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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