The Ultimate Question

As fans of The Hitchhiker’s Guide to the Galaxy will recall, the answer to the ultimate question of life universe and everything is something a group of hyper-intelligent pan-dimensional beings demand to learn by building the ultimate computer — Deep Thought. It takes the computer 7.5 million years to compute and check the answer.

Of late I’ve been considering a more mundane version of the ultimate question — what is the ideal metric to use when evaluating business technology strategies? The challenge is that we already have a diverse set of investment metrics from which to choose. There’s Return On Investment (ROI), Net Present Value (NPV), Internal Rate Of return (IRR) and Payback period to name a few of the most common. Yet I can’t help feeling they all lack a little something — the ability to connect the project with the desired business outcome, which for a strategy is the attainment of the goal.

Recently I’ve been working with clients to apply a different measure — the T2BI ratio:

BI/T2BI*CRC

This takes into account both the business impact of a strategy and the time it takes to achieve the desired business impact into account. By multiplying the time-to-business-impact by a score for cost * risk * complexity, we end up with a useful ratio which helps select the best strategies to achieve the goals while also taking into account today’s reality (reflected in the cost/risk/complexity score).

I’ll be discussing this and other aspects of business technology strategic planning at next week’s CIO Forum in Paris. I hope to see you there. In the meantime, I’d love to hear your thoughts on the T2BI ratio — would it work in your organization? If not, why not and what other measures are you using instead?

Comments

T2BI Ratio

I believe that this ratio is revolutionary in selecting which projects to select and which projects to drop or postpone. It is an undenyable truth that some projects, which may have huge impact on the business results, must be put on the shelf just because of the complexity and risk they contain and the time it takes to implement them.

This ratio will clearly help in selecting the 20% of the project portfolio where we have to put our scarce money on. Yet the challenge is in calculating the correct business impact, and that's where the difference between a CIO and the CBTO lies to my opinion.

What is the outcome when I use real numbers?

Let's try a mind experience to justify the formula:
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I have to decide between two cars which one to buy.

My impact is the fun I have with this car. Fun1=low, Fun2=very high, I use 1 for low and 10 for very high. The time to business impact is different: for car 1 I have all the money cash, car 2 needs an alternative investment strategy as this is quite expensive. This will take some time. The CRC is determined as such: cost1=low, risk1=low, complexity1=low, cost2=high, risk2=medium, complexity2=high. So CRC1 is 1 and CRC2 is something between 1 and 10.

Putting the numbers into the formula means at the end - car, the VW Polo, gets a score of 1. Car 2, the Porsche, scores 0.2
Wow, what a surprise. And here is another ratio turning the outcome to the opposite, cost per PS for a Porsche is as good as for a VW Polo.
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This formula only supports solutions which are leightweight, fast to implement, with no risk - like iPhone Apps.

I have my doubts that I - as an entrepreneur - can be succesful without taking risks, wihtout seeing chances.

Could you please comment whether my use of the formula is correct.