So it’s official: research says 58% of CIOs don’t
ensure that IT delivers value – what a surprise.
The surprise is that the number is so low. In my dealings with
companies I find that hardly any CIOs genuinely ensure that value
is truly delivered from IT. Sure, many claim they do but few cases
stand up to close scrutiny.
There are two main reasons. Firstly, CIOs don’t ensure that the
cost of their IT department is optimised and secondly, they don’t
track the benefits that projects were justified on to ensure they
are delivered.
Both these issues can be successfully dealt with by using one
technique: integrated operational planning and budgeting
(IOPB).
The trick is to plan over an extended number of years, with the
first year representing the budget. Then, use high level
benchmarking to determine the best performance and set a path to
it. Finally, build the benefits you are using to justify projects
into future years’ operational budgets.
Only justify projects on hard benefits (i.e., with a £ sign
attached) and set a suitable hurdle rate. I have always turned away
projects that did not pay back in 24 months and have never run
short of proposals.
If an IT project doesn’t wash its face in terms of hard benefits
within 24 months, then don’t do it. Things move so quickly in IT
that something better is likely to come along in the meantime.
Apart from responding to some unavoidable legislative or
regulatory requirement, the only reason you should want to do a
project is to improve the bottom line. There are only two ways to
do that: increase sales or reduce costs.
Benefits can either fall directly within IT or they can be found
within other departments by installing systems that can enable them
to work more efficiently or grow sales.
It should be second nature to track project costs throughout the
conventional project lifecycle. The key to IOPB is also to
identify, track and release the project benefits during, and
importantly, after the project is complete – i.e., extend the
conventional lifecycle of a project to include the period during
which the promised benefits are to materialise.
By explicitly tracking the release of benefits, you allow the
original project proposal to come alive. You realise that you need
to spend as much effort in exploring and quantifying the real
anticipated benefits as you do in detailing out the expected
project costs. Importantly, these benefits need to be agreed with
and signed up to by the management of the business areas (including
IT) where they are to be generated.
Thus by tracking project benefits and formally linking them into
future budget cycles, it’s possible to encourage a new, more
benefits-oriented culture around project appraisal, project
prioritisation and budgeting.
The organisation develops a projects ethos that asks not only if
a project completed on time and to budget (which are good questions
about important parameters), but also the inextricably linked
question about derivation of the anticipated benefits.
So, when a project costing £1m is justified on the basis that it
will reduce “business as usual” spend going forward by £500,000 per
year; reduce future operational budgets by £500,000 in the areas
where these claimed savings will derive.
This ensures adequate scrutiny is applied not only to the
projected £1m project cost but equally to the anticipated £500,000
project benefits. Departmental business budget holders will be
reluctant to sign up to project benefits unless they believe them
to be real, as they know that the success of a project will be
judged on more than delivery to time and budget.
Adopting IOPB allows a whole new focus to be brought to bear for
all stakeholders at the beginning of projects. CEOs love this
technique. It builds trust between the CIO and CEO and where I have
introduced this it is rapidly adopted by other departments.
One word of caution though: if you are going to start down this
path there are no hiding places and it will soon be apparent if you
are building projects on ‘nice to haves’ and not delivering genuine
value.
John Berney is the former IT director of Scottish & Southern
Energy. He set up CIO Plus to help organisations get better value
out of their IT investment.
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