New methodologies deliver results to CBA project

AUTHOR: Lachlan Colquhoun   DATE: 23.11.06   ISSUE 2, 2006
Large IT projects have traditionally been seen as waterfalls. First come the requirements, followed by the design and build, after which comes the business outcome – routinely late and without the full scope originally promised.

While this approach seems logical it is often not the best way to go about things. This is particularly true when a project is essentially a portfolio of smaller business projects supported by a new shared infrastructure.

In uncertain business environments, a more flexible means than the waterfall approach is required if the organisation is to optimise the benefits of its IT investment.

In these situations, not all the requirements can be known up front and business often can’t wait for up to three to five years for the benefits to start flowing.

A more flexible means is to optimise the benefits of its IT investment, especially for a project supported by a new shared infrastructure.

Illustration: Gregory Baldwin

Responding to this need, a flexible delivery model can provide a better solution, with both quick wins and the ability to respond more flexibly to changing market conditions.One of the most successful examples of this alternative or flexible delivery approach has been the Commonwealth Bank’s A$250 million CommSee project. AGSM worked with the CommSee sponsor in a research partnership to formalise the project’s investment and delivery approaches.

Recently, the CBA and AGSM have jointly received the Australian Institute of Project Management (AIPM) NSW award in the IT category, recognising the innovative nature of the approach. This relationship has formalised learnings that the bank can use, and AGSM can continue to develop theory into the future. The success validates the effectiveness of AGSM’s engagement with industry.

Under the guidance of AGSM’s Professor Philip Yetton, PhD graduate Dr Alan Thorogood worked with Peter Reynolds, a former chief technology officer at the CBA and a current AGSM PhD candidate, to advise on the best way to structure the CommSee investments, which delivered new infrastructure to the parts of the bank that had direct contact with the customer.

“The award is an acknowledgement of CBA and AGSM’s approach of problem solving using new theory to reframe and communicate in a complex environment,” says Dr Alan Thorogood.

Applying action research to a real time, real life situation, the bank and AGSM refined a project management methodology that proved its worth at the CBA, and has the potential for use in other contexts.

“We’ve uncovered that the way in which companies put up a business case for an IT project can significantly affect the success of the execution of the project,” says Dr Thorogood. So, “how you ask for the money and frame the whole business case influences the project to such a degree that the project manager – now matter how good – might not succeed. In addition, ”there are complexities around the sharing of IT infrastructure and you often end up bringing multiple parties into the funding agreement so there are trade offs being made in the funding that can impact on execution.”

A key tenet of the approach was the recognition that different funding mechanisms were appropriate for different situations.

Using action research techniques, which applies research to practical situations, Yetton and Thorogood along with Reynolds and others at the bank drew on different theories to develop a solution, focussing strongly on real options theory – an alternative to the conventional net present value (NPV) methodology, which organisations often use to justify IT spending.

“This approach was much more an iterative build where we built the platform and kept on adding to it each three months with new releases depending on feedback from the market and from customers,” says Peter Reynolds. “It allowed us to get going very quickly and build on a well defined framework, but only invest in the things we were sure of first and then add functionality over time. So, “rather than try and guess what the future requirements would be, we built what we knew and then kept on going.”

A key tenet of the approach was the recognition that different funding mechanisms were appropriate for different situations. Benefits were difficult to quantify in infrastructure projects, for example, as they often do not fit standard financial frameworks of identifying links with business value.

“In situations of certainty NPV is ideal, so if you know the mean forecast for your cash flows over the next three to five years then use NPV,” says Alan Thorogood.

“But with real options you actually take two decisions to invest – you make the decision to acquire the option and then at a later stage, as more information comes in, you can decide to execute that option. So, “what you are doing by building the IT infrastructure is to buy the option, and you’ve paid that premium and then you can say ‘I want to do that project’ as the market unfolds and as the uncertainty is reduced.”

While the CBA’s CommSee has benefited from this flexible approach, Dr Thorogood says it is applicable in different areas from pharmaceutical research and development to mining and oil exploration.

Both Dr Thorogood and Peter Reynolds’ PhD’s subjects come from the partnership with the CBA at CommSee, which has helped capture learnings which can be re-applied in the future.