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.