastructure
Maintenance Deployment 180 16 1,307 New Strategy
Manufacturing Interfaces 178 59 5,618 Business Infrastructure
Maintenance Planning and Control 163 42 4,334 Strategic
CMMS”Implementation 162 21 158 Mandatory
Quality Management Operator 122 35 297 New Strategy


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