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Each company established weights for each factor; for Company 1, Factor A”
Return on Investment was 30 percent of the total weight. For Company 2, Fac-
tor A”Profitability Index was 25 percent of the total weight.
Companies should consider using financial factors if appropriate in addi-
tion to other strategic intentions as a part of the prioritization process. While
147
The Prioritization Practice


companies ordinarily use only strategic intentions for prioritization (and align-
ments), using other factors, such as those shown in Exhibit 8.16, is supported.

Risk Assessment
We define “risk” as threats to the success of a project. We exclude the risk asso-
ciated with not completing the project, and the business risk associated with the
market, customer, or industry acceptance of the results of the project. We deal
with these issues as a part of the business strategic intentions for the company.
Some companies choose to use risk assessment as part of the prioritization
process. For them, the risk assessment scores, where a higher number is a higher
risk, is applied against the bottom-line impact number. Other companies choose
to make risk a separate assessment from bottom-line impact and to use tools like
portfolio presentations and bubble charts to present risk data to management.
Companies can adapt the original Information Economics risk factors in the
current NIE Prioritization Practice. The original Information Economics factors
were as follows:7

Project or Organizational Risk: The degree to which the success of the proj-
ect depends on new or untested business skills or experience. This risk also
considers the degree to which the business organization is capable of car-
rying out the changes required by the project.
Def initional Uncertainty: The degree to which the business requirements
are well defined and well understood, and accurately translated into demand
for information and application systems functionality.
Technical Uncertainty: The degree to which the project is dependent on
untried technologies, and the degree to which the company possesses the
appropriate experience in designing and building applications with the tech-
nology.
IS Infrastructure Risk: The degree to which the technical environment pos-
sesses the required factors of data administration, communications, project
management, and development.

Companies we have worked with have added the following risk assessments:

Technical Risk: The degree to which the use of a particular technology
requires new management, analytical, or developmental skills. The risk fac-
tor includes whether the requisite skills are available from the vendor or
from the marketplace, and whether training or new hires can provide the
necessary technical expertise.
Investment Risk: The degree to which other, non-project investments are
required to make the project successful.
Project Management Risk: The degree to which project managers are avail-
able and capable of dealing with the project™s complexities, both technical
and organizational.
148 MAKE THE RIGHT DECISIONS


Some companies choose several risk factors and then weight them accord-
ing to their specific circumstance. For example, a company in the commodities
business chose technical, investment, and project management risk and weighted
project management at twice the importance of the other two. This allows a
company to establish a risk portfolio for use in the prioritization process.

Implications for Business Case and Project Documentation
The documentation for a development or enhancement project is its business
case and “one-pager” for prioritization. The business case format should include
a description of exactly what the project expects to accomplish toward each
business strategic intention. Ideally, the project business case also references the
performance metrics expected to be affected. ROI or related financial measures
are an important part of the business case as well and can be included in the
decision factors used in prioritization.

Critical Success Factors: Right Decisions/Right Results
Principles in Prioritization
Prioritization most directly supports the resource allocation and resource man-
agement principles, and indirectly supports the other Right Decisions/Right
Results principles. See Exhibit 8.17.


EXHIBIT 8.17 Goals and Practice Principles
Goals Practice Principles
Actionable, 1. Actionable Strategic Intentions
Commonly 2. Actions Tied to Strategy
Understood Strategic
3. Common Understanding of
Intentions
Strategic Intentions
The Right Business 4. Business-Focused Outcomes
Results from IT 5. Value-Based Resource
Allocation
Management Culture 6. Role-Based Culture
and Consensus View Management
Portfolios and 7. Value/Portfolio-Based
Portfolio Management Resource Management
The Right Actions 8. Responsive to Change
and Results



Actionable Strategic Intentions: Value assessment as described requires clear
strategic intentions and assessment scales. Where strategic intentions exist,
creating assessment scales forces management to think about operational
and strategic impacts that can be used as measures. Where none exist, the
149
The Prioritization Practice


process of “discovering” strategic intentions by distilling planning results,
budget decisions, business initiatives, and other indicators of a company™s
strategy force management to develop actionable strategic intention state-
ments that reflect the values of the business.
Actions Tied to Strategy: Project assessment is based directly on the com-
pany™s strategic intentions. Consequently, management understands the
direct contribution (or lack) of each proposed activity and can choose those
that best support strategic intentions.
Common Understanding of Strategic Intentions: Business and IT managers
reach consensus on the meaning of strategic intentions as a necessary part
of assessing bottom-line impact. In addition, creating and using the assess-
ment scales requires a common view of the way that initiatives can impact
strategic intentions, reinforcing the understanding of the company™s direc-
tion. Ultimately, business and IT managers share a common view of the
company™s direction.
Impact-Based Resource Allocation: Clearly, this principle is the “sweet spot”
of prioritization. Using the results of prioritization, IT and business man-
agement can make resource decisions explicitly based on bottom-line
impact. While other factors are considered as well (skills availability, organ-
ization readiness, project interdependencies), the primary focus is connec-
tion to strategic intentions.
Impact-Based Resource Management: This brief description has focused on
new IT initiatives. However, the process and philosophy is equally applicable
to investments in legacy maintenance, infrastructure, and any other categories
of IT. By combining these categories into portfolios and pooling resources
on the same lines, prioritization can be used to make sure that all resources
are being allocated to maximum benefit relative to strategic intentions.
Business Outcomes: This is the second sweet spot for Prioritization. The
process and philosophy explicitly requires sponsors to describe initiatives
in terms of business issues and business outcomes. During assessment, the
only question that is relevant is: What is the cause-and-effect link between
doing this initiative and making progress on strategic intentions?
Responsive to Change: Prioritization gives management a quick way to under-
stand the impact of business changes on its priorities. By changing the man-
agement factors to reflect new realities in the business, IT and business
management can immediately assess where priorities need to change, and
direct resources and schedule accordingly.
Role-Based Culture Management: Prioritization requires business, not IT,
management to assess the bottom-line impact of IT projects. In addition, it
requires all business managers to understand the broad range of company
strategic intentions and all proposed IT projects. This change in role (for
most companies) changes the way business managers think about IT and its
150 MAKE THE RIGHT DECISIONS


role in the company as a whole, and begins the process of breaking down
silo-oriented thinking relative to IT priorities.

Summary: Prioritization Practice
Prioritization is a critical step in moving from business strategy to IT action (see
Exhibit 8.18). By providing a common language (strategic intentions and cause-
and-effect linkages) for business managers to discuss and assess IT initiatives,
Prioritization promotes common understanding and consensus on what the
company should do with IT. More importantly, managers can assign resources
to the highest value projects, knowing that the assessment is based directly on
their views of the business impact of the initiatives.


EXHIBIT 8.18 NIE Practices in the Strategy-to-Bottom-Line Value Chain
1: Demand/Supply Planning
3: Prioritization
4: Alignment
5: Performance
5: Measurement
2: Innovation

Plans: Establish Business Requirements
and IT Solutions based on business strategy IT
Actions
Business Resource Decisions: Justify and prioritize Programs ”
Strategies and Projects based on business strategy Business
Results
Operationalizing: Establish Budgets, Plans
and Metrics based on business strategy
Portfolio Management
IT Impact Management: Strategic and Operational Effectiveness
Culture Management


Supporting Practices




THE ALIGNMENT PRACTICE
Getting business and IT aligned is a prerequisite for delivering IT value and is
on the critical path for using IT to improve business performance. Alignment can
be measured and, consequently, can be managed and improved. This can occur
throughout the Strategy-to-Bottom-Line Value Chain. See Exhibit 8.19.
While the Prioritization practice allows management to assign resources to
proposed IT initiatives based on bottom-line impact and connection to strate-
gic intentions, the Alignment practice does the same for existing IT applica-
tions and infrastructure. In most companies, IT resources dedicated to existing
activities far outweigh resources given for new initiatives. These resources are
rarely examined for continuing contribution to the business. The Alignment
151
The Alignment Practice


EXHIBIT 8.19 Alignment /Assessment

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


Alignment/Assessment




practice looks at these activities and assesses the cause and effect between exist-
ing IT activities and the company™s strategic intentions and operations.
One of the hardest things to do in any business is stop doing things that are
currently in place. Legacy systems and embedded infrastructure, in particular,
take on a life of their own, with little formal examination of their continued
value. However, every dollar, employee hour, and infrastructure resource that
is spent on existing activities is a resource not spent on new initiatives that may
have a greater value to the company. The Alignment practice provides a way to
look at past resource decisions in the light of present and future needs and to
free up resources from lower-value existing activities to be used for higher-value
initiatives supporting the existing strategic intentions.
When business managers ask whether the company™s IT resources are being
invested in the right place, what they really want to understand is whether there
is a difference between where IT™s energies are being applied and the real busi-
ness problems. This happens when senior managers are distant from resource
decisions, such as when investment decisions are made by middle-level supervi-
sors rather than managers, when maintenance and support overwhelm new
development, and when IT leadership resists reallocation to new business areas,
when business conditions change.
The Alignment practice is divided into three parts. The first, called “Strate-
gic Alignment,” addresses the alignment of IT asset pools (applications, infra-
structure, services, and management) to the business strategic intentions. The
second, called “Internal IT Alignment,” addresses how well each of the four IT
asset pools are consistent with each other and, in particular, how well services and
infrastructure supports the application asset pool. The third, called “Functional
Alignment,” addresses the service level, quality, functionality, technology, and
intensity of use of each asset pool. (This third part is described in more detail
later.)
The Alignment practice asks a fundamental question: Do the existing IT
activities promote or inhibit the company™s strategic intentions and operational
requirements? Each Alignment practice part addresses this question.
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