The Governance of IT Investments

1. The Governance of IT Investments

2. Agenda The challenge of value The role of IT governance Val IT 2.0 overview Applying Val IT 2.0

3. The value of IT is being increasingly questioned... The Information Paradox • …yetenterprises continue to spend more and more on IT.

4. Are we maximizingthe value of our IT-enabled business investments such that: We are getting optimal benefits At an affordable cost With an acceptable level of risk The Fundamental Question over the full economic life cycle of the investment?

5. 1998 0% 20% 40% 60% 80% 100% The Reality • Gartner: More than US $600 billion thrown away annually on ill-conceived or ill-executed IT projects • Standish Group: 24 percent of projects fail outright, 44 percent are challenged and only 32 percent are successful (2009 results) Successful Failed Challenged 2006 2004 2002 2000

6. A 2002 Gartner survey found that 20% of all IT expenditures is wasted A 2004 IBM survey of Fortune 1000 CIOs reported a believe of 40% of IT Spending brought no return A 2006 Standish Group survey found 35% of all IT projects succeeded. (the rest either challenged or failed) Other surveys 20-70% of large scale investments wasted, challenged or fails 8% of IT budget brings value Of 124 financial executives, 80% did not encourage value creation IT Governance Institute

7. IT is never enough • IT has been seen as new infrastructure, similar to water, hydro, trail way and telephone systems. • The more people make use of, the more benefits (value) people will gain; • Similar to other types of infrastructures, it will be absolute necessary and somehow “hidden” from people’s daily life. • It’s more widely and deeply involved in people’s life than any other types of infrastructure • It’s more complex than other types of infrastructure and therefore harder to operate and eventually cost more. • Computing and IT/IM and utilities in human civilization history is still in baby ages.

8. A New Perspective Investments in IT-enabled Change IT Investments Source: The Information Paradox

9. The Role of IT Governance The Business Challenge • Managing the change that IT both enables and requires through a governance approach that: • Ensures clarity of, and accountability for, desired outcomes • Enables understanding of the full scope of effort • Breaks down the ‘silos’ and ‘connects the dots’ • Manages the full economic life cycle • Senses and responds to changes and deviations This is a significant leadership challenge, opportunity and responsibility.

10. What Is IT Governance? • Leadership, process and structure to ensure that the enterprise’s IT enables and supports the enterprise's strategies and objectives by defining: • Focusing on five areas • What key decisions need to be made • Who is responsible for making them • How they are made • The process and supporting structures for making them, including monitoring adherence to the process and the effectiveness of decisions

11. Business Governance of IT Enterprise Governance of IT IT Governance of IT Key Governance Questions Continuallyasking… Enterprise Value Management Source: The Information Paradox

12. The Good News Enterprises that actively design their top-level IT governance arrangements make and implement better IT-related decisions. Gartner Firms with focused strategies and above-average IT governance had more than 20 percent higher profits than other firms following the same strategies. Peter Weill and Jeanne W. Ross, IT Governance Enterprises focused on converging their business and technology disciplines exhibited superior revenue growth and net margins relative to their industry groups and exhibited consistently greater rates of return than those of their competitors. BTM Institute

13. The Bad News Only 38 percent of executives/senior management can describe their enterprise’s IT governance process. In most cases, IT governance has not been designed; it has just developed ‘piecemeal’ in response to specific issues. Peter Weill and Jeanne W. Ross, IT Governance Only 40 percent of approved projects have valid (realistic) benefit statements. Less than 10 percent of enterprises ensure that benefits are realized post-project. Less than 5 percent of enterprises hold project stakeholders responsible for benefit attainment. META Group, July 2004 In many enterprises, less than 8 percent of the IT budget is actually spent on initiatives that bring value to the enterprise. Butler Group, 2005

14. Situation Leads to.. Results in.. Underestimation of risks and costs Reluctance to say ‘no’ to projects Projects not aligned to strategy Quality of execution suffers Can’t kill projects Too many projects Budget overruns Project delays Business needs not met Lack of strategic focus SYMPTOMS Benefits not received Increased complexity Sub-optimal use of resources Finger pointing Projects are ‘sold’ on emotional basis—not selected No strong review process Overemphasis on financial ROI Lack of confidence (in IT) Without Effective Governance No clear strategic criteria for selection

15. 3 critical responsibilities wrt IT choose technologies for the true needs of the business smooth the adoption of those technologies encourage their exploitation by leveraging already standardized data and work flows. Function IT spreadsheet and word-processing applications--that streamline individual tasks. Network IT capabilities like e-mail, instant messaging, and blogs and helps people communicate with one another. Enterprise IT customer resource management and supply chain management re-create interactions between groups of workers or with business partners. Mastering the Three Worlds of IT

16. Managers complain that they don't see much business value from the high-priced systems they install, but they don't understand the technology well enough to manage it in detail. So they often leave IT people to make, by default, choices that affect the company's business strategy. 6 key IT decisions. Strategy How much should we spend on IT? Which business processes should receive our IT dollars? Which IT capabilities need to be companywide? Execution How good do our IT services really need to be? Which security and privacy risks will we accept? Whom do we blame if an IT initiative fails? Six IT Decisions Your IT People Shouldn't Make

17. Value Management as applied to IT-enabled investments has been evolving over the last 15 years. A lot of it coming from the experiences of the financial services sector in managing value from investment portfolios In that time many enterprises globally have adopted Value Management practices. Some enterprises developed the approaches themselves, but many adopted approaches developed by the pioneers in better value management practice (e.g., Cranfield, OGC, Fujitsu Consulting) Val IT is based on this collective experience. Organizations Can Do Better

18. Resources Not enough money New projects Capital Not enough people IT is increasingly complex No difference Discretionary vs. non Stop or go 90-100% of budget for ongoing Can’t develop capacity or capability for new technologies Overall Situation

19. Val IT Principles • IT-enabled investments will: • Be managed as a portfolio of investments • Include the full scope of activities that are required to achieve business value • Be managed through their full economic life cycle • Value delivery practices will: • Recognize that there are different categories of investments that will be evaluated and managed differently • Define and monitor key metrics and will respond quickly to any changes or deviations • Engage all stakeholders and assign appropriate accountability for the delivery of capabilities and the realization of business benefits • Be continually monitored, evaluated and improved

20. The Four Questions • The value question. Do we have: • A clear and shared understanding of the expected benefits? • Clear accountability for realising the benefits? • Relevant metrics? • An effective benefits realisation process over the full economic life cycle of the investment? • The strategic question. Is the investment: • In line with our vision? • Consistent with our business principles? • Contributing to our strategic objectives? • Providing optimal value, at affordable cost, at an acceptable level of risk? about thevalue enabledby IT Some fundamental questions • The architecture question. Is the investment: • In line with our architecture? • Consistent with our architectural principles? • Contributing to the population of our architecture? • In line with other initiatives? • The delivery question. Do we have: • Effective and disciplined delivery and change management processes? • Competent and available technical and business resources to deliver: • The required capabilities? • The organisational changes required to leverage the capabilities?

21. Program—A structured grouping of projects designed to produce clearly identified business value Portfolio—A suite of business programs managed to optimize overall enterprise value Project—A structured set of activities concerned with delivering a defined capability based on an agreed schedule and budget P3M—Projects, Programs and Portfolios Portfolio Management Program Management Project Management

22. Categorize Transformational Informational Transactional Infrastructure Mandatory Sustaining Discretionary Define Programme Concept Design Programme Commission Programme Execute Programme Transfer to Operations Mgmt Approved Mgmt Approved Mgmt Approved Mgmt Approved Mgmt Approved Evaluate • Alignment • Business Worth • Financial • Non-Financial • Risk Select and Monitor Portfolio Management TRANSPARENCY

23. Portfolio Management Stage 1 Stage 2 Stage 3 stop • What are we doing? • How much does it all cost? • What should we stop? Continue? • What is the resource gap - ±? continue ± gap • Does the proposed activity make sense? • Does the portfolio of activities make sense? • Can we be successful? Prioritized Recommendations • Assign priorities • Plan activities Project/Support proposals

24. Develops complete and comprehensive value-driven plans Senses and responds to deviations early, quickly and decisively Eliminates the risk of getting to the crisis stage Getting Ahead of the Curve! Requires an effective full-cycle governance process that… $’s ‘How does a project get to be a year behind schedule? One day at a time’. Fred Brooks Prevent/Plan Contain/React Recover/Throw Away or Start Again

25. Portfolio Management

26. Portfolio Management Run Enhance Transform • Break & Fix • Repairs • “911” + ”411” • Improve current process/ functionality • Incremental change in systems • Wholesale change • Change both Systems & People Nature Operational Tactical Strategic View Fix Old Paradigm Change light bulb Improve Old Paradigm Change light fixture New Paradigm Change the lighting system Analogy • Non Discretionary • Discretionary • Discretionary

27. Portfolio Management Run Transform Enhance • Immediate action • < 1 month • short run • 1- 6 months • long run • > 6 months Timeframe • Patch and/or workarounds • No new programming • No training required • Small process/programming changes • Minimal training may be required • New design/ technology/ service • New infrastructure • Training required Action • Corrective • Must fix it, now • Adaptive • Should do it, soon • Need to evaluate when to make the change • Perfective • Need to evaluate how to make the change Proxy Service Business Model • Some change in business process • New Governance/ Organization Model • No Change

28. Why Val IT? • An organisation needs stronger governance over IT investments if: • IT investments are not supporting the business strategy or providing expected value • There are too many projects, resulting in inefficient use of resources • Projects often are delayed, run over budget, and/or do not provide the needed benefits • There is an inability to cancel projects when necessary • It needs to ensure compliance to industry or governmental regulations

29. The Seven Principles of Val IT IT-enabled investments will: 1. Be managed as a portfolio of investments 2. Include the full scope of activities required to achieve business value 3. Be managed through their full economic life cycle Value delivery practices will: Recognize differentcategories of investments to be evaluated and managed differently Define and monitor key metrics and respond quickly to any changes or deviations Engage all stakeholders and assign appropriate accountability for delivery of capabilities and realization of business benefits Becontinually monitored, evaluated and improved

30. How Val IT Works Establish informed and committed leadership. Define and implement processes. Define portfolio characteristics. Value Governance(VG) Align and integrate value management with enterprise financial planning. Establish effective governance monitoring. Continuously improve value management practices. Establish strategic direction and target investment mix. Determine the availability and sources of funds. Manage the availability of human resources. Portfolio Management(PM) Evaluate and select programmes to fund. Monitor and report on investment portfolio performance. Optimise investment portfolio performance. Develop and evaluate the initial program concept business case. Understand the candidate programme and implementation options. Develop the programme plan. Develop full life cycle costs and benefits. Develop the detailed candidate programme business case. Launch and manage the programme. Update operational IT portfolios. Investment Management(IM) Update the business case. Monitor and report on the programme. Retire the programme.

31. Val IT 2.0 Domains and Processes Relationships

32. Val IT 2.0 Domains and Processes

33. VG Key Management Practices

34. PM Key Management Practices

35. IM Key Management Practices

36. IM3 Management Guidelines

37. RACI Roles

38. Accountabilities and Responsibilities by Role

39. IM High-Level Maturity Model

40. IM Detailed Maturity Model(Levels 0 and 1 only)

41. Summary of Val IT 2.0 Changes Framework • VG processes restructured and extended to include a broader range of IT operational portfolios, including IT services, assets, and other resources that might be added to as a result of investments managed by Val IT, but which would be managed by COBIT, with performance being reported back to Val IT. • PM processes include key management practices specifically related to the investment portfolio. • IM processes include more explicit links to COBIT related to populating and monitoring the performance of IT operational portfolios. • Maturity models—both high-level models and detailed, attribute-level models—have been provided for each of the three Val IT domains. Key Management Practices • A number of new key management practices, related to: • Enterprises better defining value • More emphasis on the opportunity for IT to influence business strategy • Defining, populating and monitoring a broader range of portfolios • More explicit alignment with enterprise financial planning practices • More explicit linkage to business targets, forecasts and budgets • More focus on business human resources • Distinguishing between solution delivery, service delivery and benefits realization performance Management Guidelines • Similar to the COBIT management guidelines, including: • Inputs and outputs • Activities and associated roles and responsibilities • Goals and metrics Accountabilities and Responsibilities by Role • Consolidation of RACI designations in the management guidelines by roles, identifying for each role tasks for which they are accountable (A), accountable and responsible (A/R), or responsible (R).

42. VG PM Val IT IM Governance and management of a portfolio of business change programs Are we doing the right things? Are we getting the benefits? Are we doing them the right way? Are we doing them well? ME PO COBIT DS AI Governance and management of a portfolio of technology projects, services, systems and supporting infrastructure Val IT 2.0 Initiative

43. Comparison of Val IT 2.0 With COBIT 4.1

44. Val IT COBIT ITIL What fits where? Board / Senior Executive Business Management Auditors IT (Functional Mgt) IT Operations

45. Val IT Road Map ‘The Val IT framework provides a road map for organizations to follow on their way to improved IT investment decisions. …The Val IT framework is grounded in real-world practices. … Organizations struggling to execute IT strategies that deliver business value and to communicate this value to stakeholders should evaluate Val IT as a tool for improved value delivery’. ‘From IT Governance to Value Delivery’ Craig Symons, Forrester Research 22 June 2007 ‘…Val IT should be considered by CIOs as a best practice model for IT value management’. ‘EA Adds A Fourth Pillar To IT Value Management’ Alexander Peters, Ph.D., Forrester Research 18 January 2008

46. Why Isn’t Everyone Doing This? • We do this already. • It is not exciting. • You are making it much too complex. • It is not easy. • It is an IT problem. • Business engagement/ accountability is lacking. • We do not know where to start!

47. Pain Points/Trigger Events • Internal… • Problems in delivering technical capabilities • Limited or no understanding of IT expenditures • Business abdicating decision making to the IT function • Communication gaps between the IT function and the business • Questioning the value of IT • Major IT investment failure • External... • Change in funding • Occurrences of significant market or economic changes

48. Getting Started – Basic Approaches • Build awareness and understanding of value management. • Implement or improve governance. • Undertake an inventory of investments. • Clarify the value of individual investments. • Conduct investment evaluation, prioritisation and selection.

49. Val IT Getting Started Guide—Putting it All Together

50. What does this mean to you? • Delivering the IT capability is not enough • Value comes from how the business manages and uses IT • This increasingly requires significant organizational change • Business engagement and accountability are essential • Business/IT partnership • Beyond IT governance to Enterprise Value Management