One way to change this counterproductive reality is to apply the strategic-gating process that results in a portfolio of software-development projects
that maximizes value for the organization.
5 Counterintuitively, the portfolio
leading to maximum value in many
cases consists of only a small number of projects. The strategic-gating
process consists of evaluation and selection that prioritizes IT requests according to their expected contribution
to value creation relative to their IT resources requirement. It also ensures
requests are well in line with the company’s strategy and plans for growth.
The strategic-gating process is
done annually or (preferably) quarterly. The requesting division provides
for each software-solution request a
value-creation estimate backed by a
business plan, while IT experts provide a rough-cut estimate of their
total cost of ownership, or TCO. Software solutions required by regulations are given an infinite value since
they are mandatory.
It is advisable to exclude very small
software solutions and change requests (CRs) from the strategic-gating
process and put aside 15%–25% of the
overall IT budget, allocating it among
the various divisions. A high proportion of effort/budget dedicated to CRs
usually increases internal users’ satisfaction, while a large proportion of resources devoted to large- and mid-size
software solutions contributes more
to the organization’s overall value.
Determining the desired balance is a
strategic decision.
Selecting software solutions can be
done through the following procedure:
˲ Software solutions are listed and
tagged with value-creation and TCO estimates (see Table 1);
11
˲ Software solutions are mapped in
a focusing matrix according to their
value creation and TCO (see Figure 2);
11
˲Candidates for incorporation in
the realization portfolio are selected
mainly from the upper-right-hand
quadrant of the matrix (highest value,
lowest cost); and
˲ Selection continues until the available TCO budget for the relevant period is exhausted.
Value creation is also the appro-
priate criterion for approval of scope
changes during delivery of software
solutions. There is a spectrum of po-
tential scope changes, from small
modifications of features to substan-
tial scope change or even a project
swap. A scope change is justifiable if
the result creates positive net value—
the estimated increase in value cre-
ation of the software solution due to
scope-change minus the cost of scope-
change realization minus the cost of
project disruption minus the cost of
possible delay in delivery.
Strategic-Gating Process
To demonstrate the numerical and
graphical strategic-gating mechanism, consider an example in which
seven software solutions are proposed
by various corporate divisions for the
strategic-gating process. The solutions’ total estimated TCO budget is
$188 million. Selection is required
since the approved TCO budget for
the forthcoming year is limited to
$110 million; Table 1 lists the soft-
ware solutions that are then mapped
in a focusing-matrix according to their
value creation and ease of realization,
as in Figure 2. The most valuable soft-
ware solutions reside mainly in the
top-right-hand quadrant of the fo-
cusing matrix. Software solutions are
picked by top corporate management
with the aid of the matrix up to the to-
tal TCO limit of $110 million. In this
strategic-gating process, corporate
management picked software solu-
tions A, C, D, F, and G as the realiza-
tion portfolio.
Selecting software solutions for
inclusion in the realization portfolio
can also be achieved by ranking the
software solutions according to their
specific contribution, or ratio between
the value of the software solutions and
their TCO.
11 However, the focusing matrix allows management to adjust the
portfolio according to strategic considerations and account for intangible
aspects of the business and the market.
Table 1. Software solutions selection through the focusing table.
Software Solution Value ($ millions) Ease = TCO ($ millions)
A Customer relationship management 550 45
B Asset management 45 29
C Bills transparency Regulation 10
D Call-centers knowledgebase 170 15
E Human resources 25 55
F Business intelligence upgrade 145 25
G Campaign management upgrade 55 9
Total TCO 188
Figure 3. Conceptual focusing matrix.
Value
Ease
Very
important
Less
important
Difficult
White
Elephants
Low-Hanging
Fruit
Easy