New MIT research used data from more than 400 global
companies from 1998 to 2003.: “The Impact of IT Investments on Profits”
finds that investments companies make in IT increase profitability more than
investments in advertising or R&D do.”. IT investment now is strategic
imperative for forward-looking business to pursue the growth, but how to do it
wisely, what’s your holistic IT investment strategy?
1. Diagnose the Pitfalls
The study found, “however, that there was significantly more
variability in the effects of IT investments than in investments in advertising
or R&D. Perhaps because IT involves novel technologies, IT investments
offer more room for creativity and innovation. It may be that most businesses
already know how to manage advertising and R&D to their best advantage, but
only some have mastered managing IT.”
- Not Focus on the Most Critical Project
Therefore, to avoid such pitfalls, IT strategy need become significant
component of business strategy, co-developing strategy from both business and
technology will make all projects essentially business investment, to focus on
business growth or cost optimization, the study also found that in general, IT
investments were more effective in improving profitability by increasing
revenue than by decreasing operating expenses. In fact, IT investments had a
marked positive effect on revenue growth.
- Higher IT Project Failure Rate
In the United
States
Such a statistics may present another
red light for organizations to invest large scale IT projects. ,therefore, top
management need understand that project and portfolio management are key to
drive many business initiatives such as strategic planning, investment
priority, capital budgeting, new product development, organizational changes, M&A, etc, the businesses
understand the vital importance of project management will outperform the
competitors and reap the business benefits for the long term.
2. IT Project
Investment Prioritization with Guiding Policy
- Use EA as a Guide for IT Investment and Portfolio Balancing.
- Project Prioritization Criteria:
A long-term roadmap that shows where we want to be and why
is needed. We need to ensure we're investing in the right projects. This focus
will free up money in every facet of IT and create headroom for IT innovation
and business growth. Work to simplify your existing technical debt using the capability model and roadmap as a guide.
Primarily there are five critical factors that would help
rank each project in the portfolio;
A> Alignment (with
company strategy) score based on balanced scorecard: Strategic Fit & Importance.
B> Market and/or
Revenue Growth : Potential growth opportunity or market entry
C> Operational
Efficiency : Process standardization/improvement , Business agility
improvement (supports new product, price changes, scale, acquisition etc) ,
Improved reliability by mitigating business risk
D> Risk score based
on risk factors such as potential project risk & its mitigation costs :
Governance Risk/Compliance area on level of risk and ability to address risks ,
HR (of Business/IT) capability to deliver, ability of business to manage change
E> ROI factors: Reward to Company : cost/benefit , payback period.
- Simplicity is the Key:
3. Best Practices to Prioritize & Rationalize IT
Project
The prioritization roadmap is a methodology that every CIO or IT
organization need create according to their own realities and capacities.
A good practice, for example, involve the participation of
users, to have related experience, or have a scientific methodology to
standardize corporate financial analysis as "investment, profit and rate
of return of the projects”, and to have vision and strategy deployed in
short-term and long-term defined including its level of importance among them,
to have a minimum IT budget for "investments" (politics related about
the investment), etc. Some variables used to prioritize the projects are:
1) Risk involved:
Identify risks that deadlines are not met, the issue related if the project can
not be easily accepted by staff, flow cash capacity from the corporate capacity
or level of trust with suppliers to provide the service. This will require that
each organization believes or create its own risk matrix
2) Conductor:
Mandatory, critical, optional. A measure whether you should do it without
looking at the costs.
3) Size of the cost
($): not only the amount but the flow at the time of disbursement
4) Size of profit ($):
not only the amount but the flow at the time or the cost ($) if we do not do it
(such as meeting regulatory actions)
5) Return of
investment
6) Approved budget
($).
7) The time to
complete the Implementation (post-training and post adjustment period)
8) Time to reach
equilibrium (cost = benefit)
9) Time required by
users to implement the project
10) Alignment of the
project with the vision and strategies. A precise identification of
objectives that the project will support
11) Staff needed to
implement the project (numbers, skills, timeframe, outsourcing)
12) Staff impacted:
(in IT and in the user area)
13) Customers
Impacted (in numbers, sales amount and the so on)
14) Opportunity /
Innovation: Sometimes could be projects that seek to "evaluate" a
potential product or a technology solution to a problem (prototype). These are
usually projects that seek to place the business into a new vantage point
(looking for the “jump”).
15) Suppliers (skills
and resources to execute)
16) Each variable
must have a scale and weight. So a project is reflected in a number that
will facilitate prioritization. If a project does not have the
"priority" we expected may be due to an error in processing or
failing to consider a new variable or because our feeling was not right.
17) Evaluate each of
the variables from the perspective of original value (value that was
assumed when the project was prioritized), current value (the value that
considers the current scenario with the current costs) projected value (the
value considering a conservative scenario according we expect in the future –as
example, changes of prices-). The comparisons help to review progress,
deviations, and make new decisions.
Going back to MIT’s study: one of the many questions that
arise is, what percentage of the overall IT spend should be spent on operations
and what percent should be spent on development. The research shows a mixed bag
of results, but the more sophisticated and mature IT shops tend to spend about
65% on operations. Some of the more advanced IT-focused companies have the ops
portion down to 40%.
1 comments:
Those are really need to consider.Those three steps is very useful on IT investing.Strategy is always very helpful specially to us as an beginner in world of business and investing.
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