METHOD FOR DRAWING UP A ROAD MAP THAT CONSIDERS

THE SYNERGY EFFECT AND RISK FOR IT INVESTMENT

Tadasuke Nakagawa, Shigeyuki Tani, Masaharu Akatsu

Systems Development Laboratory, Hitachi, Ltd. 292,Yoshida-cho, Totsuka-ku, Yokohama 244-0817, Japan

Norihisa Komoda

Graduate School of Information Science and Technology, Osaka University, 2-1 Yamadaoka, Suita 565-0871, Japan

Keywords: IT investment, Determining priority, Decision-making, Business challenge, Synergy effect, Risk.

Abstract: IT governance lacks a comprehensive vision of investment in two or more projects. It is necessary to decide

the priority levels that maximize the effects under constrained conditions. It is a complex problem, because

while sometimes a greater effect can be obtained by introducing two or more measures at the same time,

other times the effect of two measures introduced at the same time might not be significant. Although there

is a synergy effect when two or more measures are introduced, no method for drawing up an investment-

decision road map has considered that effect. Therefore, we developed one. What a decision-maker must

think about when considering the introduction of two or more measures, can be visualized by drawing up a

comprehensive road map that satisfies constraint conditions, such as the effectiveness of the measure,

budget, time, staff size, order of introduction, and the synergy effect. Road map users can easily reach a

consensus because the map, by taking into account the constraint conditions and the investment decision-

making process, helps them logically explain the order in which the measures should be introduced.

1 INTRODUCTION

Managers must account for all the investments made

in a competitive business environment that rapidly

changes, and it is becoming increasingly important

that they carefully evaluate IT investments before

making them. For instance, in a recent global study

of 659 CEOs conducted by the London School of

Economics, only 25% expressed satisfaction with

the performance of their IT investments. Most IT

projects exceed their budgets and do not perform as

well as expected. For example, a survey of 8000 IT

projects has revealed that only 16.2% of them meet

their goals on time and within budget. In addition,

after considering the risks of development delays

and budget overruns, managers need to think about

assigning IT measures a priority level that

maximizes its effect, while keeping its costs within

the budget. Since IT measures must be considered in

light of the prevailing business challenges, all the

while taking into account the various constraint

conditions, there is a pressing need to develop a

method for determining the priority of measures.

When there are two or more measures to be

introduced, the importance of each must be decided,

the constraint conditions considered, and the most

important measure introduced first. This paper

explains how to make a schedule chart (called a

“road map”) showing the order for introducing each

measure. A manager constructs this road map by

first using the Analytic Hierarchy Process (AHP) to

intuitively determine the importance of each

measure. These determinations are based on

subjective evaluations, and in this paper a measure’s

degree of importance is called its business challenge

level, in the sense of its impact on business

management. The manager then calculates the order

of introduction while taking into account the

constraint conditions. This can be done by using the

Program Evaluation and Review Technique (PERT)

. The portfolio management software, ProSight,

provides a tool that manages the project execution

time and budget by ordering the introduction of

measures according to their importance. However, a

304

Nakagawa T., Tani S., Akatsu M. and Komoda N. (2006).

METHOD FOR DRAWING UP A ROAD MAP THAT CONSIDERS THE SYNERGY EFFECT AND RISK FOR IT INVESTMENT.

In Proceedings of the Eighth International Conference on Enterprise Information Systems - AIDSS, pages 304-307

DOI: 10.5220/0002445703040307

 SciTePress

greater effect might be obtained by introducing two

or more measures at the same time. On the other

hand, the effect of two measures might not be

significant even if they are introduced at the same

time. That is, there is a synergy effect when two or

more measures are introduced. What’s more, while

some measures need to be introduced and others do

not, there has been no method for drawing up a road

map that takes these factors into account.

We propose a method for drawing up a road map

supporting managers. A manager’s investment

priority levels can be visualized by drawing up a

comprehensive road map that satisfies the constraint

conditions. Road map users can reach a consensus

because they can logically explain the order of

introducing measures by considering the constraint

conditions without neglecting the investment

decision–making process.

2 DEFINING THE PROBLEM

When two or more measures are introduced, a

qualitative effect of their introduction is converted

into a quantitative numerical value. After the

constraint conditions are considered, the effects are

maximized by introducing the measure for which

this value is highest first. Each item of constraint

conditions is explained below, and the outline of the

constraint condition is shown in Figures 1 and 2.

(a) Total budget:

This item is the amount of the investment budget

for each fiscal year.

(b) Total staff:

The amount of human resources (number of

people) available for an investment for each fiscal

year.

The period of time that the plan targets.

(d) Business challenge level:

The level of degree to which a measure

contributes to the management of each measure.

(e) Introduction period:

The period of time (specified in months) allotted

for the introduction of each measure.

(f) Time that measure can be introduced:

The length of time (months) during which each

measure can be developed is set.

(g) Introduction necessity:

This item specifies whether or not each measure

must be introduced.

(h) Introduction order:

The order in which the measures are introduced.

(i) Exclusive measure:

This item is set when only one of two or more

measures can be introduced.

(j) Synergy effect:

Either a bigger effect is obtained by introducing

two or more measures at the same time or,

oppositely, the effect of two measures might be

insignificant even if they are introduced at the same

time. This effect is shown by the size of the change

in the business challenge level.

(k) Introduction budget:

The amount of each item’s budget.

(l) Introduction staff:

The amount of human resources (number of

people) for each measure.

In discussing the management strategy, the

accuracy of the estimate in the budget and the

introduction period of measures are rough, and there

is a large uncertainty about the future. When an

uncertainty exists, the risk condition is set.

(m) Risk of introduction period:

This is the fluctuation range of the estimated

introduction period (e).

(n) Risk of introduction budget:

This is the fluctuation range of the estimated

introduction budget (k).

(o) Risk of introduction staff:

This is the fluctuation range of the estimated

introduction staff (l).

Proj 3

Project 1

Project 4

Proj 2

Project 5

Planning period

Total Budget

Total Staff

Project 1

Introduction period

Introduction Budget

Introduction Staff

Road map

Total constraint

condition

Figure 1: Summary of constraint conditions (1).

2 → 3

Project 3

+52 → 3Project 3

1 × 2

Project 2

1 × 2

Project 1

Project 4

Project 2

Project 1

Project 4

2 → 3

Project 3

+52 → 3Project 3

1 × 2

Project 2

1 × 2

Project 1

Project 4

Project 2

Project 1

Project 4

→ : introduction order constraint condition

× : Exclusive measure constraint condition

+:Up Impact

- : Down Impact

Figure 2: Summary of constraint conditions (2).

METHOD FOR DRAWING UP A ROAD MAP THAT CONSIDERS THE SYNERGY EFFECT AND RISK FOR IT

INVESTMENT

305

3 METHOD OF DRAWING UP A

ROAD MAP

3.1 Flow of Drawing Up a Road

Map

The procedure we propose for drawing up a road

map is shown as follows:

(1) Setting of the business challenge level and

constraint conditions:

The business challenge level is set to each of two

or more measures. Moreover, a variety of constraint

conditions are set.

(2) Drawing up a road map:

A road map that takes into consideration the set

constraint conditions is drawn up.

(3) Showing the road map:

The drawn up road map is presented to the

decision maker. When the decision maker feels odd

about the road map, or there are contradictions or

incompleteness with the conditions set forth in step

(1), it returns to step (1) and a variety of constraint

conditions are set again.

A consensus building of the parties concerned is

possible by the repetition correction of the road map.

3.2 Drawing up a Road Map that

Considers the Synergy Effect

The way in which the road map is drawn up is based

on how the business challenge level and constraint

conditions specified in Section 2 are set. Concretely,

under the constraint conditions of the entire road

map frame in Figure 1 (budget limits, number of

staff, and the time), the frame of each measure is

arranged in the order of the business challenge

levels, with an eye on the introduction order and the

synergy effect. The solution is calculated in such a

way that maximizes the evaluation value of the road

map as a whole. When we consider the frame of

each measure to be composed of two axes, like those

shown in Figure 1, we have the following two kinds

of frames:

(1) Two-axes frame (time and budget axes).

(2) Two-axes frame (time and staff axes).

When drawing up the road map, we need to build

the constraint conditions of the entire road map into

each of these two kinds of frames, for each measure.

It is impossible to calculate the evaluation value

of the whole road map for all cases because the

computational complexity is expected to be O(n!)

when the number of measures is n. Therefore, we

propose a method for drawing up a road map by

dividing its calculation into two steps, one

calculating the initial solution and the other

calculating an optimisation solution. To maximize

the overall effect of the road map, the initial solution

of the road map is calculated as one in which the

measures are sequentially introduced in descending

order of business challenge level and then

rearranged to satisfy the conditions of the

constraining introduction order.

Now that the introduction priority of the

measures has been determined, the introduction time

of the measure is determined in a way satisfying the

order of the introduction priority. The earliest time is

the introduction time of the measure that satisfies the

conditions constraining the total investment (total

budget, total staff, and planning period) and the time

that the measure can be introduced. The total budget

at a pertinent period is decreased by the amount of

the introduction budget, and the entire staff at a

pertinent period is decreased by the amount of

introduction staff. A measure is not introduced when

there is no introduction time that satisfies the

constraint conditions. The introduction time for each

measure can be determined by repeating the above

steps for all measures. When the introduction time of

a certain measure is decided, however, the exclusive

measure of it is not introduced. The procedure

described above provides an initial road map.

Next, the road map is corrected to consider the

synergy effect. An example of this correction

procedure is shown in Figure 3.

Figure 3: Correction of road map considering synergy

effect.

Proj 3

(10)

Project 1

(15)

Project 4

(8)

Proj 2

(12)

Project 5

(6)

Project 6

(4)

* ( ): Business challenge level

* Project 3 + Project 6

= 10 + 4 + 8 (Synergy Effect)

= 22

Synergy Effect +8

Exchange

<Initial Solution> Business challenge level: 51

- Not execute

Planning Period

Total Budget

Total Staff

Total Budget

Total Staff

Planning Period

<Optimum Solution> Business challenge level: 57

Proj 3

(10)

Project 1

(15)

Project 4

(8)

Proj 2

(12)

Project 5

(6)

Project 6

(4)

- Not execute

Road map

entire constraint

condition

Synergy Effect +8

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A measure with a high business challenge level is

selected from among the measures that have a

positive synergy effect and are not on the road map,

and that measure is inserted. At the same time,

measures are pulled out in increasing order of their

business challenge levels until all the constraint

conditions are satisfied. Conversely, when the road

map contains measures with a mutually negative

synergy effect in the road map, one measure is

excluded in the road map and in its space a measure

that is not on the map and has a high business

challenge level is inserted. When the synergy effect

is considered, those measures are actually replaced

when the business challenge level of the entire road

map is high before the measure is replaced.

3.3 Risk

It is necessary to take into consideration

uncertainties (risk) in the future with resources

and/or time constraint conditions. For instance, a

development delay or an over-budget of a measure

can happen. To take such risks into consideration,

the expected value and fluctuation range are set for

items that have uncertainties. Road maps with room

according to an uncertain size of each measure are

drawn up, because it is preferable not to influence

the entire road map, even if the development of the

measure is delayed. The value in which the expected

value is added to the fluctuation range is set as the

value of the constraint condition, and the road map

is drawn up.

4 VERIFICATION

This section explains how simpler fictitious

constraint condition data than actual problem data

was used to evaluate the proposed method. The

result of applying the proposed method to the data

described in the preceding paragraph is shown in Fig.

4, and the road map drawn up without considering

the synergy effect is shown in Fig. 5.

Figure 4 shows that the road map without

contradictions and taking into consideration a

variety of constraint conditions, such as the

introduction order, can be drawn up. On the other

hand, both measures G and H are introduced in

Figure 5, where the synergy effect is not considered,

but the synergy effect is set to a minus, and the

introduction is not significant. On the other hand,

measure G is not introduced in Fig. 4, where the

synergy effect is considered, and a road map that is

actually suitable can be drawn up. In addition, the

business challenge level in Figure 4 is 87.7, while

that of Fig. 5 is 82.0. This shows that a road map

with a large effect can be drawn up.

5 CONCLUSION

In this paper we proposed a method for drawing up a

road map supporting the investment decision-

making required when the introduction of two or

more measures after taking into account the

constraint conditions. We also confirmed the

effectiveness of the proposed method. In addition,

the tool that executed the proposal method was made,

and was applied to actual user data.

REFERENCES

Compass Group., 1999. International IT Survey Census.

Rotterdam, The Netherlands. Compass Publishing BV.

The Standish Group., 1995. Chaos Report.

Saaty, T. L., 1980. The Analytic Hierarchy Process.

McGraw-Hill.

Washington, D.C., 1961. PERT: Program Evaluation and

Review Technique, Handbook, NPC-101.

ProSight, http://www.prosight.com

Figure 5: Road map (not considering synergy effect).

Project A

(10)

Project H

(12.5)

Project F

(15)

Project B

(12.5)

Proj J (1.5)

Project C

(8)

Proj D

(6)

Proj L

(3.5)

Project M (3)

Project G

(10)

Staff

Year 1 Year 2 Year 3

Business challenge level: 82.0

Figure 4: Road map.

Staff

Business challenge level: 87.7

Project A

(10)

Project H

(12.5)

Project F

(15)

Project B

(12.5)

Proj J (1.5)

Project C

(8)

Year 1 Year 2 Year 3

Project

D (6)

Proj L

(3.5)

Project M (3)

Project O

(0.7)

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