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decisions. The business leadership
$6M, 19%
team does this, using the tools and
assessments provided.
141
The Prioritization Practice


MAKE THE RIGHT DECISIONS: TWO NIE PRACTICES
This section describes the details of the two decision-making practices: Priori-
tization and Alignment These descriptions emphasize the steps followed and the
participation of the management team. Each is described on a stand-alone basis;
that is, it can be implemented by a company without requiring any of the other
NIE practices or other elements of the Strategy-to-Bottom-Line Value Chain.
Each practice enables the management team to control IT spending (by setting lim-
its on the affordable amount that can be spent on IT) and improve IT™s bottom-
line impact (by choosing the best projects or most productive line items in the
lights-on budget.)


Who Does the Assessments?
Both the Prioritization and the Alignment practices anticipate that business man-
agers will do the assessments. Ideally, this is the best and most effective approach.
However, some companies are not able to do this at first. We deal with this
issue in the Maturity Model in Chapter 12, where the maturity of the organi-
zation is a key factor in determining how well the NIE processes are being done.
As a practical matter, a company may go thorough stages. Much depends
on internal politics and the relationship with the business management group,
and how much change is possible in process and management roles. Over sev-
eral budget and planning cycles, we have seen companies progress as follows:

1. IT or business manager does the assessments individually.
2. IT and business manager do the assessments together.
3. Business Management Group does the assessments as a group.
4. Business Management Group does the assessments individually.

The Prioritization and Alignment practice descriptions below answer the ques-
tion “who does the assessments” with answer 4 above.


THE PRIORITIZATION PRACTICE
Business-based prioritization is the tool for assessing the bottom-line impact of
IT projects and assigning resources to the most valuable. It answers a funda-
mental management question:

How does the company make technology investment decisions, and how can
it develop business management consensus on where these investments should
be made?

Companies want to allocate limited resources (dollars, people, time, and
management attention) to initiatives that will produce the greatest return to the
142 MAKE THE RIGHT DECISIONS


enterprise. While there are several prioritization methods being used in IT today,
the issue goes beyond determining if individual projects contribute to the enter-
prise™s financial or strategic success. Management faces a number of serious
questions about how it is assigning IT resources:

Are IT investments strongly connected to strategic intentions?
Is the company putting its IT resources into the areas most valuable to the
company?
Is there a partnership between IT and business management for making IT
decisions?
Does company management understand where IT investment resources are
going?
Are IT investments described in business terms?

The next step is to develop a process ” and, more importantly, a philoso-
phy” that embraces the following principles:

Bottom-line impact is based on an initiative™s predicted impact on strategic
intentions (which can include ROI calculations as one component).
Business management is responsible for assessing the bottom-line impact of
IT initiatives.
Business managers should understand fully the business impact of all of the
IT initiatives, not only the ones in their area.
Investments are assessed individually but prioritized as a complete set across
the business unit.
Investments are described in business terms, addressing the business issue,
business requirements and risks, and return on the investment.

The Prioritization practice focuses on assessing the business value, in terms
of bottom-line impact, of proposed IT investments. On its surface, Prioriti-
zation addresses a straightforward question: Which of the proposed IT invest-
ments provides the most return to the company, when assessed by their intended
impact on strategic intentions? In practical terms, this is a much more com-
plicated issue, requiring answers to other questions, such as what is assessed,
who assesses, against what, how often, and how are resources assigned? These
questions occur throughout the Strategy-to-Bottom-Line Value Chain. See Ex-
hibit 8.14.
In the past, companies have equated return with ROI, which limits the bot-
tom-line impact assessment to financial (and, in many cases, questionable) jus-
tification. In the Right Decisions/Right Results culture, return includes not only
financial justification but also an investment™s potential impact on the enter-
prise™s strategic intentions.
143
The Prioritization Practice


EXHIBIT 8.14 Prioritization in the Value Chain

Prioritization




Strategic IT Planning Annual IT Planning
Business The Business Enterprise: Lines of Business, Departments
Strategic
Business
Intentions
Plan Projects
Strategic
(Strategic Budget
IT Agenda Strategic
Business Plan)
Proj- Projects
Action
IT Require-
ects Plan
ments
Assessed Strategic Lights-On
Portfolios IT Plan Budget
IT Plan
(Alignment,
Service/Quality,
The IT Enterprise: Four “Lights-On” Asset Pools
Technology)
Performance Measurement Metrics




Process Overview
In its simplest form, Prioritization engages the business managers of an enter-
prise in assessing the bottom-line impact of proposed IT initiatives using the
same yardsticks for every project. Risk assessment may also be included in the
assessment. The result is a prioritized ranking of projects with which manage-
ment can rationally allocate resources to the highest value initiatives.
Mechanically, the process involves five steps:3

1. First, the process engages senior managers in defining the strategic inten-
tions for the company, assigning a relative weight for the importance of each
and coming to a consensus on the definitions and scales with which IT proj-
ects will be assessed. Through this consensus-building step, senior managers
can be assured of consistent interpretation of strategic intentions, while sig-
naling the organization that IT initiatives will be assessed fairly, consistently,
and from an enterprise perspective.
2. All IT projects are described in business terms in a short, consistent way,
providing a single source description for all proposed IT initiatives. The
business sponsor of each project is responsible for this description. In this
way, the company has a complete, business-oriented view of its IT initiatives.
Note that the process requires a short, “one-pager” description of each
project. Often, a company finds that the creation of these one-pagers, put
together as a complete portfolio, is an important side benefit to doing
prioritizations. For example, one CEO remarked that this alone more than
justified the effort, as it substantially increased his management team™s
understanding of IT and what it intended to accomplish for the business.
3. Using a defined cause-and-effect scale for each strategic intent, managers assess
the predicted impact of every initiative on each of the strategic intentions.
144 MAKE THE RIGHT DECISIONS


Managers are looking at cause-and-effect relationships between projects and
strategic intentions: If we do this project, what impact will it have on each
of our strategic intentions? Each manager must assess all projects. This step
results in wide understanding in the business managers of all IT initiatives,
how they relate across all parts of the business, and their impact on the
strategic intentions.4 For the simple example shown here, each initiative is
assessed for impact on the strategic intention (the Impact column.) In addi-
tion, each initiative is rated for business and technical risk, and the resources
required are identified. In this case, the company believed the scarcest re-
source was its professional IT staff, not dollars.
4. In a joint forum, the assessing managers review all assessments. This allows
for open discussion of different assessments and subsequent consensus
development of the resulting priorities.
5. IT develops a proposed project plan based on priorities, resource con-
straints, and scheduling dependencies.

Result
The overall result is an across-the-board understanding of IT™s complete efforts,
their impact on strategic intentions, and the resources required to move for-
ward. Most important, the process foments change in the underlying manage-
ment culture regarding IT. IT becomes a set of high-value initiatives, focused on
the business™s strategic intentions, with business management buy-in of the busi-
ness impact of IT efforts. (These results were discussed in the section on Right
Decisions: Development and Enhancement above.) With this portfolio assess-
ment, which shows overall value, cost, and the risks, the management team can
make its decisions.
The prioritization of IT initiatives is based on the cause-and-effect connec-
tion between the IT initiative and the strategic intention. We ask a specific ques-
tion: If we invest in this IT initiative, what will be the predicted effect on each
of the company™s strategic intentions? For example, if the IT initiative is a cus-
tomer information system, then its expected impact on cost reduction might be
minor; on supplier of choice, perhaps none; but on Acquisition Capability, the
impact might be a major component of what is required to acquire and inte-
grate a new company.
Prioritization is done through a structured assessment that carries out the
logic described above. Exhibit 8.15 shows the specific assessment of a proposed
customer information system, against strategic intentions.
By conducting such an assessment for the entire IT initiative portfolio and
applying the same tests to every IT initiative, the assessments can be compared,
which will yield a rank-ordered portfolio. It is this rank-ordered portfolio that
enables the senior management team to make decisions about resource alloca-
tion. While this example is a simplified example of the Prioritization practice,
note that the assessment of the application project shown in Exhibit 8.15
engages managers from several business departments.
145
The Prioritization Practice


EXHIBIT 8.15 Prioritization Scoring for One Investment Project

25 10 10 10 20 10 5 10




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Business Value Scorecard




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