How do you know which IT Projects to do? Benefits…

Defining the benefits of an IT project is a different issue from defining costs; the latter may not be easy to calculate, but it can usually be done. Benefits, however, are usually in the mind of the people who want the project done, and generally are not easy to get defined and get a dollar value assigned to them.

In fact, the definition of benefits for IT projects does not exist as recognizable discipline. If you go searching for it, what you will always get is the answer that business sponsor/owner has to tell IT what the benefit is. If they can’t reasonably describe and quantify a benefit, then the project will not happen.

In the early days of IT Projects, the stated benefit was usually the automation of manual effort; this was not always as simple to propose as it sounds, because automation usually was translated into reduced head count for the business. If the staff in the area affected by a project perceived this as eventually leading to lay-offs, this could kill a project because you almost always need those people as the business experts for the business scope of the project. I wrote many project proposals that had reduced manual effort as the prime benefit, but further described these savings as allowing the enterprise to take on more business without adding more people, or freeing up people to do new more valuable work for the enterprise; reduction in headcount was never mentioned.

However, automation of manual work as a benefit could usually be quantified in dollars in potential saved salary costs. The problem today, however, is that all the obvious automation projects have probably already been carried out at your company. This leaves smaller or less obvious cost-cutting projects, or projects that are expected to increase revenue/income.

The question becomes: how much will this project contribute to increased sales of products and/or services. This is difficult to predict, and most business people are leery of attempting to do so. Just like IT Project teams are held to a project estimate or be considered late/costly, business people who estimate revenue increases can be held to task if it is perceived that the expected increase did not materialize. An interesting corollary development is the increase in the number of companies that are evaluating projects some time after they complete (six months or so) to see if the promised benefits have been realized. This can make business people even more wary of putting their names to what is and should be treated as an estimate.

In the end, however, some dollar value of benefits needs to be proposed and agreed to, if a cost-benefit analysis is to be performed. All I can say here is that, like all estimates, stating your assumptions and having them agreed to as the basis of your estimate is crucial. If reality proves that one or more assumptions turn out to false, then everyone involved in the project shares responsibility.

How do you know which IT Projects to do? Project Costs

A typical IT project will involve IT people resources, of course; analysts, designers, programmers, testers, trainers, etc… The titles may be different at your company, but the people will be performing these roles. The question, of course, is how much of the valuable time of these people will be needed, and how much that does that time cost? This is when the estimating begins.

Estimating the cost of IT projects is a whole discipline in of itself. I highly recommend the writings of Vitalie Temnenco on this topic, such as “Software Estimation, Enterprise-Wide - Part I: Reasons and Means (June 2007), at

http://www.ibm.com/developerworks/ration… ,

where the author is described “an architect for the Ontario, Canada government’s Workplace Safety and Insurance Board, where he provides architectural mentoring on implementation projects and helps teams embrace RUP and the Enterprise Architecture concepts.”

In this article, he covers the most well-known techniques, classifying them as top-down or bottom-up, and continues on to cutting edge techniques like neural networks and Dynamics-based techniques.

My experience with estimating has led to always determining up-front how close to accurate an estimate needs to be. When using cost estimates as part of a gating process, I find a reasonably supported estimate done in a short time will suffice. I have heard an initial estimating being referred to as “t-shirt sizing”; is it small or medium or large or extra-large, etc. Even this needs some context for a company, usually by classifying past project actual efforts the same way.

This helps with the simple approach of “Is this new Project X the same size as a previous project we have carried out?” Assuming your company has kept the metrics about previous projects, and that is a big assumption, you can then extrapolate the size and cost of any similar new projects.

True, some one has to lay it on the line and decide if a new project is reasonably similar to previous projects, and the person doing that should probably define some assumptions about why they believe so. This allows the decision makers to agree with or challenge the assumptions as needed, until all are agreed on the assumptions and accept the resulting estimate.

If you have no metrics/history to use, you may need to do some project planning to define the tasks likely to be carried out. Again, a whole other big discipline exists for project planning and management, and use of techniques of like Work Break-Down Structures (WBS). A simple web search or a visit to the Project Management Institute (PMI) website will get you started on that as needed. The only thing I emphasize in this approach is that as much as possible, people who would do the work should help in defining the necessary tasks, and then they most certainly should do the estimating of effort (usually in hours or days) of those tasks. They know best what will be needed, and will make sure they are happy with the estimate because they will likely have to work to that estimate when the project starts.

This planning approach must also make assumptions, mainly about what the project would deliver that will provide the expected benefits, and that may not always be very clear when a project heads into the gating process. So again, define assumptions that the decision-makers will accept and then go from there. In the end you will have a number of effort hours or days, and then you need an accepted price for an hour or day. Some shops will use a flat rate for all hours, while others will group the hours by role or seniority to get a range of rates. In either case, you multiply the hours/days by the price(s) and you have a cost. Other costs may be involved as well, especially one-time purchases of equipment or software needed by a project.

To go along with this cost, you will need an estimate of elapsed time for the project to execute and finish, because most benefits will not be realized until a project is over, and (later on) we will want to compute a present-value of future costs. More assumptions are needed; how many people will be assigned, what work can be done in parallel, etc. If you have used a project planning approach, you will have the advantage of defining many of these things already and will have come up with a project duration along with the project effort.

How do you know which IT Projects to do? and not to do?

Any company, and its IT organization, has a limit on the resources it can use on projects, so it has to choose, and choose wisely, from all 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”; a number of things, like project ideas, enter into a process at its ‘wide’ point, but only a small number emerge through the narrower gate at the end of the process. The projects that make it through the gate are initiated, the rest wait for another chance when more resources are available, or are eventually dropped from consideration.

It is the nature of IT projects that their size and cost start out small, but increase in size as they proceed through standard Analysis and Design tasks into actual development. As a result, a mature governance process will be comprised of several gates that continue after a project has been initiated. More will be known about the project as it approaches the next gate, where it is evaluated again to determine if it should continue. Sometimes a project will have made it through one gate but, after proceeding for a period of time, more information has been gathered and it is clear at the next gate that the original decision to proceed is no longer viable and the project should be stopped. This is NOT a project failure. It is a success of the governance process to prevent wasting precious resources on continuing a project that will not be of value to the company.

The key question then is: what projects does the Enterprise consider to be most valuable? And the follow-up: how does it determine the value of any one project, so it can be evaluated against ‘competing’ projects?

In private enterprise, the single common goal is sustained profitably , through a varying combination of revenue increases and cost reductions. Projects are used to change how a company operates in the expectation that such change will deliver the desired revenue increase or cost reduction, and deliver it such that the value of the changes 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 always boil down to, you can then use them in one or more forms of what is commonly called a ‘Cost-Benefit Analysis’. However, neither number just appears out of thin air, and any numbers you do come up with will never be exact, because estimating is involved.

Next time: getting Costs and Benefits for IT Projects.

David Wright

http://www.authorsden.com/visit/viewwork…

Pick The Right (IT) Projects for the Business

IT Projects have rightly earned the reputation over the years as places where lots of money goes in and no value comes out. We are all aware of the CHAOS studies by the Standish Group that show most IT projects are also usually late, and a large number are never even completed(!).

How did this happen? My view is that, way back when, computers were first used to automate rote manual tasks, and the results from these projects were valuable and easily seen as so. This led to the belief that automating most anything was going to be good for the enterprise but, as projects moved into more complicated/complex aspects of the business, the returns of pure automation began to diminish. Unfortunately, it was still assumed that the value was there, and it was a complete assumption; actually determining what the value was to be was done only rarely.

Early computer projects really were run in the realm of the IT department, likely better known then as the Data Processing department. Business departments had been happy to get their worst drudge work automated, but the techie geek image of IT started at this time as well, so the business would deal with IT as little as possible to get what they wanted, but otherwise considered IT as being on another planet. In this environment, one idea about using computers could snowball into a big project if enough people liked it.

So, projects proceeded into more complicated areas of the business, and they started to break down, some failed, and now Management wanted to know why, and also started asking if all these computer projects were worth what they cost (because costs were not assumed, they were measurable).

But that is the history: all the easy automation projects have long been done.

Next time: how to choose the most valuable IT Projects…