FRAMINGHAM – CIOs and wine connoisseurs (like me, many of you may be both) can appreciate the power of timing. In wine and IT, timing often makes the difference between technical and financial success and unmitigated failure.
In winemaking, the amount of time grapes are permitted to get sun on the vine before harvest — often called their “hang time” by vintners — is a hot topic. Pick the grapes too soon, and they may not be ripe enough to produce a top-shelf wine. Pick them too late, and you risk pressing “dead fruit” — producing wine whose flavor is too strong. The same goes for IT investments, where timing can have an outsized impact on a project’s results.
My company has a variety of ways to fund IT projects, but they all get a good jump-start by having solid business cases with well-defined value propositions, including defined costs and benefits. These business cases then flow through our IT governance process.
Unlike wine consumers, who must rely solely on the vineyards to make the right decisions, our customers (our business sponsors) are involved early, way before the stomping of grapes. Our IT steering committee (ITSC), which comprises the chief operating officers of our businesses, evaluates business cases for every major IT project.
Within that framework, here are our three approaches to IT investments:
If the IT organization or a business sponsor proposes a technology investment for the good of the entire company — such as our ERP transformation project — the company makes the investment. The ITSC prioritizes these “greater good” business cases and determines which get funded.
When the initiative benefits a single corporate organization, business function or location (i.e., it’s not a global IT capability), that entity funds it. This approach is also used when the ITSC believes a project is a good idea but not a high enough priority to fund. If the business sponsor feels that the project is important enough, he can fund it with his own operating budget.
The ITSC still reviews and approves customer-funded projects to ensure that the work is aligned with our business and IT strategy and adheres to our IT architecture and standards. Some examples of customer-funded initiatives include payroll systems deployed at the country level, and specific enhancements to our sales management system that are funded by the sales groups.
Some business cases are so compelling that it’s clear the projects will affect the company immediately. These will be funded within the current fiscal year by the benefits realized. This is where timing is crucial. Very granular assessments and benefits analyses help assure us that these projects will absolutely deliver on their promises in the current fiscal year. For that reason, we typically pitch projects that qualify as benefits-funded early in the year. The organization receiving the benefits funds the project, which is then paid for by in-year benefits accrued (i.e., by reducing expenses).
Of all the ways we invest in IT, our first choice is benefits-funded. If we need US$1 million to build or buy something, but doing so will generate $3 million in benefits during the current fiscal year, then that project is ripe for the picking. We get a $2 million return, and the project pays for itself.
One such project is our new personnel scheduling application. This system was developed within one fiscal year. It reduces the time needed to staff assignments by 68 percent and lowers related costs by 50 percent while also improving our ability to match skills with open positions — all of which provides a competitive advantage to our firm. Most important in this context, enough of those benefits were realized in the year the project was funded to pay for its costs.
CIOs who leverage benefits-funded IT will reap great rewards, but you must choose the project carefully, execute it at precisely the right time and fully commit the resources to develop and deploy the project.
Sidebar — The challenges
If you embark upon a benefits-funded approach to IT investments, there are several areas where you might encounter challenges:
Benefits will sometimes accrue to an organization other than that of the business sponsor. Take a procurement system, for example. The procurement organization doesn’t manage the budget for the actual cost of the items that are procured; that’s spread out among the organizations that purchase the items. However, a procurement system can have a tremendous payback by centralizing purchasing operations, and that benefits all buyers throughout the company, regardless of their organization. Thus, if the project is to be benefits-funded, the business sponsor (procurement) needs to obtain funding from the organization(s) receiving the benefit.
When do we start?
Be sensitive to when the project will start. Benefits-funded IT projects must be completed within the fiscal year, so leave enough time from start to finish. Typically, benefits-funded IT initiatives are started early in the fiscal year.
Engage the finance team to ensure that the benefits are realized and validated. To be sure that the project will be truly benefits-funded, finance should also reduce the annual budget of the organization that will receive the benefits and increase the budget of the group incurring the cost.