Thursday, October 13, 2016

"CIO Master" Book Tuning #119: Digital CIOs’ Management Practices - Applying 80/20 Rule in IT Management

80/20 rule was expanded to be applied to the study of management techniques and principles with different facets of business and the economy.

The 80-20 rule is a rule of thumb that states 80% of outcomes can be attributed to 20% of all causes for a given event. In business, the 80-20 principle is often used to point out that 80% of a company's revenue is generated by 20% of its total customers. Therefore, the rule is used to help managers identify and determine which operating factors are most important and should receive the most attention, based on an efficient use of resources. The 80-20 rule is also known as the Pareto Principle, at its core, the 80-20 rule is a statistical distribution of data that says 80% of a specific event can be explained by 20% of the total observations. From there, it was expanded to be applied to the study of management techniques and principles with different facets of business and the economy. It is now used to describe almost any type of output in the real world, from the science of management to the patterns of the physical world. IT management is both art and science. How can Digital CIOs apply 80/20 rule for developing IT management practices to improving IT budgeting efficiency, quality optimization, and project/portfolio success rate?

CIOs can apply 80/20 principle to manage IT budget for building a healthy “run, grow, and transform” portfolio: All IT spending must be rationalized against the business benefits. In reality today for many IT organizations: 80 percent of IT budget goes for “keep the lights on” maintenance, only 20 percent of the budget is invested in the business’s growth or innovation. The transformational goal for them is to invest 80% of IT budget on the business innovation, and 20% to keep the lights on. IT needs to stay in the mix; they need to find ways to move up the stack and provide business value (innovation) and not spend their cycles "keeping the lights on" as just a cost center. Ideally, they should spend the majority of its budget to innovate, and only small percentage (around 20%) to “keep the lights on.” IT is always striving to improve its value to the business. It isn't just the IT spending ratio as a percentage of budget numbers (70/30, 85/15, 80/20), but the question of what is real - tangible - measurable business value? And who is measuring / driving the perceived value? When all departments truly collaborate with IT to improve the vision - realized of using IT as a competitive weapon versus just another utility, everybody wins. Part of the problem is most internal IT organizations still don't do a good job at financial management, thus, the well-proven rules such as 80-20 help IT management to develop the next practices for running a transformative IT.

CIOs can also apply 80/20 principle to Quality Assurance management: Often 20 percent of the defects cause 80 percent of the problems. The ability to deliver a quality product is a matter of clear focus on the things that deliver quality, and fix the root causes of the most serious issues or problems. Remove the obstacles to quality, clearly describe what quality looks like, and practice the activities that produce quality results. Through applying 80-20 rule with an in-depth understanding about quality and defect fixing, IT can build the capability to implement cost-effective solutions quickly to enable changes, and the willingness of the team / staff to make changes that may not be comfortable. Do not think methodology (whether waterfall or agile) alone can be responsible for delivering value, quality and customer satisfaction. There is more than just methodology alone, you also need to well define and apply the right set of principles, such as 80-20 principle, simplicity principle, etc., have the right choice of methodology based on organizational context, the right level of expertise of teams, and the right set of efficient tools and technology available to work on the tasks to identify critical issues and improve the products/services quality.

IT Project/Portfolio Management: IT managers know that 20 percent of the work (the first 10 percent and the last 10 percent) consume 80 percent of their time and resources. Statistically, more than two-thirds of IT projects fail to achieve the customer satisfaction. And the causes of those failures include but not limited to: Project ceases to have clearly defined goals, scope, or requirements. The biggest pitfalls of all - Having the right people to actually develop the plans for your IT project. (therefore, this first step is time-consuming). The other possible causes of failure include: It gets even worse when projects are designed in the vacuums of siloed IT services, not well communicated with business functions. The actual project team is piecemealed together with little thought given the actual project cycles. People are pulled in and taken out on an ad-hoc basis. Test and validation. Whether performed during or as a last step, this piece is often left off the project due to time, people, or budget constraints. (thus, this last step is time and resources consuming as well)

IT management is an integral part of the business management with a multidisciplinary approach. Through applying 80-20 principles to varying best/next practices in managing people, information, process, project, budget, and quality, etc. CIOs can focus on 80% of energy in value-creating, and 20% for internal support. The rule of thumb is to improve IT effectiveness, set the right priority, innovate products/service, improve quality, and achieve high-performance business results for the long term.  


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