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The Bloor Perspective: Management SPECIAL - decision-making, ROI and political risks
Robin Bloor and his analysts consider some of the big questions in business and technology today...

By Bloor Research

Published: Monday 02 December 2002

A recent article in the FT questioned the impact of rapid communications of information on decision-making. It can be argued the wider the audience, the better the range of discussion and scrutiny of information and the ideas behind it.

Rapid communication has brought with it pressures on decision-makers to respond more rapidly to crises and issues in the public and private sectors of the economy. Influences such as pressure groups, increased demand of competition and the fact that the public possesses information almost as soon as the decision-makers all pile the pressure on the decision-maker to act quickly.

Does rapid communication really improve the quality of scrutiny, leading to better quality decision making? Well, it certainly provides more information, often too much unfiltered, unrefined information posing as ideas. Review and analysis is, perhaps, less thoughtful and time does not permit much reflection.

Democratisation of ideas through extensive broadcasting of them frequently results in debasing the idea with too many participants trying to bring about the greatest good for the greatest number. It satisfies the contemporary notions of fairness, equality and due process but how relevant are these to good decision-making?

Cheap, rapid communications have enabled greater numbers of untried, untested ideas and initiatives to circulate and to gain credence, frequently because they assert they can bring rapid results. So is it more difficult to distinguish between good and bad ideas?

Communication has engineered a situation where ideas have similarity to fashion. Some are consigned to the bin quickly, others stand the test of time. The real problem is that people and institutions latch on to ideas more rapidly as quick panaceas. Changing ideas before implementation may have reputational impact and cause embarrassment. The real problems arise when they are discarded as or after they have been implemented.

*ROI - investment banking style*

A report in Wall Street & Technology Online sheds interesting light on the way investment banks Merrill Lynch and Citibank Global Securities Services now apply ROI strategies to their technology investments.

Perhaps the most important change is that the business units now own their technology portfolio. The key word is 'portfolio'. This goes much further than the traditional processes of making the business case, ensuring business line involvement, forecasting monetary returns and measuring actual versus budget both in costs and time.

It is managed like a portfolio, examined continually, changed and adjusted as the demands of the business and markets dictate. A project, for example, may be going according to budget and time but if there is no longer the demand for the technology to support that activity, it may be slowed down or even cancelled. There is a continual balancing and re-balancing of the portfolio.

Forecasting changes and demands in the markets, change in customer behaviour and the simulation of these changes become important facets in determining the prospective ROI.

Merrill Lynch points out that there is now a refocus of technology effort towards supporting the debt and money markets away from the equities business in response to market demand changes. The velocity of change is probably greater in financial services than almost any other. Continual, considered and reflective forecasting not only ensures that the payback on the technology investment comes more quickly, it helps to ensure that the line-of-business can manage the changes in demand more competitively and, importantly for the future, with reduced operational risk.

Both Merrill Lynch and Citibank have built applications to track the life cycle of the IT organisation and ROI is embedded in these systems. These systems are developed to the proprietary mould but share a number of features. The focus is on value which is created by the technology for the relevant lines of business, value to the business, to the customers and to their competitiveness.

The radical reworking of ROI models for tracking performance of investment in technology has pushed it in a more strategic direction. Elimination of investment in lower value initiatives in exchange for higher value strategic technology investment appears to be the overriding objective.

*Managing politics*

The global nature of business has increased risks arising from political instability. The IT and telecommunications industries operating in the western world have contracted out much of their development and servicing to south-east Asia. Despite apparent political stability, religious and political differences could erupt, causing war and civil unrest. Cutting the communications links or even exposing data to the censor, who would commandeer the telecommunications network in the event of war, would cause major disruption to software development and call centre management.

Clearly political risks are the risks which are outside the scope of the management and control of an enterprise. Historically, a multinational organisation could resort to its purse to manage its risks, though such behaviour is no longer acceptable and is sometimes criminal in the home country.

Any engagement as a supplier or customer in a country with a history of political volatility needs to be examined from an historic perspective. How did other enterprises manage in previous turbulence? What were the service and financial consequences? It is apparent that the dash to develop service and support operations in low cost countries is focused on the cost issue with political risks playing a small part in the evaluation.

Once established in a risk area, experts recommend that the country or region is continually monitored for events which may trigger a rise in the risk with regard to the ways in which those events can play themselves out.

This is a segment of risk management where under-reaction and strong nerves probably have a stronger payback than in other areas of risk management. Panicking at the first signs of violence or 'guns on the street' in these regions is probably not the right reaction. It will be difficult to re-establish the operation after the trouble is over.

Western enterprises establish themselves in areas of political instability primarily because the direct or indirect financial rewards are so much greater. They have to accept the consequences.

**Bloor Research is a leading independent analyst organisation in Europe. You can find out more at http://www.bloor-research.com or by emailing mail@bloor-research.com .