In this blog, I show you how to get away from using the old operational and strategic breakdown for aligning your organization’s projects. Also, I include a link to a free example of a portfolio mix.
When aligning projects in an organization, many companies break things down between operational “keep the lights on” projects and strategic projects. I actually use four classifications: infrastructure, transactional, informational, and strategic. They are:
A. Infrastructure: Defined as all base systems necessary to run the day to day operations of the company. Things like Operating System Upgrades for the PCs or network build out or database clustering or UPS or backup system, etc. From an operational IT perspective, these projects should be low risk because you have the skill sets to do this day in and day out. The low risk classification means that the success of the project is anticipated to be near 100%. No delays, minimal change requests and original budget should be spot on. These infrastructure projects are of the least value to the organization as well. They do not contribute to revenue. You may get some productivity gains or long term cost avoidance, but that’s about it. RISK: LOW (95%-100% success rate) VALUE: LOW (0%-10% contribution)
B. Transactional: Transactional systems like ticketing systems for entertainment venues, catering systems, eCommerce transaction processing systems, etc. Any system that manages a transaction I would classify here. The risk is somewhat low for these systems because ideally, these represent the processes that already exist within your company. Requirements should be pretty well known and a success/no success evaluation can be completed very easily. Success, as defined above, should be around 85%. That means change orders are also minimal. Specialty skill sets will likely be needed to implement these systems. Dealing with vendors, consultants and various other unknowns all contribute to the added risk of implementing these systems. Also, transactional systems are the heart of a company. If they go down, you could be losing thousands each minute. The value the system brings to the company is listed as moderate. The process is already on going so contribution of the system could be minimal, but ideally, these systems are being implemented to allow for more transactions, faster transaction, more secure transactions, larger transactions, etc. RISK: LOW to MODERATE (70%-85% success rate) VALUE: MODERATE (30%-40% contribution)
C. Informational: These are your decision support systems, reporting systems, Customer Relationship Management (CRM) systems, etc. Basically informational systems are data-based systems that turn data into information. These typically carry a higher level of risk but are very important to the company. Very specialized knowledge is needed to understand data and turn it into information that can be used by management or the company as a whole. There will be a lot of business rules and heavy input from the business will be required. These systems are pretty expensive as well. RISK: HIGH (40% success rate) VALUE: MODERATE to HIGH (40%-70% contribution)
D. Strategic: These are systems that are game changers. Systems that will give the company a competitive advantage, or systems required to enter into a new business. The anticipated return on these projects is huge but so is the risk. These are things you, your team and your company have never done before. The number of resources needed for these projects tend to be significant and many of the skill sets would vary widely as well. RISK: VERY HIGH (10% success rate) VALUE: VERY HIGH (100%-500%+ contribution)
So just like a stock portfolio, you have your low risk T-Bills, low risk AAA bonds, moderate risk common stock and then your high risk, speculative stock. Your portfolio of projects should mirror your company’s approach to business. If your company is very aggressive, the make up of strategic projects versus other project types would be high. Similarly, if the company has a low risk tolerance, infrastructure and transactional systems may make up the bulk of your portfolio.
If you’d like to see one way to plot out your organization’s projects so that you get an idea of what the portfolio mix looks like, and then compare to what management thinks it should look like, click here.