A useful model for supply chain fund allocation

Filed in archive Practical Tips on October 18, 2008

I saw a simple model in an article from McKinsey & Co. on the subject on investment management. Even though the subject was not directly related to supply chain, I thought the model can be perfectly use to distribute the annual SCM budget in a low risk manner.





We all know that the a supply chain manager should prepare, on an annual basis, a plan for distributing funds within the projects, initiatives and groups. This budget is then reviewed by the senior management and after some adjustments is approved. However, the decision point for the manager is: How much should I allocate to each project? And what mix of projects; in what areas should I have?

The model you see above, helps to structure the thoughts and pool the risk to some extent: As a simple example, we can see that initiatives such as EPC adoption (on the discovery services part), or a new SOA based solution shouldn't be getting big chunks and there should also be some funds available for mid-level risk projects (e.g. data consolidation on the master data part).

What do you think?