The good news is you have in place a great business-focused IT strategy, an iterative and adaptive approach to ‘digital’, and effective business relationship management. The bad news is you are about to be overrun by demand for projects and new services. What you need now is a demand management process.
Many IT organizations respond by putting in place an overly complex, bureaucratic, resource-consuming and wholly internally focused demand and portfolio management process. This fails for several reasons:
- The assumption that you can accurately estimate your resources as a key input to a portfolio analysis is false – simply estimating what percentage of their time each of your employees has to spend on project work would take you all year anyway!
- The assumption that you have finite resources is also false. Most clients are willing to throw money at a problem to get their project done, which enables you to contract temporary resources and so do more projects.
- Your potential project portfolio contains everyone's ‘wish list’. You know that you do not have the time or the resources to get the full list done, that some of the projects will not deliver a positive NPV or acceptable ROI for your business, and that you have no choice about doing some projects (such as supporting the construction of a new production facility or upgrading the ERP when its support runs out next year.)
In most cases, common sense, judgement and a focus on value creation will suffice. You need to establish the priorities and make a judgement about how many you can do this year. We recommend ten steps to bring this about:
- Insist that all projects, with the possible exception of technology upgrades, are funded directly from a non-IT owned, business partner budget. If your business partners are not prepared to fund a project from their own budgets, then it is almost certainly not worth doing. Too often business partners think IT work is ‘free’. This leads to impulsive requests with no business rationale behind them and no sense of their priority relative to other possible projects.
- Identify which projects are mandatory. These include:
- Legal or regulatory changes e.g. new tax law.
- Major business change e.g. moving into a new country or restructuring your legal entities.
- Infrastructure or application upgrades required to stay in support or on your technology roadmap. There is some flexibility about when these projects are done, but they have to be done sooner or later.
- Sourcing work on service or licence contracts that need renewing or replacing.
Accept that there are projects you simply have to do, and make sure you treat these as a priority for resource allocation.
- Work with business partners to ‘value’ all non-mandatory projects in the portfolio. In most businesses, this means doing an NPV calculation. Non-mandatory IT work should be focused on creating Total Shareholder Return (TSR), and the widely accepted proxy for TSR is Net Present Value (NPV). You will often be told the NPV cannot be calculated because it is impossible to separate out the IT contribution in a project that is part of a ‘wider business initiative’. This is not a valid excuse. We recommend that you set guidance on the percentage of the total business initiative NPV that can be allocated to IT. For the construction of new production facilities that are highly capital-intensive I have typically used 1% - so if the total project has an NPV of $1bn then the IT project has an NPV of $10m. Other reasonable allocation percentages can usually be agreed with your Finance organization for different sorts of projects.
- Delete from your portfolio all projects that do not have a complete submission. This would include funding from your business partners, an NPV calculation, requested project initiation dates, target implementation dates, the required documentation set out in your project management methodology, and so on. If no-one has troubled to put all this together then the project is probably not important enough to waste time on.
- Rank your remaining projects in order of NPV, then check this list against the IT strategy agreed with your business partners. Use the strategy as context to make sure that all the strategic work you need to do is either near the top of the NPV rank order or called out separately.
- Make a ‘Top 20’ (or 30) project list from your mandatory projects, strategic projects and the top of the NPV rank order list. You need to apply some judgement and probably take some risk when deciding how long this list will be. Remember this is not all you are going to do this year; it is what you must do and are choosing to focus on as a priority.
- Consult your direct reports and their organizations. They need to understand that the mandatory, strategic and most value-creating projects are must do, that they can resource them, that conflicts can be dealt with, and so on. You might need to modify your list based on the feedback you get. Here you must accept that you need to delegate authority further down your organization. The IT leader of 5 to 30 people will be able to tell you from experience how many of the potential projects they can get done. They know things like how much time the key project leaders have available, how many concurrent projects the business partners can deal with, and what their key business partners will say are the priorities. Listen to what they tell you.
- Make a big commitment to this list. Do this in front of both your IT organization and your business partners. This says that IT stands for value creation in your business, is committed to TSR, is a front-office function not a back-office one, and that IT spend is an investment not simply an overhead cost.
- Align your reward systems with everything above. Ensure that NPV targets and project deliverables are embedded in your performance management process and scorecard for IT. Ensure that getting all projects in the portfolio started on time and completed on time with the originally required scope is part of the way performance is measured and bonuses allocated.
- Leave whether other projects get done to market forces. You have been clear within IT about what they must do, and you have been clear with your business partners about where IT will focus and what the minimum set of deliverables are. So, if one of your BRMs thinks they have time and resources for additional projects, has a business partner with the funding, and can prove a good NPV and ROI, then they can go ahead. You have committed to your ‘Top 20’ (or 30) list and must leave the rest alone.
The CIO has one of the most difficult senior leadership roles in the modern enterprise. The challenge is not just to create value by doing the right things, in the right way, in the fast-moving world of IT – but also to keep all the stakeholders on board through changes that are way outside their experience. When you are in this situation, it is often useful to secure an outside opinion about a new or particularly difficult challenge. The LEF CIO Sounding Board can help with short, customized, added-value engagements to frame issues and suggest ‘self-help’ solutions. We specialise in issues such as IT and Digital strategy development, creation or review of a BRM function, sourcing strategy review, organization design and the creation or review of a shared services capability. For more information, contact Mike Bowden at firstname.lastname@example.org.