Utility based portfolio prioritisation
Download as PPT, PDF0 likes397 views
Here are a few clarifications on the utility scoring: - Initiative contribution is an estimate by the presenter of how well the initiative meets each utility factor, on a scale of 0 to 5. - Class utility rules define the weighting given to each utility factor for projects in that class. These weightings were set based on the company's strategic priorities. - The initiative score is calculated by multiplying the initiative's contribution by the class utility weighting. This gives a score out of 100 for how well the initiative meets the utility definition for its class. - Initiative utility is the initiative score expressed as a percentage of the maximum possible score for that class. This allows initiatives from different classes to be compared on the same scale.
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 3
- 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? 5
- 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 7
- 8. THE THREE ROLE MODEL IN BUSINESS 8
- 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 9
- 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 10
- 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 11
- 12. Apply three roles to business performance Shared and Core business Strategy support services Leadership Innovation Business Perforamcne Momentum line 12
- 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 13
- 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 14
- 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 15
- 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 16
- 18. Choosing which projects to do Cost Return Cost / Return How do we choose initiatives that align with business strategy / objectives? 0 1 1 2 3 5 t6 7 t8 t9 4 1 1 ct ct ct ct ct ct ct ct jec jec jec o je o je o je o je oje oje o je o je o o o Pr Pr Pr Pr Pr Pr Pr Pr Pr Pr Pr 18
- 19. Example of choosing which projects 19
- 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 22
- 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 23
- 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 26
- 27. Define utility contribution per project 27
- 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% 28
- 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% 29
- 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% 30
- 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% 32
- 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% 33
- 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 36
- 37. THANK YOU • Terry White: (082 537 3887) terryw@cxo-advisor.co.za