Agile IT Governance

     

         Traditional strategy Development

     

    Traditionally IT Strategies are formulated from business strategies using waterfall methodology  that usually does not encourage changes after the strategies are finalized. Also note IT strategies are created after the business strategies are developed.

          
     
     

          Iterative strategy Development

     

    In the fast moving globalized world where strategies need to be created and changed based on  ever changing market conditions, organizations need to ensure they develop organizational structures and frameworks to encourage and support changing strategies, whether  to develop innovative products faster or simply implement projects more efficiently in order to lead their market space with innovation and value delivery 

    This can be achieved by tight collaboration between business departments and Information technology departments. Organizations can no longer work in silos but as integrated teams to understand, develop and support strategies in parallel with complete visibility and transparency. IT management personnel need to be integrated with business departments in order for both departments to work together as one entity  to understand shared visions and goals.  and to develop or change strategies in parallel. This iterative, integrated strategic development process that accepts changes and encourages innovation and improvement can empower organizations to lead the market place.

     

    Portfolio Prioritization:

    Project selection is determined by comparing the following criteria:

    ROI.

    - Net present value (NPV).

    - Internal rate of return (IRR).

    - Payback period.

    Need.

    - Compliance.

    - Business opportunity.

    - Innovation.

    - Enhancements.

    - Other.

    Risks.

    Project Sponsor / Department History.

    - Approved vs. Budgeted amount for the past few years for project sponsor and / or department.

    - Expected vs. Actual benefit realization history for project sponsor and / or department.

    Alternate Investments.

    - View alternate investments (Consider current investment total cost of ownership and lost opportunity costs).

    Benefits (tangible and intangible benefits).

     

    IT Steering committees would typically consider the above criteria while approving investments.

    Project ROI (return on investment) criteria can be different for agile projects compared with traditional waterfall projects since waterfall projects will not realize benefits until the projects are completed and deployed. Agile projects produce production ready functionality (as per the agreed project definition of done) for each Sprint.

    Note: Time boxed development iteration in scrum is called sprint.

    Calculation of NPV and IRR benefits would change in agile projects compared to traditional projects because of agile projects ability to deliver production ready code for each release (and sprint).

    Example: Business case is submitted for project to develop an ecommerce website to sell electronics online. The cash flow defined in the business case is as follows:

    - Corporate discount rate is: 10%.

     

    Cash Flow Details:

     

      

    Notes:

    - Discount rate is the minimum expected rate of investment, based on analyzing other alternate investment options for the capital. For example If a bank would give you a 10% interest on the deposited investment then projects should return more than 10% to be a better investment option.

    - Discounted cash flow is a cash flow analysis based on time value for money.

    - NPV (Net present value) is calculated by discounting all future income amounts based on the discount rate and adding the discounted income stream.

    - Net Present Value calculation = (Cash flow amount) / ((1 + Discount Rate) to the power of number of years)

    - IRR (Internal rate of return) is the discount rate that makes the net present value equal 0.

     

    Assumption: Payments are made at the end of the year.

     

    If the project uses agile methodology then benefits begin to accrue in the second year rather than the third as the product owner provides prioritized requirements for sprints and plan releases in increments, delivering product faster. In the example below, assuming we realized additional benefits of $100,000 in the second year (while the project team works on lower priority requirements in parallel) will change the Net Present Value (NPV) as shown:

    As seen in the above example, NPV and IRR may change based on the type of development framework (Agile or Waterfall). Please note you can also calculate discounted cash flow for the $100,000 in the second year for more accuracy.

    Project prioritization models need to be developed based on the organization's structure, need, strategy and priorities. Project prioritization models help organizations approve information technology investments objectively based on project scores.