Utility based portfolio prioritisation

1. Try to have a reason…
1 CXO Advisor © Client distribution only

2. … for taking business decisions.
2 CXO Advisor © Client distribution only

3. CXO Advisor
Accelerated business decisions
2nd Annual IT Infrastructure Summit
Getting difficult IT infrastructure projects
approved without depending on ROI
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4. Framing the topic
Why ROI is usually inappropriate for justifying IT projects
How to achieve alignment with business for all IT projects
How to get infrastructure projects approved without once
referring to ROI
What benefits to consider when implementing infrastructure
projects
How to govern projects from idea, through execution, to
achieving the value intended
4

5. 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 What’s the ROI on a more
upgrade? stable, functionally rich
network?
What about the speculative Just call it ‘strategic’ and hope
project that could change the for the best?
industry?
What about the gorilla in the Do we fund someone’s ego?
corner who just wants it
because he wants it?
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6. RETHINKING PROJECT JUSTIFICATION
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7. 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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8. THE THREE ROLE MODEL IN BUSINESS
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9. Porter’s value chain - sample
Strategy / Leadership / Innovation
Manufacture
Gain Process Collect
/ Deliver Distribute
Customers orders payment
service
Finance & Admin
Human Resources
IT
Supply chain
Legal
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10. Porter’s value chain and three business roles
Strategy / Leadership / Innovation
Manufacture
Gain Process Collect
/ Deliver Distribute
Customers orders payment
service
Finance & Admin
Human Resources
IT
Supply chain
Legal
Generally then…
Shared and Strategy
support Core business Leadership
services Innovation
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11. Keep up the momentum
Business Performance
Business Momentum
Mass = staff, branches, geography etc.
Speed = how fast and how dependent on continuity
Direction = vision, mission, objectives
Delivering on your
promise / value proposition
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12. Apply three roles to business performance
Shared and Core business Strategy
support services Leadership
Innovation
Business Perforamcne
Momentum
line
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13. Add five layers or rationales
Shared and Core business Strategy
support services Leadership
Innovation
May do
Business Perforamcne
Can do
Should do
Momentum
line
Must do
Doing
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14. Different business drivers per layer
Shared and Core business Strategy
support services Leadership
Innovation
Provide support Differentiate Change the
Differentiate
Business Perforamcne
differently the business environment
Improve Improve core Change the
Improve
support services business strategy
Service the Service business
Looming threats Service
support engine growth
Momentum
line
Respond to Missing /
Regulation Fix
external forces broken
Support engine Business engine S L I Engine Delivery
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15. Different reasons for investing in each layer
Shared and Core business Strategy
support services Leadership
Innovation
Provide support Game changer / PoA / Time toChange the
Differentiate market Differentiate
Business Perforamcne
differently the business environment
Improve Improve core Change the
ROI / Risk / PoA Improve
support services business strategy
Service the Service business
NPV vs. risk / baseline performance / urgency
support engine growth
Looming threats Service
Momentum
line
Respond to time Missing /
Regulation Risk and Fix
external forces broken
Support engine Cost /Business engine quality equation
Risk / Service S L I Engine Delivery
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16. Different measures of success per class of investment
Shared and Core business Strategy
support services Leadership
Innovation
Outsource PoA Vision
LoB Differentiate
Business Perforamcne
Automate ROI > 100% Game changer
• PoA • • Strategic risk
• Capabilities ROI > IRR • Hit rates Improve
• Sustainability • Breakeven • Threat
• Efficiency • Benchmark mitigation Service
Momentum
line
• Legality • Risk • Linkages
• Time • Time Efficiency • Short term risk Fix
• Historical
• TCO • Innovation
CVA
• CVA engine
• Ongoing Delivery
Benefits • Quality • Strategy
• Risk execution
• TCO
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17. MANAGING PORTFOLIO PRIORITIES
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18. Choosing which projects to do
Cost
Return
Cost / Return
How do we choose initiatives
that align with business
strategy / objectives?
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19. Example of choosing which projects
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20. Can’t do all the projects
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%
Net cost 101m; Net Return 103m; Net ROI 2%
20

21. Choose all projects with ROI > 20%
Initiative Name Purpose Cost (1000's) Return ($) ROI
Project 1 Customer online Allow customers to track orders, collaborate, co-source product innovations 9 500 30 100 217%
Project 2 4 new depots Open 4 new depots in rural areas 16 342 27 004 65%
Project 3 Performance management Introduce new staff performance management based on balanced scorecard 3 564 13 860 289%
Project 4 Automate transfer pricing Automate transfer pricing across the value chain 1 996 1 760 -12%
Project 5 Payroll / Time&Attendance New payroll system with time & attendance. Staff tracking via RFID 12 030 14 000 16%
Project 6 Factory 2020 Look at what ICT can do to modernise our factories (Impact study) 2 000 1 000 -50%
Project 7 Move call centre Call centre premises too small - move from Head Office to own site 8 955 11 194 25%
Project 8 Refresh desktops All desktops (3000) to be upgraded - current warrantees lapse in 6 months 20 000 10 000 -50%
Project 9 Network upgrade Upgrade our network to accommodate business growth. MPLS 13 245 2 000 -85%
Project 10 Poppi Comply with protection of private and personal information act by Jan 13 300 -7 500 -156%
100 932 103 418 2%
Cost (1000's) Return ($) ROI
Cost / 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%
21

22. 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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23. Need a new way of prioritising
Use the Three Role Model (3RM) to classify projects
Decide what utility we want from projects based on our
strategic intent
Weight 3RM classes utility according to strategic intent
Define utility contribution per project
Match projects to their classes
Score projects according to the class weights
Prioritise based on utility score
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24. The portfolio tracks all possible initiatives
Initiative Name Purpose
Project 1 Customer online Allow customers to track orders, collaborate, co-source product innovations 1
Project 2 4 new depots Open 4 new depots in rural areas 2
Project 3 Performance management Introduce new staff performance management based on balanced scorecard 3
Project 4 Automate transfer pricing Automate transfer pricing across the value chain 4
Project 5 Payroll / Time&Attendance New payroll system with time & attendance. Staff tracking via RFID 5
Project 6 Factory 2020 Look at what ICT can do to modernise our factories 6
Project 7 Move call centre Call centre premises too small - move from Head Office to own site 7
Project 8 Refresh desktops All desktops (3000) to be upgraded - current warrantees lapse in 6 months 8
Project 9 Network upgrade Upgrade our network to accommodate business growth. MPLS 9
Project 10 Poppi Comply with protection of private and personal information act by Jan 10
Initiative Portfolio
24

25. Decide what utility we want based on our strategy
Strategy: Profitable, fast moving, innovative, customer
focused
Utility factors
 Return on investment
 Risk
 Time to market
 Paths of action
 Customer focus
Strategically aligned utility factors
ROI Risk Time PoA Cust
25

26. Weight 3RM classes utility according to strategic intent
ROI Risk Time PoA Cust
40 20 10 20 10 35 5 0 20 40 50 0 15 20 15
30 30 10 20 10 40 20 10 10 20 20 10 20 20 30
10 40 20 20 10 20 30 15 5 20 10 30 30 10 20
0 50 30 0 20 0 50 20 0 30 0 40 50 10 0
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27. Define utility contribution per project
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28. Estimating the utility contribution per initiative
Initiative
Initiative contribution Class utility Initiative Init.
Initiative ID Class (0 - 5) rules score Utility
1: Customer
online Bus I 5 1 2 4 5 x 40 20 10 10 20 40 4 4 8 20 76%
2: Four New
Depots Bus S 3 2 3 1 4 x 20 30 15 5 20 12 12 9 10 16 59%
3: Performance
Mgt SS I 5 2 2 2 3 x 30 30 10 20 10 30 12 4 8 6 60%
4: Auto Xfer
pricing Bus I 0 2 1 1 0 x 40 20 10 10 20 0 8 2 2 0 12%
5: Payroll / T&A SS S 1 1 3 2 0 x 10 40 20 20 10 2 8 12 8 0 30%
6: Factory 2000 SLI I 0 0 1 5 2 x 20 10 20 20 30 0 0 4 20 12 36%
7: Call Centre Bus S 2 3 5 1 3 x 20 30 15 5 20 8 18 15 10 12 63%
8: Refresh
desktops SS S 0 4 4 1 0
x 10 40 20 20 10 0 32 16 4 0 52%
9: Network
upgrade SS S 0 4 4 3 2
x 10 40 20 20 10 0 32 16 12 4 64%
10: Poppi Bus X 0 5 5 2 0 x 0 50 20 0 30 0 50 20 0 0
70%
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29. Some clarification
Initiative
Initiative contribution Class utility Initiative Init.
Initiative ID Class (0 - 5) rules score Utility
1: Customer
online Bus I 5 1 2 4 5 x 40 20 10 10 20 40 4 4 8 20 76%
2: Four New
Depots Bus S 3 2 3 1 4 x 20 30 15 5 20 12 12 9 10 16 59%
3: Performance
Mgt SS I 5 2 2 2 3 x 30 30 10 20 10 30 12 4 8 6 60%
4: Auto Xfer
pricing Bus I 0 2 1 1 0 x 40 20 10 10 20 0 8 2 2 0 12%
5: Payroll / T&A SS S 1 1 3 2 0 x 10 40 20 20 10 2 8 12 8 0 30%
6: Factory 2000 SLI I 0 0 1 5 2 x 20 10 20 20 30 0 0 4 20 12 36%
7: Call Centre Bus S 2 3 5 1 3 x 20 30 15 5 20 8 18 15 10 12 63%
8: Refresh
desktops SS S 0 4 4 1 0
x 10 40 20 20 10 0 32 16 4 0 52%
9: Network
upgrade SS S 0 4 4 3 2
x 10 40 20 20 10 0 32 16 12 4 64%
10: Poppi Bus X 0 5 5 2 0 x 0 50 20 0 30 0 50 20 0 0
70%
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30. The new order…
Utility Cumulative Cumulative Cumulative
Initiative Name Score Cost Cost Return Return 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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31. If we can afford only $50 million…
Utility Cumulative Cumulative Cumulative
Initiative Name Score Cost Cost Return Return 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%
31

32. But if we want to service business growth…
Utility Cumulative Cumulative Cumulative
Initiative Name Score Cost Cost Return Return 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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33. What benefits should we be chasing / tracking?
Initiative
Initiative contribution Class utility Initiative Init.
Initiative ID Class (0 - 5) rules score Utility
1: Customer
online Bus I 5 1 2 4 5 x 40 20 10 10 20 40 4 4 8 20 76%
2: Four New
Depots Bus S 3 2 3 1 4 x 20 30 15 5 20 12 12 9 10 16 59%
3: Performance
Mgt SS I 5 2 2 2 3 x 30 30 10 20 10 30 12 4 8 6 60%
7: Call Centre Bus S 2 3 5 1 3 x 20 30 15 5 20 8 18 15 10 12 63%
9: Network
upgrade SS S 0 4 4 3 2
x 10 40 20 20 10 0 32 16 12 4 64%
10: Poppi Bus X 0 5 5 2 0 x 0 50 20 0 30 0 50 20 0 0
70%
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34. IT adds value at different stages
Plan Build Run Retire
Meaning Attention Operate
Idea Test the Design and Implement Early Majority Maturity
idea build adoption adoption
Un-lockable
Value
Tangible
Value
Tangible
Value Tangible
Value Value
Value potential Intangible
potential Value
Intangible
Value Value
Value Intangible Cost-cut
potential
potential Value Value
Value preservation
Monthly cost
Monthly cost
Monthly cost Cost
Monthly cost Monthly cost Monthly cost
Cost
1 2 3 4 5 6 7 8
34

35. What business currently sees of IT value-add potential
Plan Build Run Retire
Meaning Attention Operate
Idea Test the Design and Implement Early Majority Maturity
idea build adoption adoption
Un-lockable
Value
Tangible
Value
Invest- Tangible
ment Value Tangible
approval Value Value
Value potential Intangible
potential Value
Intangible
Value Value
Value Intangible Cost-cut
potential
potential Value Value
Value preservation
IT Costs
Monthly cost
Monthly cost
Monthly cost Cost
Monthly cost Monthly cost Monthly cost
Cost
1 2 3 4 5 6 7 8
35

36. In summary
Utility trumps ROI and cost
Utility rules per class set business expectations and improve
understanding
Initiatives are not projects until they are budgeted for
You set your project budget by scoring the utility contribution
per initiative and multiply by the utility rule for the class of
initiative
Initiatives that don’t make the cut, stay in the initiative
portfolio
Benefits realisation plans revolve around expected utility
Alignment to business priorities and strategy is a given
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37. THANK YOU
• Terry White: (082 537 3887) terryw@cxo-advisor.co.za