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CIO Perspective: Defunding and Refunding Initiatives

IT always had a notoriety for high acquisition and implementation costs and therefore almost always the first items to be considered for defunding. For the past years many IT departments are only tasked to keep the existing systems up and running and to avoid costly upgrades. On the other hand, the IT managers want to keep their systems up to date, keep up with the existing environment and fund meaningful initiatives. When incorrectly done, defunding may turn out to be against the company in the long run.

The first step in defunding an initiative is the same as funding a project: it should be justified not only in financial terms, but in project and monitoring terms as well. There are some questions to be answered when shutting down an initiative:

  • What is the rationale in shutting it down?

  • Will the initiative be shut down completely or will it maintain basic functionality?

  • Who will monitor the initiative if it will continue to function at basic level?

  • Where will the skilled, experienced people be employed, who are freed from the initative?

  • How will the knowledge be documented?

  • What conditions should be present to resurrect the initiative?

  • What will be the “resurrection” plan?

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The answers to the these questions should be kept as a business plan. Not only it will help to use the initiative’s human and capital resources elsewhere in the company but also it will help to freshen the memories when/if the time comes for resurrecting the initiative.

The second step is about reactivating the initiative. Even if the initiative will be hibernated for a period, it is best to model a few scenarios where the project will be reactivated in different periods – such as six months, 1  year, 2 years from now. Try to model the costs that will be incurred to make the initiative fully function again, such as:

  • Employing the people with similar skill set and similar competency,

  • Updating the infrastructure,

  • (Re)making the support agreements,

  • (Re)analyzing availability requirements,

  • Analyzing end-of-life and end-of-support (maybe extended support) products

These analyses will assist you in deciding whether to scrap the initiative as a whole when the reactivation time comes, or to rearrange the resources or to simply incur some small investments for a kick start.

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The worst case scenario comes when none of these questions are answered, recorded and the initiative is defunded without any plans and without any notice. In such a case, not only the reactivation and basic functionality opportunities are lost without evaluation, but also the loss of company’s intangible assets (knowledge and experience at the very least), which are more costly to replace than any other tangible asset.

There is also the worst case scenario inside the worst case, which happens when the project is defunded but is required to function at a basic level. In such scenarios, the intangible assets are lost, and in addition, the systems are under-maintained, basic maintenance tasks in software and hardware are not carried out and large systems and their functionalities are left undocumented. In such scenarios, the reactivation costs may surpass even the costs of rebuilding the initiative from scratch (experience: last year one of my clients could not upgrade his Dynamics CRM application because it was defunded years ago, there were no documentation, no experience and no skill left. The upgrade scenario was so costly that Dynamics had to be reimplemented from scratch. But the real loss was the loss of past CRM data, which could not be introduced to the new system. I have witnessed that the costs of shutting down the CRM application in mid-2008 and leaving it alone for 4 years was way less than keeping it up for the same time period.)

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Planning is the first thing to do in every project – business to personal. When planning is done carefully and with a small amount of upfront investment, business initiatives can be properly shut down, hibernated or kept with basic functionality, with capturing the knowledge and experience and by taking into account the costs involved when reactivating it. If the initiatives are given yearly reviews, the executives can reevalutate the initiatives by taking the existing conditions into consideration, which probably would have changed from the initiative’s shutting down time.

References

Featured image: http://www.ibm.com/

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