VideoAPL's balanced scorecard is based in part on the control objectives for information and related technology principles first developed in 1996 by the Information Systems Audit and Control Association, an IT membership organization. APL modified the scorecard to be heavily weighted toward ROI, payback, and net present value, while also considering a range of soft benefits.
Business leaders who propose a project are teamed with a representative from IT, such as Smith, who helps articulate the plan and develops the appropriate scorecard weightings. If a business leader claims that a project will yield hard-dollar returns, Smith requires him or her to identify which cost center and account the benefits will accrue to. If a business chief tells him a project could yield a savings of $1 million in labor — the equivalent of, say, 10 full-time employees — Smith wants the scorecard to specify which cost center will eliminate those jobs and which of the company's accounts will turn red ink into black. Unless the business leader can convince Smith that there are hard dollars to be saved, the figures do not enter the all-important ROI category and are not quantified.
The aim is to draw a distinction between the soft benefit of increased efficiency versus the hard-dollar savings that stem from reduced head count. "When I dig into it, what it often means is that the project will save 5 percent of 100 people's time," says Smith. But the "equivalent" of eliminating 10 full-time workers, for example, doesn't necessarily mean that any real workers will actually be let go. "Unless you tell me where the savings will come from, it's a soft benefit and is scored accordingly," he says. APL's no-nonsense approach means that "requests that were touted as the greatest benefit of all time start shriveling up pretty quickly," says Smith.
If the project passes muster in his meeting with the business leader, Smith validates the projections with the controllers of the affected businesses to make sure the opportunities are really there. "It's a very good reality check for a lot of these projects," he says.
A project that looks promising on paper must meet other requirements to win approval. Smith looks at whether the business leader has a detailed plan for accomplishing the project's goals. "As simple as that sounds," he says, "it sometimes gets lost in the excitement." Strong business ownership and commitment are also essential. "A lot of times a business unit gets excited about an idea, and the next day they get excited about a new idea," he says.
Smith also wants to see specific details regarding what the project will require from the IT department. A business might come up with an idea to solve a problem without truly understanding what the problem is, mistaking a patch for a true solution, for example. Finally, he looks for a quick turnaround. "If the project extends beyond 12 to 18 months, the chances for failure significantly increase," he says.
After the business leader and technology sponsor complete the scorecard and it is reviewed and validated by Smith, it is then reviewed by a project-governance committee, which meets at least once a month to discuss the company's top 25 projects. The committee, which includes representatives from all of the company's business units, approves or denies the project, or asks for more information. Projects that cost more than $100,000 require sign-off by both the CIO and the CFO.
As the project progresses, it's reviewed every month, and if it's one of the top 25 projects, it's assessed by both the IT management team and the governance committee. During the review process, it is assigned a red, yellow, or green light. A yellow light indicates that the project has a problem but can get back on track with some modifications. A red light means that there are significant issues that will demand management escalation. "The biggest challenge is saying, 'Stop the project.' Once a project has gotten wheels and is moving along, it is very difficult to stop," says Smith.
But APL tries. The project-governance committee reviews comments from the IT project group, and if a project is more than 10 percent over schedule or over budget, the committee will reevaluate it, says CIO Stoddard. However, the committee may determine that the benefits of the project are so great that a 10 percent overrun is inconsequential.
After the project is completed, the committee conducts a postmortem to see whether it was completed on time and on budget, and if it delivered the benefits promised. APL also plans to review projects six months after they are completed, says Smith.
Stoddard says that by focusing on quantifiable benefits, APL can maintain its technology edge within the constraints of a tight budget. "The balanced-scorecard approach strengthens IT innovation because it makes the company more aligned with the business strategy," she says.
Stoddard thinks the balanced scorecard could work for other companies, too, but she says that it is partial to companies in which business processes favor hard ROI. Otherwise, she warns, "you can achieve some successful technology implementations that ultimately fail because the business isn't ready to make the most of them." Even at APL, some projects have been put on hold not because the ROI wasn't there, but because the business side wasn't ready to commit. She says the reverse can also be true: the business is ready but the technology isn't.
Reader Comments» Post a comment