Identify alternatives that will provide direct and measurable value to the organization. To provide real value to an organization, however, IT projects must align with and support the organization's goals, mission, and objectives. Therefore, any recommended alternative by the core team must have a clearly defined purpose and must map to the goals and strategy of the organization. The goal of the project then becomes the project's measure of success (Billows 1996; Smith 1999). In the IT project management methodology, the project's overall goal and measure of success is referred to as the project's measurable organizational value (MOV). As the name implies, the MOV must:
• Be measurable—Measurement provides focus for the project team in terms of its actions. Instead of implementing an information system, the project team attempts to achieve a specific performance target. Moreover, an MOV provides a basis for making decisions that affect the project through its remaining phases. Why do additional work or make decisions that affect the project if they do not help you achieve the MOV?
• Provide value to the organization—Resources and time should not be devoted to a project unless they provide some kind of value to the organiza tion. Keep in mind that information technology in itself cannot provide value. Technology is only an enabler—that is, IT enables organizations to do things.
• Be agreed upon—A clear and agreed upon MOV sets expectations for the project stakeholders. It is important that all project stakeholders understand and agree to the project's MOV. It is not easy to get everyone to agree to the project's goal so early; but it will be well worth the time and effort in the later stages of the project (Billows 1996).
• Verifiable—At the end of the project, the MOV must be verified to deter mine if the project was a success.
The MOV guides all the decisions and processes for managing the IT project and serves as a basis for evaluating the project's achievements. In other words, a project cannot be properly planned or evaluated unless the goal of the project is clearly defined and understood. An organization should not undertake projects that are not clearly linked to its overall mission.
The IT value chain depicted in Figure 2.4 suggests that an organizational goal leads to or defines an organizational strategy. In turn, a project's measurable organizational value then supports this organizational strategy. This mapping shows how a project's goal aligns with an organization's strategy and goal. At the end of the project, the project's actual achievements can be compared to its initial MOV to determine whether the project was successful. If the project is a success (i.e., it either met or exceeded its MOV), then one can see explicitly how that project will support the organization.
For example, if we follow Michael Porter's (Porter 1980; Porter 1985) competitive forces model, one organizational goal may be to prevent customers from leaving or switching to a competitor. Therefore, an organizational strategy to support this goal may be to develop tight linkages with customers. To support this organizational
strategy and goal, the organization may consider developing a business-to-business I (B2B) application that will allow customers to check inventory status, place orders, track shipments, receive an invoice, pay an invoice, and receive various reports online.
Will the installation of hardware and a network mean that the B2B application was a success? Will the development and implementation of the application software? What if the project is completed not only on time, but also within budget? A yes answer here is only partially correct. Although all of these achievements are important, they cannot be true measures of a project's success.
More specifically, installing hardware and a network are activities. Having them in place is a necessary, but not sufficient, condition for success. In other words, hardware and software can be in place, but unless they support the organizational goal and strategy, their mere installation does not bring much value to the organization. One can also view budget and schedule in the same light. You can have a project that is finished on time and within budget, but unless it brings value to the organization in terms of supporting a goal and strategy, it will not be of much use.
But what if a project goes over schedule and over budget? How will that impact the project's value to the organization? The answer is that it depends. A project that is late and over budget certainly can impact the project's value to the organization, but success or failure really depends on the amount of value a project will provide. For example, should a project that is one day late and a dollar over budget be considered unsuccessful? Probably not. What about a project that is one week late and $ 1,000 over budget? That depends on how these overruns compare to the original schedule and budget. If the original schedule and budget were two years and $ 1 million, then most people would agree that the schedule and cost variation is no big deal.
What's more important is the value the project brings to the organization. A consultant friend once told a story of a CEO who was ecstatic because an e-commerce project the company was taking on was only one year late and only $12 million over budget. In this case, schedule and cost did not matter all that much because once the e-commerce site was up and running the company would make the deficit up within six months. The moral of the story is that business value is the most important criteria for IT projects.
A project's MOV should be based on the organization's goal and strategy. An excellent example of an MOV is the following statement that John F. Kennedy made back in the 1960s, "Our goal is to land a man on the moon and return him safely by the end of the decade."
This simple yet powerful statement mobilized an entire nation and fueled the space race with the then Soviet Union. What is interesting about this statement is how clear and measurable the goal becomes:
• A human being is to land on the moon—not an unmanned spacecraft or a spacecraft with a chimpanzee.
• We will not just get a human to the moon or get that person just back halfway. This person must make the whole trip and come back safely.
• This will all be done before 1970.
What is equally interesting is that Kennedy never told anyone how to do this. That was NASA's job, not his. The goal was to beat the Soviets to the moon, and the project's MOV defined this explicitly.
But how do we go about developing a project's MOV? There are six basic steps. Let's follow that process using as an example a company that would like to develop and implement a business-to-consumer (B2C) electronic commerce application that it hopes will allow it to expand its current bricks and mortar operations.
Identify the Desired Area of Impact The first step involves identifying the desired impact the IT project will play in supporting the organization. One approach might be to adapt the criteria used by CIO magazine's Enterprise Value Awards.1 The guidelines summarized in Table 2.1 are used by the judges to define IT value and provide a good starting point for developing the MOV and business case. You should feel free to adapt these areas of impact as needed. The important question to answer at this point is why are we thinking of doing this project?
In our B2C example, the project manager would meet with the project sponsor and first determine how the idea for the project came about. Although the reasons could be broad and numerous (i.e., all of our competitors are doing it, it is part of our long-term strategy, we think we can make a lot of money, B2C will make our company look hip), identifying them will provide a background for understanding how and why decisions are made by the sponsor's organization. In this example, we will say that the reasons for considering this project are both strategic and financial because the company wants to expand its current brick and mortar operations. The idea is not to neatly categorize the project, but to understand the nature of the project and how it will impact the organization.
Identify the Desired Value of the IT Project Once the desired area of impact is identified, the next step involves determining the desired value the IT project will bring to the organization. This area is can be tricky, but having a process helps. In simplest terms, we can identify the value of an IT project by providing answers to the following four questions:
• Better—What does the organization want to do better? (For example, improve quality or increase effectiveness?)
• Faster—What does the organization want to do faster? (Increase speed, increase efficiency, or reduce cycle times?)
• Cheaper—What does the organization want to do cheaper? (Reduce costs?)
• Do more—What does the organization want to do more than it is currently? (Growth or expansion?2)
The key words to identifying the value an IT project will provide an organization are better, faster, cheaper, and do more. The first three criteria—better, faster, and cheaper—focus on quality, effectiveness, and efficiency, while doing more of something focuses on growth. For example, if an organization has identified increasing profits as its desired area of impact, it makes sense that it would like to make more money than it currently does. Therefore, value to this organization would be in the form of growth. On the other hand, another organization may be faced with high inventory costs as a result of having too much inventory in its warehouse. The value that an IT project would bring to this organization would not be from growth; it does not want to do more of what it is currently doing. The value comes from doing something better (e.g., improved quality to reduce waste or rework), faster (e.g., fewer manufacturing bottlenecks or reduced cycle times), or even cheaper (e.g., lower overhead costs).
1 Since 1993, CIO magazine has conducted a competition to identify and honor organizations thai create enterprise value through the innovative use of IT. Entrants must submit an entry following contest guidelines. A team made up of CIO editors and consultants selects finalists. Entries are judged on the value of the achievement that an IT investment provides and how it serves the organizations mission.
- Value to an organization may also result by doing less of something. For example, a company may develop a safety program to reduce the number of accidents. Reducing accidents can tie viewed as negative growth or as an increase in safety as a result of doing something belter (i.e., quality). It just depends on one's viewpoint.
Table 2.1 Potential Areas of Impact for IT Projects
Examples of Desired Impact
■ Penetration of new markets
■ Transformation of the terms of competition within the market
■ Increased market share
■ Customers have more choices of products or services
■ Customers receive better products or services
■ Transaction processes are moTe efficient or effective
■ Increased profit
■ Increased margins
■ Lower costs due to streamlined operations
■ Increased operational effectiveness
■ Improvements to supply chain
Source'. Adapted from CIO magazine's Enterprise Value Awards Application Form and Elaine M. Cummings, "Judgment Call," CIO. February 2, 2000, h rtp :/,'w w w.e io. com/a wards/eva' index.html.
provides an excellent vehicle for all project expected value of the project.
While the question in the First step focuses on why an organization wants to take on the project, this second step focuses on the question "how will this project help us achieve what we want to achieve?" At this point, the project manager and client should identify one or two value areas to emphasize. If ail four of the value areas appear important, it is a good idea to rank them in order of importance. Keep in mind, however, that not having a dear idea of the desired impact or value of the project may well mean that the problem or opportunity is not clearly understood. The project team may end up treating the symptoms rather than the real problem.
Following our example of the B2C project, the value critical to the organization may be doing more through the project's ability to enable to organization to expand its current operations. Value from improved customer service and improved operations could also support the organization in doing things better, faster, and cheaper as well. This step stakeholders to discuss and identify the
Develop an Appropriate Metric Once there is agreement as to the value the IT project will bring to the organization, the next step is to develop a metric or set of metrics that (1) provides the project team with a target or directive, (2) sets expectations among all stakeholders, and (3) provides a means for evaluating whether the project is a success later on. In general, tangible benefits to the organization are easier to define than intangible ones; however, this can be done with some creativity. For example, knowing whether profits increased should be fairly straightforward, but customer satisfaction may require surveys or interviews. Often evaluation requires benchmarking so that a before and after comparison can be made.
To develop a metric, the project manager and sponsor should agree on a specific number or range of numbers. When not obvious, the target metric should indicate whether an increase or decrease from the organization's current state is desired. The metrics may be expressed as dollars, percentages, or numbers. For example, an organization that wishes to increase profits may state this as a 20 percent increase or an increase of $ 1 million from the last month, quarter, or fiscal year. On the other hand, an organization that would like to grow its customer base may set a goal of one hundred new customers. Therefore, the metrics to support an MOV may be one or a combination of the following:
Money (in dollars, euros, etc.) Percentage (%) Numeric Value
(increase or decrease) (increase or decrease) (increase or decrease)
The company in our example would like to grow strategically, that is, expand its current base of operations. There are a number of relevant metrics that could be used. The question is how will this company determine whether this project is a success. Keep in mind that the organization will make a significant investment by the time the project is completed. Will the B2C application be successful when the Web site is finished and anyone with an Internet connection can view the site? It is important to have a working Web site, but that alone will not make up for the investment and subsequent maintenance and support for keeping the site up and running. What about using a hit counter so that the organization can tell how many times the B2C site was visited? Having traffic to the Web site is also important, but people who just visit will not keep the company in business nor will visitors justify the investment and cost of keeping the B2C Web site up and running.
It should now be obvious that the company must make money from its B2C Web site. Only a profit can justify the time, effort, and resources needed to develop and support the application. The questions then become how much profit and are there any other metrics that should be considered. Assume that management has determined that a 20 percent return will be adequate for covering all expenses and for providing the desired return. Also assume that management is interested in developing new customers. Therefore, the company has set a target of five hundred new customers. Why a 20 percent return and five hundred new customers? Those numbers are not developed by the project manager or project team on their own. The 20 percent return and five hundred new customers' metrics can only be determined by the project sponsor. The project manager and project team only guide the process.
Set a Time Frame for Achieving the MOV Once you have agreement on the target metrics that will provide the desired impact to the organization, the next step is to agree on a specific time frame. For example, a company may focus on increasing profits or reducing costs, but the question is when will these results be achieved. Keep in mind that the scheduled completion of the project is not the same thing as the agreed upon time frame for achieving the MOV. Scope, schedule, budget, and quality are project objectives. The MOV is the project goal. Rarely will the installation of an information system provide the desired or expected value right away. A project with an immovable deadline may, however, have a specific date as part of the MOV. For example, there may be cause for putting a deadline date in the MOV in 01/01/10000, when all the dates in computers, or whatever they are using then, have to be changed once more.
The project manager and sponsor should also agree upon how and when the project's MOV will be evaluated. Continuing with the example, let's say that management would like to see a 20 percent return and five hundred new customers within one year after the system goes online. But what happens after the first year? Perhaps the company would like to maintain this growth annually over the useful life of the system. There is, however, no reason why different targets cannot be set for different time periods. For example, a 20 percent return and five hundred new customers may be sufficient for the first year, but these targets may change as word spreads and more and more people know about the B2C Web site. Therefore, the company may establish a target of a 25 percent return and one thousand new customers in the second year, while a 30 percent return with 1,500 new customers is set for the third year. The MOV should be flexible to accommodate the expectations and needs of the project sponsor.
Verify and Get Agreement from the Project Stakeholders The next step in developing the MOV is to ensure that it is accurate and realistic. In short, will the successful completion of this project provide the intended value to the organization? And is the MOV realistic? The development of the MOV requires a close working rela tionship between the project manager and the sponsor. The project manager's responsibility is to guide the process, while the sponsor must identify the value and target metrics. This joint responsibility may not always be easy, especially when several sponsors or individuals need to agree upon what will make an IT project successful or what exactly will bring value to the organization. Still, it is better to spend the time arguing and getting consensus now rather than during later phases of the project. While the project manager is responsible for guiding the process, he or she needs to be confident that the MOV can be achieved. Being challenged is one thing; agreeing to an unrealistic MOV is another. The latter can be detrimental to your career, the project team, and everyone's morale.
Summarize the MOV in a Clear, Concise Statement or Table Once the impact and value to the organization are verified and agreed upon by all the project stakeholders, the MOV should be summarized in a single statement or table. Summarizing the MOV (1) provides an important chance to get final agreement and verification, (2) provides a simple and clear directive for the project team, and (3) sets explicit expectations for all project stakeholders. The easiest way to summarize the MOV in a statement form is to complete the following statement:
This project will be successful if_.
For example, using a single statement format, the MOV would be:
MOV: The B2C project will provide a 20 percent return on investment and five hundred new customers within the first year of its operation.
However, if the MOV includes a growth component, a table format may be clearer. For example, the project's MOV over three years could be summarized as shown in Table 2.2. Notice that the MOV does not include any explicit statements about technology. More specifically, it does not mention that a particular relational database vendor's product will be used or that the system will be programmed in a particular language. It is up to the project team to figure out how to build the system and determine what technology will be employed to achieve the project goal. At this point in the project, we are concerned with the organization—not with the technology!
The project team's directive will be to achieve the MOV, not just develop and implement a B2C Web site. Although information technology will play an important role, the designers and developers of the information system cannot be expected to know everything or be solely responsible for achieving the project goal. In the past, purely technical approaches were often applied to organizational problems. A system would be built, but did it really support or have a significant, positive impact on the organization? Judging from the Chaos study, most IT projects have not lived up to management's expectations. In short, the technical people may understand and be very good at working with the technology, but achieving this MOV will also require an organizational approach and commitment. A cross-functional project team that includes a number of non-technical experts will be required so that the burden of achieving this MOV does not rest squarely on the shoulders of the technical experts. Therefore, the selection of the project team becomes a crucial project management decision.
Step 3: Identify Alternatives Since no single solution generally exists for most organizational problems, it is imperative to identify several alternatives before dealing directly with a given business opportunity. The alternatives, or options, identified in the business case should be strategies for achieving the MOV.
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What you need to know about… Project Management Made Easy! Project management consists of more than just a large building project and can encompass small projects as well. No matter what the size of your project, you need to have some sort of project management. How you manage your project has everything to do with its outcome.