Utility based portfolio prioritisation

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



Core businessBu

sine

ss P

erfo

ram

cne

Apply three roles to business performance

Momentum line

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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



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



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



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



Class1: Customer

online Bus I 76%x 40 20 10 10 205 1 2 4 5 40 4 4 8 20


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


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%


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…



Cumulative Return

Cumulative ROI


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But if we want to service business growth…



Cumulative Return

Cumulative ROI


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What benefits should we be chasing / tracking?

Init. Utility

Initiativescore

Class utility rules



Class1: Customer

online Bus I 76%x 40 20 10 10 205 1 2 4 5 40 4 4 8 20



7: Call Centre Bus S 20 30 15 5 20x2 3 5 1 3 8 18 15 10 12 63%


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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THANK YOU

• Terry White: (082 537 3887) [email protected]

mailto:[email protected]