Any company, and its IT organization, has a limit on the resourcesit can use on projects, so it has to choose, and choose wisely, fromall the ideas and opportunities it may have before it at any one time.
The term that has emerged to describe this is Project Governance. The most common analogy used to describe this governance is “gating”; anumber of things, like project ideas, enter into a process at its‘wide’ point, but only a small number emerge through the narrower gateat the end of the process. The projects that make it through the gateare initiated, the rest wait for another chance when more resources areavailable, or are eventually dropped from consideration.
It is the nature of IT projects that their size and cost start outsmall, but increase in size as they proceed through standard Analysisand Design tasks into actual development. As a result, a maturegovernance process will be comprised of several gates that continueafter a project has been initiated. More will be known about theproject as it approaches the next gate, where it is evaluated again todetermine if it should continue. Sometimes a project will have made itthrough one gate but, after proceeding for a period of time, moreinformation has been gathered and it is clear at the next gate that theoriginal decision to proceed is no longer viable and the project shouldbe stopped. This is NOT a project failure. It is a success of thegovernance process to prevent wasting precious resources on continuinga project that will not be of value to the company.
The key question then is: what projects does the Enterprise considerto be most valuable? And the follow-up: how does it determine the valueof any one project, so it can be evaluated against ‘competing’ projects?
In private enterprise, the single common goal is sustainedprofitably , through a varying combination of revenue increases andcost reductions. Projects are used to change how a company operates inthe expectation that such change will deliver the desired revenueincrease or cost reduction, and deliver it such that the value of thechanges is not exceeded by the cost of the project itself.
So, we have two aspects of a project that will usually be used to determine its value:
1) Its impact on revenue or costs of the enterprise, commonly known as Benefits.
2) The Costs of carrying out the project (which some refer to as the ‘investment’)
Given these two dollar numbers, which is what they should alwaysboil down to, you can then use them in one or more forms of what iscommonly called a ‘Cost-Benefit Analysis’. However, neither number justappears out of thin air, and any numbers you do come up with will neverbe exact, because estimating is involved.
Next time: getting Costs and Benefits for IT Projects.