Gauging priorities: execs must scan the horizon before driving IT projects home, by David Geer

Contact me at david@geercom.com, or at 440-964-9832 (Fax:440-964-2172).

Gauging priorities

Execs must scan the horizon before driving IT projects home.

by David Geer

During the troubling IT climate of the past few years, executives' faith in IT investments has dissipated. Leaders started taking a closer look, then slashing funding as the economy continued to slide into the abyss. Budgets began to shrink until CIOs were left with barely enough money to support infrastructure. Fortunately, the future looks brighter as the global economy enters an upswing. But the challenges of a down economy take time to resolve, while newfound budgetary freedom brings challenges of its own. As the infrastructure's needs and capabilities grow, and regulations grow in number and complexity, the CIO's job becomes a straining, burgeoning load, and many IT execs find themselves fighting for funds along with every other department in the business.

"Of course, it's critical to make sure that the company's billing system is functioning correctly so that it can collect its money," says Jill Dyché, a partner with Baseline Consulting Group. "But it's also critical to implement data warehouses, analytical applications and CRM solutions that offer insight into a company's market. Throw new regulatory legislation into the mix, and you've got a recipe that can vex even the most experienced CIO."

Today, as C-level executives address allocation of funds, IT departments must clear many hurdles in the quest for budget approvals. "Many of the companies I work with have established a series of metrics that they apply against every proposed IT project," says Dyché. "These metrics are most often dependent on the organization, its strategy and its industry, but usually include ROI, business impact and executive support." Such measures lead to accountability, bringing IT spending under the rein of company goals.

Anywhere from 65% to 90% of IT budgets go toward operating and maintaining existing applications and infrastructure, according to Dan Merriman, president, Chapin Consulting Group, Inc. Although a fraction of IT funding goes to new projects, that fraction can be enlarged—and most likely will be as organizations start trying to address pent-up business demand and make up for lost time in terms of project development.

"The CIO has to ask if there are ways to maintain current capability but do it more cost-effectively. Similarly, are there things the company has been doing that it should cease going forward?" says Merriman. By increasing spending efficiency and deleting efforts that no longer generate value, a savings can be created for use in new projects.

Enterprises that deliver the goods and reap revenues during a slow economy can invest in bargains that become available during a recession. "When the economy is tough, vendors are willing to make better deals. They're more willing to offer discounts on new product purchases. So companies that are willing to invest during tough economic times ultimately have lower costs—and thus can often prove higher ROI," says Dyché.

Topping the list

Down economies offer opportunities. "When times are good, we don't worry about keeping customers, finding new customers and making more money. In down economies, people get serious," says Bill Inmon, partner with Inmon Associates, Inc. Strained economics keep people focused on growth, despite the growing pains that accompany it.

Companies that aren't prepared to capitalize on bargains during a recession may have to focus budgets on satisfying both maintenance needs and regulatory requirements such as Basel II and the Health Insurance Portability and Accountability Act. Still, organizations need to have proper metrics in place to help direct exactly where to spend the maintenance- and regulatory-related money.

In addition, companies should be careful to not overlook the opportunities presented by data-rich regulations; if you have to collect the information, why not fully leverage it? Businesses should look beyond the regulations to see what they might be able to do with just a small additional investment.

Regardless of the times, every case made for an IT project must be strong, formal and well-considered, says Dyché. Business sponsors pitching new IT projects are increasingly including projected ROI calculations in their proposals.

"There's still an overreliance on total cost of ownership [TCO], since it's a more traditional measure for IT. The logical extension of TCO is cost savings, whereas ROI also factors in opportunities for revenue as well as intangibles such as customer satisfaction," says Dyché.

"New revenues are more difficult to project than cost savings, hence the continued reliance on the classic TCO model. But opportunities for cost savings are more limited than those for revenue growth. That's why business is participating to a greater degree in IT budgeting."

Balancing demands

First, the IT budget must be balanced "between keeping the infrastructure going and starting to exploit the infrastructure," says Inmon. Many organizations get sidetracked into maintaining the status quo—keeping systems up rather than adding to them. They need to look at how they can grow what they have.

Second, organizations have to take a look at the overall budget, not just IT. Certain business departments—sales or marketing, for example—frequently develop their own IT departments and infrastructure. "If you look at the budget for IT, it looks like one thing. If you look at total technology spending for the corporation it looks like something entirely different. It all boils down to control of the budget," says Inmon.

The process of prioritizing budgets will remain constant while those projects that make up the budget will change. Goals and metrics must drive the budget, not individual or group demands. Judgments can't be made based on whether or not a project is classified as IT. They should be based on which projects the metrics determine best meet the company's goals. The IT budget must align with the business side of the house.

To accomplish this, executives should prioritize projects based upon their ability to address the priority business goals of the company. Merriman suggests that the executive team start by developing a standard list of criteria (e.g., alignment with priority business goals, financial return, risk, ability to support future solutions) that will be used to evaluate each project and assign a relative weight for each.

The projects should then be scored for each criterion. By multiplying the score of each criterion by its weight, the weighted ranking for each project is calculated.

Armed with this analysis, the executive team can then select the projects to be funded. A number of projects on the list that receive very high scores will obviously deserve funding, while others with very low scores should clearly be rethought. The focus should be on selecting the proper candidates from the middle tier. Intensive debate among the executive team is very common and actually quite healthy. These discussions should focus on refining the selection criteria and scoring projects, while avoiding the political squabbles that used to poison this process in the past.

Fueling up for a challenge

Managers are empowered to balance infrastructure maintenance and new purchases by constantly measuring and approving ROI. "While a company can save $100,000 by cost-cutting in IT, it could be losing millions by not launching a new CRM system. So ROI has transcended the luxury category and entered the realm of business necessity," says Dyché.

Before projects are approved, CIOs need to know what metrics they are going to put in place in order not only to estimate ROI, but also to verify that they are continuing to drive return on down the road. C-level executives want proof of value before the investment is made and affirmation that said investment value has been retrieved each step of the way.

Experienced CIOs know they have to develop metrics, processes and tools that will not only define expected value during the planning process but also enable the measurement and improvement of actual value after deployment. Merriman estimates that only 10% of companies are doing any post-deployment measurement and improvement today. This percentage is steadily rising, especially in areas where complex projects have a major impact on the business and the use of metrics is a core competency of the user and vendor personnel involved. They are making people accountable so that the company gets a return, and they are using metrics to do it.

Top executives are always concerned over IT cost/benefit issues—what they are paying for and what they are getting. CIOs can't respond if they haven't asked these questions. If they regularly analyze IT costs and ROI, they will be prepared to answer. If they make the right decisions based on these analyses, they will be able to answer well. T

The charm of consistency

Denis Gingue, CIO and SVP of women's plus-size apparel retailer Charming Shoppes, Inc., believes in using consistent methods and metrics to prioritize IT budgets, regardless of economic climates.

"Charming Shoppes follows a regimented approach to IT budgeting and project prioritization," says Gingue, who does a cost/benefit analysis at the beginning of each annual planning cycle in preparation for proposed IT investments.

The needs of the data warehouse are "must-do" items at the core of the 2,200-store company's success. "Continued investment in the business intelligence that we need to run the company efficiently is rooted in Teradata. That's an area where we don't feel we can compromise," explains Gingue.

One project that the 64-year-old company approved using that method was the Teradata Warehouse upgrade for Lane Bryant, a banner that Charming Shoppes acquired in 2001 (other banners include Fashion Bug and Catherines Plus Sizes).

"Lane Bryant dramatically increased our user base for all types of data on the system: financial, merchandising and customer information," says Gingue. "As a result we had to substantially expand the size of our Teradata Warehouse. We also had a challenge as far as training and educating a large number of new users who had come from a very different IT environment."

Through the acquisition of Lane Bryant, Charming Shoppes grew from $1.5 billion to $2.4 billion in annual sales. The Teradata upgrade nearly doubled Charming Shoppes' information capacity, and it was certainly fundamental to supporting the large revenue increase. "We were not really implementing any incremental functionality. The ROI for that project—a project to fold the Lane Bryant systems into our own—listed the data warehouse as a separate line item in that plan," says Gingue.

Charming Shoppes' IT projects are all approved based on ROI, impact on operations and investments required to maintain technologies, meet contracts and satisfy regulatory compliance. "In any given year, up economy or down, we have a very long list of projects that are being sponsored by each of our own brand's businesses. We go through that analysis and identify costs, benefits and strategic fit. We develop ROI based on that understanding, prioritizing projects by ROI," says Gingue.