Establishing the Value of IT

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Establishing the Value of IT

• Peer Consulting Group
• July 8, 2004

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The VALUE issue

• Typical IT investment model today
•  What can we do to change the process?
• Case study
• Who owns the GOLD?
• Summary

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The Value Issue

• Gartner Group lists as one of the most durable
  challenges for CIOs.
• Harvard Business School article, Does IT
  Matter.
• SIM highlights value issue at its 2003 conference
• Information Week, CIO Magazine surveys

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Value Issue
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• IT projects should undergo the same economic
  analysis as all other capital investments
• Ed Trainor, CIO, Paramount Pictures
• December, 2003

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Demonstrating the Value of IT investments a
major problem for most CIOs

• I dont know if we are getting enough
  value for our IT s.
• I dont see the value of IT.
• IT costs too much.
• The (IT) folks dont talk my language.
• Should we consider outsourcing our IT?

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IT Investment Model

• 
  

Annual Planning Update

• Application Roadmap
• Technical Architecture

Annual Budgeting Process
-Detailed IT Budget -Individual Project
Definition -Scope -Cost Estimates -Timing
-ROI (??)
Ad Hoc Initiatives
Ad Hoc Initiatives
Ad Hoc Initiatives
Ad Hoc Initiatives
Ad Hoc Initiatives
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IT Budgeting Process

• 
  

• Multiple IT user project requests
• Multiple IT infrastructure requests

-Detailed IT Budget -Individual Project
Definition -Scope -Cost Estimates
-Timing -Preliminary ROI
Ad Hoc Initiatives
Ad Hoc Initiatives
Ad Hoc Initiatives
Ad Hoc Initiatives
Ad Hoc Initiatives
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Div ABudget
.Div/dept n Budget
Div B Budget
C Budget
Div D Budget
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Iteration 1
Iteration 2.
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Content of the Annual Budgeting Process

• Detailed IT budgets by project
• Rough scope
• OOM estimates of cost
• Impact of IT infrastructure
• Architectural issues
• Estimated schedule
• ROI
• Calendarized headcount, services, leases, etc.
• Capital

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What Might We Conclude?

•     Change the IT investment process
• Reorder the sequence of events
•  Assist the sponsor to define the VALUE
  of the proposed project at the point of project
  initiation

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How do we assist the sponsor to define Value?

• by CHANGING the Process

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Principle People will promote change within
organizations if they can see the VALUE for doing
so. Excerpt from the
book/seminarThe No Boundary Manager

by Eaton,Phillips,Sutter
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If a Scout knew he would be quizzed about Value,
he would be.
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Digging for Value

• Unearthing the value of IT in an enterprise is
  like discovering gold.
• Often the payload is not obvious - it lies
  beneath the surface.
• It requires digging ...and digging deep requires
  the right tools.
• Such as a Pick Axe Prompter

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Supply Chain Management Case StudyCase Study 2

• SVP, OperationsTelecommunications company,
  growing will exceed 500M in sales this
  yearWHAT?Supplies inventory and costs
  growingRunning out of warehouse spaceCash to
  cash cycle too longResponse to change in demands
  too slow.WHY?Need to plan for supplies better,
  source smarter, and respond quicker tochanges in
  demandWHAT IF?Install a SCM system and
  structure, and better materials management
  practices to free up 50M in working capital and
  negate the need for additional warehouse space  
  

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Digging for GoldPick Axe Prompter
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(No Transcript)
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Digging for Gold Pick Axe Prompter
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Digging for Gold Pick Axe Prompter
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Calculating the Value of this SCM Initiative

• Is 50M savings in working capital
  reasonable?-   "For companies with 500M annual
  sales, and 60 cost of sales, the difference
  between being at medium SCM performance and in
  the top 20 is44M of additional working
  capital" - PRTM Director M. Aghajanian-   Save
  30 - 50 of warehousing costs by reducing
  inventories-   Save 0.3 - 0.5 of revenue in
  material acquisition costs-   Save 60 - 85
  days in cash-to-cash cycle times.

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Investment Sponsors Prime Responsibilities

• Taking ownership of the business results and of
  the defined benefit (value/gold)
• Obtaining the funding and other resource
• Championing required policy and process changes
  throughout the enterprise
• Making presentations to executive management

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Summary

• Obtaining solid ROIs from business leaders is
  difficult in many companies.
• IT leaders are often tempted to substitute their
  own estimates.
• Real VALUE can be found by intense digging using
  better tools.
• CIOs can help by using better processes, tools,
  and best of breed data.