A Practical Prioritization ProcessHaving the right people provide the right information in a consistent way is the core of developing a robust ranking process for the bank. First and foremost, executives should determine the primary motivation for doing a project and calculate the NPV, ROI and other quantifiable metrics where value is meaningful. All competing project requests should have a simply yet consistently developed 'business case' that clearly states the sponsorship, motivations, benefits (e.g., dollars of incremental revenue, cost savings, headcount reduction, cost avoidance) and the overall value proposition to the bank. Ideally, this list of projects should also include those being done outside of IT, which are also de facto consuming IT (or, at least, IT like) resources.
In cases of hard financial results, the bank may want to consider tying overall business performance measures and future budgets to benefits realization, (i.e., if automation of clearing processes will reduce trade breaks and hence operations headcount, post implementation the operations headcount could have a budgeted headcount reduction.) In cases where a number is not meaningful, the project's sponsor will need to clearly articulate the motivation for the project, what form the benefits will take, and why this should take precedent over a project with an attractive financial return.
Using this consistently developed information, projects are then ranked in a two-tiered ordering that recognizes that some motivations must have higher priority over others (e.g., mandatory projects take precedent over discretionary projects; management preference takes precedents over other discretionary projects). In situations where a discretionary project has no quantified benefit or has an unattractive cash flow, that project should just be deleted from the list or 'sent back' to the sponsor for clarification and re-submission.
The Ranking MethodFirst-tier ranking (then by second-tier ranking), in order of priority, is as follows:
1.Mandatory (by urgency) – E.g., legal/regulatory, end-of-life technology
2. Management preference (by management's judgment)
3. Enabling strategic business initiatives (by revenue generation or NPV)
4. Financial cost-benefit (by NPV)
5. Not financially quantifiable (by management's judgment) -- e.g., employee satisfaction
Options For Prioritization Across Business UnitsIn many cases where a shared pool of resources may be called upon to work only within a single business units such as Fixed Income IT for Fixed Income, or Equities IT for Equities, banks may wish to 'carve-out' chunks of 'captive' development capacity and run separate prioritization queues for these businesses. One convenient method of allocating this capacity could be based on revenue or profit generation potential. This way, an individual business unit is able to prioritize their 'captive' capacity based on their own unique needs, thus increasing agility.
Options For Capacity ConstraintsBy adjusting IT capacity (either through increased funding, increased staffing or supplemental sourcing) where there remains financially attractive projects that cannot be implemented due to limited capacity, bank management can improve overall shareholder value. This capacity may be added either on a short- or long-term basis. The financial benefits of adding this capacity should be readily apparent simply by looking at all the projects that fall below the 'cut line' that could now be implemented.
Moving ForwardProject prioritization is only one piece in the puzzle in aligning a bank's IT strategy to business strategy and value. It should take place in the context of overall IT governance and control framework focused on continually ensuring that the bank's scarce IT resources are responsive to business needs and effectively organized and deployed. The cost of mis-alignment is wasted effort and lost opportunities that can hamstring the bank while getting it right optimizes IT's value to the enterprise.
About The Author: Harvey Okin is a director in the CIO Advisory practice at KPMG LLP. He has over 25 years of hands-on, consulting and internal managerial experience assessing and implementing practical controls and leveraging IT to deliver measurable business impact in banking and financial services. He can be reached at email@example.com