Big Red Line

By Author: Andy Quick
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Title: "The Big Red line"
Copyright © 2002
Author: Andy Quick
Web Address: http://www.findmyhosting.com/
Contact Author: mailto:andy@findmyhosting.com
Publishing Guidelines: You have permission to publish this article electronically or in print, free of charge, as long as the resource box at bottom is included. No notification required. The Big Red Line
Andy Quick How should you prioritize your investments in Information Systems? Costs associated with purchasing software and integrating software into your business has skyrocketed over the years. Developing your own custom software is even more costly. Compared to other labor costs, paying IT employees and contractors is extremely expensive. Most corporations are routinely evaluating whether they are receiving a bang for their IT buck. With the economy struggling, capital is limited. Corporations typically have more demand for IT services than they can afford. Prioritizing your IT investments is crucial! Calculating ROI: Utopia The word ROI is so over-used in the IT industry, I become sick ...
... to my stomach every time I see the acronym. Most IT managers are so gullible in thinking that software and services sales people can actually stand behind statements like Buy our stuff and realize a 400% ROI. However, I hear the claims on a weekly basis. ROI or Return On Investment is a financial term used to describe how much money you get back as a result of putting your money into something (like software). Ideally, corporations should first calculate the value of their IT investments before making them. If this type of discipline actually existed within most corporations, prioritizing IT investments would be a cinch. Prioritization Death-Knell: High, Medium, Low Under the pressure of a budget cutting exercise, it is very typical for IT managers to use an infamous High, Medium, Low prioritization scheme with the business. Alternatively, they may use Strategic, Critical, Important, Nice to Have. However, in my experience, these categories are meaningless. What does Critical really mean? Unless you want to spend your time reminding yourself what these vague categories represent, use categories that are appropriate for your business. If you cannot calculate the financial value of all of your IT investments, do not resort to some vague categorization process. Two years down the road, you'll be asking yourself Now what did Critical mean again? The Middle Ground I was recently under the gun to reduce my IT capital budget by millions of dollars. I had to figure out how to get the business to agree where money should be spent. I only had a few days, so performing a detailed financial analysis was not feasible (although I would always recommend that approach first!). Using a generic framework like Critical, Strategic, Competitive Advantage, etc. would not cut it either (see Death Knell section). So I created a middle ground. My categories were Ensures that we will meet our earnings targets, Prevents a negative customer experience, and Gives us an option to enter a new market next year. In order to understand what these categories mean, you have to know our business. However, using these categories made the prioritization process crystal clear. In a year from now, our rationale will never be forgotten. I also imposed another dimension to the categorization: Level of Automation Required. In some cases, the business was asking for a system to automate a task where an extra clerk with a calculator could have performed the same job. Adding the automation dimension is critical. Some systems cannot (feasibly) be replaced through manual labor. I combine these two dimensions and create some sort of scoring system to balance both sets of criteria. The Big Red Line Once you have your criteria in place, facilitate a meeting with key stakeholders and make them individually score all of the investments. If you are the IT manager, do not participate in the voting process. Let all business stakeholders vote on everything, even if they do not own the system (for example, let the billing manager vote on the marketing projects, and visa-versa). Once the scoring is complete, sort the list by score and draw a big red line at the capital cut-off point and share the results with executive management. The results are stunning: everyone knows what is above and below The Big Red Line. Although dramatic, using this approach helps to keep everyone on the same page and puts the business owners in the driver's seat as opposed to the IT leader. Andy Quick is co-founder of Findmyhosting.com (www.findmyhosting.com), a free web hosting directory offering businesses and consumers a hassle free way to find the right hosting plan for their needs. Feel free to contact Andy at andy@findmyhosting.com in case you have any questions or comments regarding this article.