Stephen Mann’s Top 10 ITSM Challenges for 2013 considered “IT cost transparency” and “value demonstration” as two top ITSM challenges. This blog talks about ways to help you address these challenges.
IT investments are growing, and the growth is increasingly being scrutinized by business. Business perceives IT cost to be exponentially increasing without clear evidence of the value derived from it. In simple terms, IT is considered a “black hole.”
Value demonstration as a term means something different for various stakeholders. It could include cost reduction, increased customer satisfaction, more value for money, and much more.
Let’s talk about five critical factors that enable you to kick-start value demonstration.
1. How to Define Value
As the popular quote goes, “value is in the eye of beholder,” so understanding it from your customer and user perspectives is vital for your business. Organizations need to define value based on true business outcome. What does that mean? For example, it does not make sense to commit for 99.95 percent availability for services if your customer is, say, the NYSE. A single minute of downtime could cost millions of dollars. So understanding the business of the customer and their priorities is vital to determining value. Stuart Rance made interesting post along this line: SLA Definition: What the Customer Wants or What You Can Measure?
2. Prioritization and Categorization of Investments
While we have no choice for nondiscretionary investments determined by legal and regulatory compliance, it is fundamental to get the discretionary investments planned and executed with proper categorization and prioritization. Categorization can include:
- Transactional investment (increase efficiency and cost)
- Informational investment
- Strategic investment (real value to business, competitive advantage)
- Infrastructure investments (IT infrastructure)
Prioritization has to be driven by business to select the appropriate time for execution. For example, organizations can decide to take up projects that yield more return on investment (ROI) and are easy to implement as their first priority.
3. Methodology and Best Practices
Start with strategy. It is important to define business outcomes based on the strategic direction of the organization. This could be done using blended investment program instead of standalone projects in order to fully harness the business, technology, organization, process, and people (BTOPP) required in achieving the planned business outcome.
The next step would be to take on projects and initiatives based on a compelling business cases. The business case must assimilate information from all aspects to be compelling. Business cases should be living documents that need to be updated or revisited to ensure perceived business benefits are obtained during the life cycle of project.
Next, consider setting up an investment management committee to validate relevance of projects, and a business sponsor to oversee the benefits of planned programs, to help you to take control of your IT expenses without going down the drain. Initiatives should be planned as a blended investment program instead of standalone projects in order to fully harness the business, technology, organization, process, and people (BTOPP) required in achieving the planned business outcome.
Every planned program should follow the full lifecycle governance (strategic alignment, value delivery, risk management, resource management, and performance measurement), and benefit realization processes. The results chain technique enables you to achieve benefit realization.
4. Performance Measurement
Value delivery is closely associated with performance measurement to determine if the intended plan is grounded in reality. This should include financial measures like payback period, net present value (NPV), internal rate of return (IRR), return on investment (ROI), and also nonfinancial measures like the BSC. While organizations are mature in determining financial measures, the BSC is only adopted by 50 percent of organizationsbut trends suggest improvement in 2013. With the balanced scorecard approach, the board obtains a holistic view of IT performance towards alignment with strategic business objectives. This also helps IT gain the trust of the business and improve the IT-business relationship.
5. Role of Board and PMO
Typically governance is implemented with an executive board setting the strategic direction and a steering committee overseeing the actual implementation. This is done with support from technical, architecture and investment management committees.
Successful programs that yield true business value have a strong project management office (PMO) in place to review, evaluate, and guide programs to achieve the intended business value. This includes measurement of resource performance, risk management, cost transparency, and alignment towards strategic business objectives. The PMO submits the performance of programs against agreed parameters at regular intervals to ensure that there are no surprises for business.
Based on my experience, I have found that these five factors help obtain value delivery and cost transparency in all planned initiatives. So what has been your experience?