utility based portfolio prioritisation
DESCRIPTION
Utility based portfolio prioritisationTRANSCRIPT
1 CXO Advisor © Client distribution only
Try to have a reason…
2 CXO Advisor © Client distribution only
… for taking business decisions.
CXO AdvisorAccelerated business decisions
2nd Annual IT Infrastructure Summit
Getting difficult IT infrastructure projects approved without depending on ROI
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Framing the topicWhy ROI is usually inappropriate for justifying IT projectsHow to achieve alignment with business for all IT projectsHow to get infrastructure projects approved without once referring to ROIWhat benefits to consider when implementing infrastructure projectsHow to govern projects from idea, through execution, to achieving the value intended
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ROI is the only way to evaluate the value of projects?
What about compliance? Does nothing for your bottom line (but it does keep you in business).
What about that network upgrade?
What’s the ROI on a more stable, functionally rich network?
What about the speculative project that could change the industry?
Just call it ‘strategic’ and hope for the best?
What about the gorilla in the corner who just wants it because he wants it?
Do we fund someone’s ego?
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RETHINKING PROJECT JUSTIFICATION
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Background
For seven years we have been using the Three Role Model to help businesses: Budget Understand their project investment portfolio Prioritise their project investments to achieve maximum utility for the
business
This presentation will take you through how the Three Role Model works and how initiatives in your portfolio can be prioritised using the concept of utility For budgeting and project investment portfolio management we have
other presentations
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THE THREE ROLE MODEL IN BUSINESS
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Strategy / Leadership / Innovation
Porter’s value chain - sample
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Gain Customers
Process orders
Manufacture / Deliver service
Distribute Collect payment
Finance & AdminHuman Resources
ITSupply chain
Legal
Strategy / Leadership / Innovation
Porter’s value chain and three business roles
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Shared and support services
StrategyLeadershipInnovation
Core business
Gain Customers
Process orders
Manufacture / Deliver service
Distribute Collect payment
Finance & AdminHuman Resources
ITSupply chain
Legal
Generally then…
Keep up the momentum
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Busi
ness
Per
form
ance
Business Momentum
Mass = staff, branches, geography etc.Speed = how fast and how dependent on continuityDirection = vision, mission, objectives Delivering on your
promise / value proposition
Shared and support services
StrategyLeadershipInnovation
Core businessBu
sine
ss P
erfo
ram
cne
Apply three roles to business performance
Momentum line
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Shared and support services
StrategyLeadershipInnovation
Core businessBu
sine
ss P
erfo
ram
cne
Add five layers or rationales
May do
Can do
Should do
Must do
Doing
Momentum line
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Different business drivers per layer
Shared and support services
StrategyLeadershipInnovation
Core businessBu
sine
ss P
erfo
ram
cne
Support engine Business engine S L I Engine
Regulation Respond to external forces
Missing / broken
Service the support engine
Service business growth Looming threats
Improve support services
Improve core business
Change the strategy
Provide support differently
Differentiate the business
Change the environment Differentiate
Improve
Service
Fix
Delivery
Momentum line
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Different reasons for investing in each layer
Shared and support services
StrategyLeadershipInnovation
Core businessBu
sine
ss P
erfo
ram
cne
Support engine Business engine S L I Engine
Service the support engine
Service business growth Looming threats
Improve support services
Improve core business
Change the strategy
Provide support differently
Differentiate the business
Change the environment Differentiate
Improve
Service
Fix
Delivery
Momentum line
ROI / Risk / PoA
NPV vs. risk / baseline performance / urgency
Game changer / PoA / Time to market
Cost / Risk / Service quality equation
Regulation Respond to external forces
Missing / broken
Risk and time
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Different measures of success per class of investment
Shared and support services
StrategyLeadershipInnovation
Core businessBu
sine
ss P
erfo
ram
cne
• Historical CVA
• Ongoing Benefits
• TCO
• TCO • CVA• Quality• Risk
• Innovation engine
• Strategy execution
• Sustainability• Efficiency
• Breakeven• Benchmark
• Threat mitigation
• PoA • Capabilities • ROI > IRR • Strategic risk
• Hit rates
OutsourceAutomate
PoALoB
ROI > 100%Vision
Game changer Differentiate
Improve
Service
Fix
Delivery
Momentum line
• Legality• Time
• Risk• Time Efficiency
• Linkages• Short term risk
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MANAGING PORTFOLIO PRIORITIES
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Proje
ct 1
Proje
ct 2
Proje
ct 3
Proje
ct 4
Proje
ct 5
Proje
ct 6
Proje
ct 7
Proje
ct 8
Proje
ct 9
Proje
ct 10
Proje
ct 11
CostReturn
Cost / Return
Choosing which projects to do
How do we choose initiatives that align with business strategy / objectives?
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Example of choosing which projects
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Can’t do all the projects
Net cost 101m; Net Return 103m; Net ROI 2%
Initiative Name Purpose Cost (1000's) Return ($) ROIProject 1 Customer online Allow customers to track orders, collaborate, co-source product innovations 9 500 30 100 217%Project 2 4 new depots Open 4 new depots in rural areas 16 342 27 004 65%Project 3 Performance management Introduce new staff performance management based on balanced scorecard 3 564 13 860 289%Project 4 Automate transfer pricing Automate transfer pricing across the value chain 1 996 1 760 -12%Project 5 Payroll / Time&Attendance New payroll system with time & attendance. Staff tracking via RFID 12 030 14 000 16%Project 6 Factory 2020 Look at what ICT can do to modernise our factories (Impact study) 2 000 1 000 -50%Project 7 Move call centre Call centre premises too small - move from Head Office to own site 8 955 11 194 25%Project 8 Refresh desktops All desktops (3000) to be upgraded - current warrantees lapse in 6 months 20 000 10 000 -50%Project 9 Network upgrade Upgrade our network to accommodate business growth. MPLS 13 245 2 000 -85%Project 10 Poppi Comply with protection of private and personal information act by Jan 13 300 -7 500 -156% 100 932 103 418 2%
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Choose all projects with ROI > 20%Initiative Name Purpose Cost (1000's) Return ($) ROI
Project 1 Customer online Allow customers to track orders, collaborate, co-source product innovations 9 500 30 100 217%Project 2 4 new depots Open 4 new depots in rural areas 16 342 27 004 65%Project 3 Performance management Introduce new staff performance management based on balanced scorecard 3 564 13 860 289%Project 4 Automate transfer pricing Automate transfer pricing across the value chain 1 996 1 760 -12%Project 5 Payroll / Time&Attendance New payroll system with time & attendance. Staff tracking via RFID 12 030 14 000 16%Project 6 Factory 2020 Look at what ICT can do to modernise our factories (Impact study) 2 000 1 000 -50%Project 7 Move call centre Call centre premises too small - move from Head Office to own site 8 955 11 194 25%Project 8 Refresh desktops All desktops (3000) to be upgraded - current warrantees lapse in 6 months 20 000 10 000 -50%Project 9 Network upgrade Upgrade our network to accommodate business growth. MPLS 13 245 2 000 -85%Project 10 Poppi Comply with protection of private and personal information act by Jan 13 300 -7 500 -156% 100 932 103 418 2%
Cost (1000's) Return ($) ROICost / Return (Projects 1,2,3,7) 38 361 82 158 114%
Cost / Return (Projects 4, 5,6,8,9,10) 62 571 21 260 -66%All projects 100 932 103 418 2%
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But…
What about? Automated transfer pricing There is a lot of noise from powerful
people The payroll system We need time and attendance Factory 2020 Don’t we have a strategy to be innovative? Desktop refresh The warrantees are running out Network upgrade Can’t open 4 new depots without it Poppi It’s the law
The dilemma Can’t afford to do it all Can’t not do some that don’t cross the ROI hurdle
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Need a new way of prioritising
Use the Three Role Model (3RM) to classify projectsDecide what utility we want from projects based on our strategic intentWeight 3RM classes utility according to strategic intentDefine utility contribution per projectMatch projects to their classesScore projects according to the class weightsPrioritise based on utility score
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The portfolio tracks all possible initiatives
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3
7
6
9
10
4
2
1
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Initiative Portfolio
Initiative Name Purpose
Project 1 Customer online Allow customers to track orders, collaborate, co-source product innovations
Project 2 4 new depots Open 4 new depots in rural areas
Project 3 Performance management Introduce new staff performance management based on balanced scorecard
Project 4 Automate transfer pricing Automate transfer pricing across the value chain
Project 5 Payroll / Time&Attendance New payroll system with time & attendance. Staff tracking via RFID
Project 6 Factory 2020 Look at what ICT can do to modernise our factories
Project 7 Move call centre Call centre premises too small - move from Head Office to own site
Project 8 Refresh desktops All desktops (3000) to be upgraded - current warrantees lapse in 6 months
Project 9 Network upgrade Upgrade our network to accommodate business growth. MPLS
Project 10 Poppi Comply with protection of private and personal information act by Jan
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Decide what utility we want based on our strategyStrategy: Profitable, fast moving, innovative, customer focused
Utility factors
ROI Risk Time PoA CustStrategically aligned utility factors
Return on investment Risk Time to market Paths of action Customer focus
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Weight 3RM classes utility according to strategic intent
40 20 10 20 10
30 30 10 20 10
10 40 20 20 10
0 50 30 0 20
35 5 0 20 40
40 20 10 10 20
20 30 15 5 20
0 50 20 0 30
50 0 15 20 15
20 10 20 20 30
10 30 30 10 20
0 40 50 10 0
ROI Risk Time PoA Cust
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Define utility contribution per project
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Estimating the utility contribution per initiative
Init. Utility
Initiativescore
Class utility rules
Initiative contribution
(0 - 5)Initiative IDInitiative
Class1: Customer
online Bus I 76%x 40 20 10 10 205 1 2 4 5 40 4 4 8 20
3: PerformanceMgt SS I 60%x 30 30 10 20 105 2 2 2 3 30 12 4 8 6
4: Auto Xfer pricing Bus I 12%40 20 10 10 20x0 2 1 1 0 0 8 2 2 0
30%5: Payroll / T&A SS S x 10 40 20 20 101 1 3 2 0 2 8 12 8 0
2: Four New Depots Bus S x 20 30 15 5 203 2 3 1 4 12 12 9 10 16 59%
6: Factory 2000 SLI I 20 10 20 20 30x0 0 1 5 2 0 0 4 20 12 36%
7: Call Centre Bus S 20 30 15 5 20x2 3 5 1 3 8 18 15 10 12 63%8: Refresh desktops SS S 10 40 20 20 10x0 4 4 1 0 0 32 16 4 0 52%
9: Network upgrade SS S 10 40 20 20 10x0 4 4 3 2 0 32 16 12 4 64%
10: Poppi Bus X 0 50 20 0 30x0 5 5 2 0 0 50 20 0 0 70%
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Some clarification
Init. Utility
Initiativescore
Class utility rules
Initiative contribution
(0 - 5)Initiative IDInitiative
Class1: Customer
online Bus I 76%x 40 20 10 10 205 1 2 4 5 40 4 4 8 20
3: PerformanceMgt SS I 60%x 30 30 10 20 105 2 2 2 3 30 12 4 8 6
4: Auto Xfer pricing Bus I 12%40 20 10 10 20x0 2 1 1 0 0 8 2 2 0
30%5: Payroll / T&A SS S x 10 40 20 20 101 1 3 2 0 2 8 12 8 0
2: Four New Depots Bus S x 20 30 15 5 203 2 3 1 4 12 12 9 10 16 59%
6: Factory 2000 SLI I 20 10 20 20 30x0 0 1 5 2 0 0 4 20 12 36%
7: Call Centre Bus S 20 30 15 5 20x2 3 5 1 3 8 18 15 10 12 63%8: Refresh desktops SS S 10 40 20 20 10x0 4 4 1 0 0 32 16 4 0 52%
9: Network upgrade SS S 10 40 20 20 10x0 4 4 3 2 0 32 16 12 4 64%
10: Poppi Bus X 0 50 20 0 30x0 5 5 2 0 0 50 20 0 0 70%
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The new order…
Initiative NameUtility Score Cost
Cumulative Cost Return
Cumulative Return
Cumulative ROI
Project 1 Customer online 76% 9 500 9 500 30 100 30 100 217%Project 10 Poppi 70% 13 300 22 800 -7 500 22 600 -1%Project 9 Network upgrade 64% 13 245 36 045 2 000 24 600 -32%Project 7 Move call centre 63% 8 955 45 000 11 194 35 794 -20%Project 3 Performance management 60% 3 564 48 564 13 860 49 654 2%Project 2 4 new depots 59% 16 342 64 906 27 004 76 658 18%Project 8 Refresh desktops 52% 20 000 84 906 10 000 86 658 2%Project 6 Factory 2020 36% 2 000 86 906 1 000 87 658 1%Project 5 Payroll / Time&Attendance 30% 12 030 98 936 14 000 101 658 3%Project 4 Automate transfer pricing 12% 1 996 100 932 1 760 103 418 2%
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If we can afford only $50 million…
Initiative NameUtility Score Cost
Cumulative Cost Return
Cumulative Return
Cumulative ROI
Project 1 Customer online 76% 9 500 9 500 30 100 30 100 217%Project 10 Poppi 70% 13 300 22 800 -7 500 22 600 -1%Project 9 Network upgrade 64% 13 245 36 045 2 000 24 600 -32%Project 7 Move call centre 63% 8 955 45 000 11 194 35 794 -20%Project 3 Performance management 60% 3 564 48 564 13 860 49 654 2%Project 2 4 new depots 59% 16 342 64 906 27 004 76 658 18%Project 8 Refresh desktops 52% 20 000 84 906 10 000 86 658 2%Project 6 Factory 2020 36% 2 000 86 906 1 000 87 658 1%Project 5 Payroll / Time&Attendance 30% 12 030 98 936 14 000 101 658 3%Project 4 Automate transfer pricing 12% 1 996 100 932 1 760 103 418 2%
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But if we want to service business growth…
Initiative NameUtility Score Cost
Cumulative Cost Return
Cumulative Return
Cumulative ROI
Project 1 Customer online 76% 9 500 9 500 30 100 30 100 217%Project 10 Poppi 70% 13 300 22 800 -7 500 22 600 -1%Project 9 Network upgrade 64% 13 245 36 045 2 000 24 600 -32%Project 7 Move call centre 63% 8 955 45 000 11 194 35 794 -20%Project 3 Performance management 60% 3 564 48 564 13 860 49 654 2%Project 2 4 new depots 59% 16 342 64 906 27 004 76 658 18%Project 8 Refresh desktops 52% 20 000 84 906 10 000 86 658 2%Project 6 Factory 2020 36% 2 000 86 906 1 000 87 658 1%Project 5 Payroll / Time&Attendance 30% 12 030 98 936 14 000 101 658 3%Project 4 Automate transfer pricing 12% 1 996 100 932 1 760 103 418 2%
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What benefits should we be chasing / tracking?
Init. Utility
Initiativescore
Class utility rules
Initiative contribution
(0 - 5)Initiative IDInitiative
Class1: Customer
online Bus I 76%x 40 20 10 10 205 1 2 4 5 40 4 4 8 20
3: PerformanceMgt SS I 60%x 30 30 10 20 105 2 2 2 3 30 12 4 8 6
2: Four New Depots Bus S x 20 30 15 5 203 2 3 1 4 12 12 9 10 16 59%
7: Call Centre Bus S 20 30 15 5 20x2 3 5 1 3 8 18 15 10 12 63%
9: Network upgrade SS S 10 40 20 20 10x0 4 4 3 2 0 32 16 12 4 64%
10: Poppi Bus X 0 50 20 0 30x0 5 5 2 0 0 50 20 0 0 70%
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IT adds value at different stages
Idea Test the idea
Design and build
Implement
Operate
Retire
Early adoption
MaturityMajority adoption
Plan
AttentionMeaning
Build Run
CostMonthly cost
Monthly cost
Monthly cost Monthly costMonthly cost Monthly cost
Cost
Value potential
Value potential
Value potential
Value potential Intangible
Value
TangibleValue
IntangibleValue
TangibleValue
IntangibleValue
TangibleValue
Cost-cutValue
Un-lockableValue
1 2 3 5 6 7 8
Value preservation
4
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What business currently sees of IT value-add potential
Idea Test the idea
Design and build
Implement
Operate
Retire
Early adoption
MaturityMajority adoption
Plan
AttentionMeaning
Build Run
CostMonthly cost
Monthly cost
Monthly cost Monthly costMonthly cost Monthly cost
Cost
Value potential
Value potential
Value potential
Value potential Intangible
Value
TangibleValue
IntangibleValue
TangibleValue
IntangibleValue
TangibleValue
Cost-cutValue
Un-lockableValue
1 2 3 5 6 7 8
Value preservation
4
Invest-ment
approval
IT Costs
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In summaryUtility trumps ROI and costUtility rules per class set business expectations and improve understandingInitiatives are not projects until they are budgeted forYou set your project budget by scoring the utility contribution per initiative and multiply by the utility rule for the class of initiativeInitiatives that don’t make the cut, stay in the initiative portfolioBenefits realisation plans revolve around expected utilityAlignment to business priorities and strategy is a given
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