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How to put together a Target Operating Model - Blog

How to put together a Target Operating Model

Introduction

A Target Operating Model (TOM) is a blueprint for an organisation's desired state after a change has taken place. An example would be where the organisation wants to understand the impacts of a structural change intended to increase efficiencies or to allow growth. Systematic use of the model gives a fuller understanding of the benefits, costs and other considerations that might be driven by the change. The TOM often feeds into a business case as it will provide information on the costs or benefits after a change/ project has been implemented.

The impact assessment should include the following in this order:

  • Principles and assumptions
  • Processes (new or redundant)
  • People (changes in volumes or capability)
  • Information technology (capability, new, changes, volumes)
  • Locations
  • Operating costs

Collating a TOM will involve discussions with managers and other stakeholders involved in the relevant areas, as they know the impact of the changes best. It is important to adhere to the sequence as this provides a logical order with each element feeding into the next.

Principles and assumptions

Principles and assumptions should be agreed upfront. This is to ensure a set of common principles between all the stakeholders, and to ensure decisions are being made on the same terms. It will also make the assumptions visible, along with the impact if the assumptions turn out to be incorrect. Ideally these assumptions should be validated as far as possible. It should be clearly labelled as to who has raised each assumption, in case more detail is required. Examples could be based on scope, expected known events, suppliers, resources etc.

Processes

'Processes' is next in the sequence. The importance of this is that this will feed into, and drive, the people required to support processes, technologies, locations and operating costs. The detail behind the processes is not required, but it needs to be sufficiently defined such that size and complexity may be assessed, as well as determining if they are truly necessary. Processes could be broken down by department to ensure that the managers/ leaders responsible for each area are consulted, and that ownership is taken for required changes down the line. An organizational team structure chart is a great tool for this.

People

Once the processes are agreed, an impact assessment can be done as to the people required and what skill sets are needed to support any new or changed processes per department/team. It may be necessary to consider transition periods and dates of any resources rolling off or rolling on.

Information technology

Information Technology changes because of a change in processes or people must be considered. Are the existing systems adequate or will there be additional costs for supporting additional people or training needs? Will new software be required? To ensure completeness it is recommended that a review is carried out to identified and assess the potential involvement of all IT systems. This should include explicitly stating if a particular system is not impacted. This approach also has the benefit of making the overall review process easier.

Location

Location impacts should then be analysed for completeness. Transition and operating costs may be significantly impacted where there are changes in location.

Operating costs

Once all these different areas have been impact-assessed it becomes possible to identify operating costs. Costs can be assigned depending upon the changes to people required, changes to information technology and locations. The TOM approach allows costing out of the full impact of a change and so provides a vital input to the business case. If costs savings are expected, then this will help a company decide whether the cost of doing the change will make the savings they expect in return.

Conclusion

The resources necessary to develop a useful and representative TOM vary greatly according to the type of change under consideration. Impacts from a company takeover are quite different from those for upgrade of a single information system!

However small the change may be though, the TOM plays a critical role in identifying all the impacts and uncovering those that might otherwise be missed. Ensuring that a TOM is kept up to date and reviewed in line with changes will ensure that the business is prepared and knows who and what needs to be involved to support the changes.

About the author 

Helen Winter is a project manager and business architect with over a decade of experience in managing IT and business change projects. She is the author of Business Analyst Handbook (Kogan Page, 2017) and writes the online magazine Business Bullet.

In February 2021 Helen provided a PMI UK lunch-and-learn webinar titled Best Practice Guidelines and Templates for Business Cases. The recording, presentation and Mentimeter results can be found here

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Thursday, 06 May 2021

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