Are your IT investments being influenced by the executive who shouts the loudest? Are you unable to finish a single implementation project because of changing company priorities? When funds are limited, is your company unable to decide between replacing obsolete systems or enabling industry best practice capabilities via new technologies?
If so, it’s likely that you need to better align your IT strategy with your overall corporate strategy. As Gartner puts it, “when enterprise strategy is unclear, or not clearly reflected in initiatives involving IT, the perceived value of IT is generally low, regardless of how well initiatives involving IT are executed.”
When your potential IT investments are varied in size, impact, risk and potential benefits though, it can be a daunting task to determine which ones will be part of the investment portfolio for the upcoming fiscal year.
You need a way to compare apples to apples, and this is where using a prioritization methodology comes in.
Prioritize investments based on cost, benefits and risk
What criteria will your company use to prioritize and select potential IT investments? Typically, these criteria fall into one of three categories: Cost, Benefits, and Risk.
Examples of cost criteria are Project Cost, Ongoing Operational Cost, Payback Period and Total Cost of Ownership, which takes into consideration both initial costs as well as future costs during the useful life of the investment.
For benefits criteria, you may want to include elements like Competitive Advantage, Financial Benefits, Cost Avoidance, Risk Mitigation, Improved Customer Experience, Increased Agility and Alignment with Company Strategy.
And finally, for risk criteria, you could include Stakeholder Alignment, Readiness for Change, Project Complexity, or even Project Duration. Be aware that these should be risks related to the potential project and not company risks which are taken into account in the benefits criteria (Risk Mitigation).
Quantify your analysis as a decision aid
Once you have determined the criteria that your company will be using, you need to set possible values for each and a weighting for each criterion so that you can then compare the potential investments. For values, potential options are High, Medium, Low or a scale of 1-5. For weighting, you simply need to set a % – for example Cost is 50%, Benefits 25% and Risk 25% (the higher the risk or cost, the lower the score and vice versa for benefits). A visual representation is useful at this point. We often chart the projects with Feasibility on one axis and Business Value on the other. Feasibility is usually a function of cost (the higher the cost the lower the feasibility) although other factors such as cultural impact may be considered. Business Value is most often a combination of Benefit and Risk mitigation.
Keep your scoring system current
It’s important to test your scoring, to see if it gives you the results you were expecting, and then adjust. For example, if the scoring penalizes too much the Project Cost criteria, you will find yourself with only small projects at the top of the list when you know you should have a few larger transformational projects to ensure the long-term survival of the company. And your criteria and weighting will be based on what’s important for your company at a specific point in time, which means the scoring system should be reviewed at least once a year.
Confirm your portfolio is balanced
Once you’ve mastered the criteria-based prioritization, you’ll want to analyse your portfolio to confirm that you have the right balance of projects to maintain the business and ensure growth. First, determine the categories of your investments and then calculate a total dollar value per category for the upcoming period. Whether you use Gartner’s categorization of Run/Grow/Transform, Standardization/Optimization/Innovation or a more complex model like the GE-McKinsey Portfolio Matrix, you’ll then be able to benchmark your investment strategy with comparable companies within your industry.
While it is always beneficial to use a structured approach, the important thing is not to lose sight of the objective of using such an approach: Ensuring your IT spending is in line with your corporate strategy and that by making those investments you will be obtaining real business results and ensuring long-term competitive advantage.