Measuring Value of IT LO15738

Martin Wood (mwood@ukmkwt.cig.eds.com)
Tue, 11 Nov 1997 14:53:51 -0000

Replying to LO15713 --

I'd like to build to Debbie Roth's reply (LO15713) and also Shaun Gilley's
reply (LO15714) to Margaret McIntyre (LO15660) who originally wrote:

>So I'm wanting to draw on the group's intelligence if possible to help me
>think about valuing information technology projects. I wondered if anyone
>on the list has had any experience with this, given it could be very
>subjective and elusive. I am also trying to develop a framework for
>prioritizing work and stopping IT projects for a client of mine. Any
>thoughts from the group would be most appreciated.

Debbie, in commenting on Paul Strassman's point that "what you get from IT
depends most on how you use it, not on the box or its cost", mentioned the
story about the Sabre reservation system that earns more for an airline
than actually flying passengers around. I've also heard that story, and
believe it to be true. I'd also support Strassman's point.

Debbie quoted some good sources, and I'd like to add one from this side of
the Atlantic. John Ward at Cranfield (http://www.cranfield.ac.uk/som/)
developed an "IT Applications Portfolio", which can be used to categorise
and prioritise IT systems. He co-authored a book called "Strategic
Planning for Information Systems" (Wiley, 1990) which explains the concept
in more detail. There may be later work which has developed the concept.
I've found it helpful in categorising projects, but not had the
opportunity to use it as a valuation tool.

One key point is that the systems are categorised in terms of their value
to the business, not the technology used. You may have a system which is
cost-incurring, adds no real value to your business, but you need it
anyway (e.g. a payroll system !). Or you might have systems on which you
completely depend to keep your business operating (such as a switching
system in a telco).

Another key point is that at the other end of the spectrum, where IT is
used to develop competitive advantage, or potential new business methods
(perhaps with "leading edge" technology), the benefits are more intangible
than tangible. That is a problem with the NPV method (with which I am
also familiar) that Shaun advocated. An NPV analysis only measuring
tangible costs and tangible investments could rule out projects that are
vital to future business success, but which have predominantly intangible
benefits.

In looking at your project portfolio, I would want to focus on the
business drivers behind each, and the business benefits projected for
each. Are the drivers still there ? Are the benefits actually going to
be realised ? Which are most important to the business ?

On another track, which projects are most out of control, and which would
cost the most (in time, money, project management resource) to bring them
back under control and delivering ? That's another framework for
prioritising your client's projects. I don't claim that there's a well
validated model to underpin this, but it has some pragmatic appeal to me.

-- 
 
Martin Wood, Projects Manager
Communications Industry Group, EDS, Wavendon Tower
Wavendon, MILTON KEYNES MK17 8LX, ENGLAND
E-mail: mwood@ukmkwt.cig.eds.com, Tel: +44 1908 284050

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