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Deb Smallwood, Founder, and Karen Furtado, Partner, SMA
Deb Smallwood, Founder, and Karen Furtado, Partner, SMA
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Launching the Right Projects at the Right Time

By linking business strategy to business processing and then to IT investments, banks can maximize ROI while controlling costs and remaining competitive in the marketplace.

It has never been more critical for banks to choose the right technology projects at the right times and to create true linkage between business and IT. In today's business environment, given the focus on controlling costs while remaining competitive, there is no room for missteps in making technology investments. Rather than simply aligning IT and the business, market leaders are linking business strategy to business processes to drive IT investments. This creates true linkage between strategy and actions.

This new approach assumes that all IT investments are derived from razor-sharp business strategies that are linked to clear, innovative business processes tightly coupled to financial goals and metrics. With the direct tie to financial goals, there is immediate ownership and accountability for the business. Since IT investment decisions are derived from strategies, they are clearly linked to needs versus wants, and they have the right sense of urgency and focus.

Figure 1 below shows the traditional method of business and IT alignment -- two separate entities spinning on their own with a governance process bringing them together. Figure 2 depicts the new approach -- linking strategy to process and then to IT investment, with governance supporting the linkage.

The following project prioritization checklist will help banks ensure that their IT organizations are working on the right projects at the right time:

#1 Develop a list of projects for the enterprise or line of business (LOB) to consider.
To gain an enterprise linkage between the company's strategies and IT investments, there needs to be a solid planning and budget process in place. Best practice for project evaluation is to establish an inventory of all desired capabilities and initiatives that are required to achieve the desired outcomes of the business. The list will include projects that are carryovers (as they already are in flight), outstanding initiatives that have yet to get off the ground and new projects that the business wants to add to the list. The yearly planning and budget cycle offers the perfect time to review the total list of projects across the enterprise and leverage a common filtering/priority-setting process that creates the strongest alignment to strategy.

While the review process should be business-driven, the list should encompass the items that are driven from business operations as well as IT-only projects. IT-only projects, which include initiatives such as software upgrades and server changes, do have a business impact, and business users may be involved with testing and communication.

The LOB executive, COO or CEO – depending on the size and structure of the organization – must review the proposed projects and approve the pending list before it is sent to any governing body. This will empower the governing body to execute projects from the project list knowing that they already are strategically aligned in the organization. This knowledge will free the organization from spending time debating what type of project should be more important and from losing time and money focusing on what is not getting done rather than accomplishing the organization's goals.
#2 Evaluate and prioritize the multitude of potential projects.
With the growing number of IT projects facing financial services firms given the increased level of automation and demands for improved time to market and expense reduction, it can be a challenge to prioritize. It is therefore very important that each project be reviewed individually to determine the level of linkage to business strategy that exists. The company's strategic objectives, as determined at the board or executive level, should be the overall compass for mapping projects to priorities.

Consider a bank seeking 5 percent growth within its treasury management business. In such a situation, projects that support growth in treasury management would logically rise to the top of the list. As it relates to strategy, the urgency level must be determined: Is it a long-term investment or something that requires immediate attention?

The use of a checklist that incorporates several key elements can be beneficial when performing an evaluation of this nature, and it can help banks develop an objective filter for the projects. Utilizing a checklist to aid the evaluation process will eliminate many of the typical issues of IT-only-driven projects, "pet" projects and operational silos that lack tie-in to the enterprise vision.

The key elements that should be included in every financial institution's checklist include a business benefit, the total cost of the project, and strategic alignment from the perspective of operations and enterprise. Additionally, depending on individual company situations or circumstances, other items may also be germane to the discussion – for example, board-driven, high-risk consequences or a key customer request. Once you determine the items necessary for your company's checklist, you can create a score or weighting scale for each of these elements so that a comparative analysis can be performed.

Applying the filter on a yearly basis, and revisiting priorities on a quarterly basis, remains best practice.
#3 Differentiate between strategic and tactical projects.
The list of projects will always contain a blend of strategic and tactical projects – both are important to business operations. Balancing the right mix is an art that allows companies to stay focused on executing strategies while driving efficiencies in day-to-day operations.

Strategic projects are in direct alignment to strategy or business plans that define a required capability to achieve goals. They usually have financial metrics that can be tracked. Elements of a strategic project include creating competitive advantage, achieving new-growth plans, and regulatory or compliance changes. This would not include rate changes but rather significant regulatory changes – such as Sarbanes-Oxley and the passing of new reserve requirements. Generally, if there is a formal business planning and budget cycle, it is very obvious to most what projects are strategic in nature. Strategic initiatives often are defined by the CEO or at the LOB level. Budget is appropriated to these projects, and they are generally tracked separately.

Tactical projects are generally operational and sometimes are just part of the overall maintenance budgets. They typically improve processes, reduce expenses or improve customer service. Major enhancements to current systems or applications would be considered tactical.

The key to this process is to create focus and linkage in communication. There may be a misperception that tactical projects are "nice to have" projects – this is not the case. These projects can be critical to the operation; but that should not influence their categorization – they are still tactical, rather than strategic, projects.

#4 Review the list of projects periodically to keep it current.
There will always be a need to keep a running list of projects. As noted previously, creation of the list starts with the yearly planning and budget cycle. Once the list is established it is important to review the list on a scheduled basis – we suggest quarterly. The quarterly review is necessary as all businesses are continually in motion. The strategic initiatives should be well entrenched, but the tactical projects tend to be more fluid. In many organizations the project management officer (PMO) or governance committee would maintain the list of projects and manage the process for the quarterly reviews. The process should be a formal way to add or remove projects, and apply the necessary priority setting.

The group that performs the gathering and reviewing should represent a good cross section of the entire business with representatives from IT and the business areas. The PMO or governance role would be to facilitate and communicate projects to the executives who need to make the final decisions, and to ensure that the risks of the projects are being managed and are visible across the entire organization.

Then, on a quarterly basis, there should be a formal meeting that allows the review of the current queue and new requests to determine if there needs to be any shifting in sequencing. All decisions and actions from any governance meeting must be communicated throughout the organization. This is usually a gap in most companies.
#5 Achieve the right level of accountability.
Accountability often can be lost within a group when there is a cross section of participants but none who feel responsible for the overall delivery of the project. Having a PMO can cloud the issue – is he or she the responsible party? Clarifying roles and responsibilities for each project – defining project sponsorship and ownership – will lead to greater business and project success.

So who should be the owner of the project? Should it be the project management officer, who drives and facilitates the completion of tasks? No. The PMO is not the ultimate executive responsible for the project nor the user of the project.

There needs to be an executive sponsor on the business side, as key strategic projects should be driven by the overall business objectives. To have true business and IT linkage, the projects need to be delivered on time and on budget and meet the business need. The business need must be measurable, and the business side must be materially linked to the project.

Accountability, which leads to the establishment of a project owner, as well as compensation tied to the project, creates reinforcement for the right behavior. Both the business and IT leadership need to determine ownership and full accountability of the project.
#6 Measure the finished project against the projected business benefits.
As projects are completed and functionality rolled out, companies often do not circle back to the original strategic or tactical definitions – which validate whether the goals have been achieved. From a business level, how was the project initially defined? What were the financial outcomes and metrics outlined? A formal debrief and project closure often are never scheduled. This oversight dovetails with the issue of accountability. To provide the right incentive bonus, there must be defined outcomes up front and then a follow-up at the end.

A defined return on investment or cost-benefit analysis for large projects is highly recommended. Determining the direct and indirect benefits can be a challenge, given that there are many factors outside the control of the project. But a best guess, with a list of strong assumptions, is usually the best approach. Direct business and IT costs must be aligned with the scope and functionality that is being provided. For small projects, informal cost-benefit statements are encouraged.

Post-project evaluations need to be performed. Lessons learned from completed projects need to be brought into the project management practices so the next project does not need to encounter the same challenges.

Employees' contributions should be evaluated at the end of the project. This real-time performance evaluation at the project level will provide employees with the needed feedback to become more significant contributors on the next project. A formal review process creates the right checks and balances for the company.

SMA is a strategic advisory firm offering a blend of research and consulting services. This content is adapted from SMA research on "IT Governance: Creating the Paradigm Shift to Enterprise Linkage," by SMA founder Deb Smallwood.

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