business management of information technology · pdf filebusiness management of information...

Business Management of Information TechnologyA practical guide for senior finance executives and business managers

INFORMATION TECHNOLOGY & MANAGEMENT

CPA Australia Ltd (“CPA Australia”) is the sixth largest professional accounting body in the world with more than 117,000 members of the financial, accounting and business profession in 98 countries, including Australia.

For information about CPA Australia, visit our website: cpaaustralia.com.au

First published 2008

CPA Australia Ltd ABN 64 008 392 452 385 Bourke Street Melbourne Vic 3000 Australia

ISBN 9281 876874 28 5

Legal notice

© Copyright CPA Australia Ltd (ABN 64 008 392 452) (“CPA Australia”), 2008. All rights reserved.

Save and except for third party content, all content in these materials is owned by or licensed to CPA Australia. All trade marks, service marks and trade names are proprietory to CPA Australia. For permission to reproduce any material, a request in writing is to be made to the Legal Business Unit, CPA Australia Ltd, 385 Bourke Street, Melbourne, Victoria 3000.

CPA Australia has used reasonable care and skill in compiling the content of this material. However, CPA Australia and the editors make no warranty as to the accuracy or completeness of any information in these materials. No part of these materials are intended to be advice, whether legal or professional. Further, as laws change frequently, you are advised to undertake your own research or to seek professional advice to keep abreast of any reforms and developments in the law.

To the extent permitted by applicable law, CPA Australia, its employees, agents and consultants exclude all liability for any loss or damage claims and expenses including but not limited to legal costs, indirect special or consequential loss or damage (including but not limited to, negligence) arising out of the information in the materials. Where any law prohibits the exclusion of such liability, CPA Australia limits its liability to the re-supply of the information.

i

Chris Gillies is an independent non-executive director serving on a number of boards, associations and charities and advises boards on establishing IT governance leadership in the boardroom. Boards include Oakton, Corporate Express, Asgard Wealth Solutions, Emergency Telecommunications Statutory Authority Victoria, UCMS, Commsecure and the MS Society of Australia. She has established and chairs three board IT committees, as well as advising a number of others. Prior to her board career, Chris was Group Executive, Group Services at St George Bank (where her role included managing the integration with Advance), Chief Information Officer for the Bank of Melbourne, and Victorian Director of the DMR Group, an international IT consulting company, where she specialised in mergers and acquisitions and in designing and implementing major IT change programs. Chris has over 10 years experience as a company director and more than 35 years experience in business management and information technology.

Advisory committee

Jan Barned - Policy adviser, information technology and management, CPA Australia. Jan has held a number of directorships and has over twenty years experience working for both listed and unlisted domestic and international companies. Her current role at CPA Australia includes identifying current and emerging issues on information technology and management and advocacy to government, industry membership and the wider public.

Mark Toomey - Managing Director, Infonomics Pty Ltd. Mark Toomey has more than thirty years experience in planning and delivering information communication technology solutions that enable business performance. Since 2000, he has specialised in providing governance, management and strategic advice to business and IT executives, and company directors. Mark is a Fellow of the Australian Institute of Company Directors and is the Institute’s representative on Standards Australia’s committee controlling the Australian Standards for Corporate Governance of Information and Communications Technology.

Vicky Kelly Vicky Kelly has over 35 years experience in the IT industry and has worked for Bendigo Bank for the last 13 years. Vicky is a member of the Bank’s Executive, has assisted in the establishment of the Board of IT Governance Committee and is an attendee of that committee.

Diana Holmberg A seasoned IT professional, Diana Holmberg has more than 16 years experience in the industry as a CIO, business IT integration consultant, business IT strategist, program director, project manager and technology practitioner. She has extensive experience in identifying and implementing organisational and procedural change to ensure the alignment of IT delivery to business strategy and to improve IT delivery capabilities. Diana is also a non-executive director on the Board of Australian Home Care, focusing on the implementation of effective IT governance.

Peter Harrison, Principal, Fujitsu Consulting, Australia and New Zealand Peter is a FCPA and currently leads Fujitsu Consulting’s Australian and New Zealand Enterprise Value Management consulting practice that includes value governance, portfolio management and benefits realisation. He was a contributor to Fujitsu Consulting’s best-selling book authored by John Thorp, The Information Paradox – Realising the Business Benefits of Information Technology. Peter is a member of the ISACA’s IT Governance Institute’s Val IT Steering Committee that launched the Val IT Enterprise Value Governance Framework.

Judy McKay - Associate Professor, Swinburne University of Technology Judy McKay is currently academic leader of the information systems group in the faculty of information and communication technologies at Swinburne University of Technology. She joined the staff at Swinburne in 2004 after academic appointments in information systems at Monash University, Edith Cowan University and Curtin University of Technology. She has a Bachelor of Arts (majoring in linguistics) and postgraduate qualifications in education, business and information systems.

Gavan Ord, Business Policy Adviser, Policy and Research CPA Australia Gavan Ord is CPA Australia’s business policy adviser. Gavan has responsibility for the development of policy and research on issues related to small medium enterprises (SMEs), business management and climate change. During the course of his career, Gavan has established himself as a technical expert particularly in the area of taxation. Before joining CPA Australia, he held a senior role in technical policy and international development and was a member of various Australian government consultation committees, including the National Small Business Forum, the ATO’s National Taxation Liaison Group, ATO Tax Practitioner Forum and Treasury Tax Design. Gavan holds a Master of Taxation Law.

About the author

ii

Special thanks to:

Kate Behan: Managing Director Kerandan Pty Ltd

Neil Wilson: CEO Oakton Limited

John Wadeson: CIO Centrelink

Brett Armstrong: Financial Controller Symex Holdings Ltd

Mike Tamblyn: CFO Westco Jeans Pty Ltd

Alastair Stott: CEO Schmick Solutions

Andrew Watts: CIO Bendigo Bank

Marianne Rose: ERS Service Line Finance Controller Deloitte Touche Tohmatsu

John Etherington: Principal Non Executive Management Pty Ltd

iii

Most business managers would agree that Information Technology (IT) is now an integral part of commercial business. When used efficiently and effectively, it can provide organisations with competitive advantage, profit growth and ultimately optimal return to stakeholders. However, business managers often are unsure if they are getting optimal value from their IT-enabled assets. Are these assets affordable? Do they come with an acceptable level of risk?

In many organisations, IT is perceived to have failed when:

projects are late•

business needs are not met•

IT is over budget•

benefits are not delivered•

Business managers can feel powerless over the technology upon which they are dependent. This isn’t a problem common to the other asset classes in a business such as property, plant, equipment, people, and product development. Why don’t we manage our technology assets as we manage any other asset class?

Organisations that clearly communicate governance and management processes for planning, delivering and assessing the value of IT across their business, increase the value of their investment in IT.

This guide introduces proven practices that have evolved within these organisations. It focuses on the business side of managing IT and is written for senior finance exectives and business managers who have significant dependence on IT and who want to know what action they can take to have:

IT processes that provide cost-effective support / services to the business•

projects delivered on time and on budget•

IT service levels that fit the budget and risk profile of the company•

a good understanding of IT costs and cost drivers•

evidence of the business benefits delivered by IT-enabled initiatives•

You will also find a framework for the Business Management of IT (BMIT) that looks at ways you can modify your business planning and management cycle to incorporate five key processes to ensure the business has a clear understanding of the role it must play in:

IT alignment with business strategy and objectives•

estimation and prioritisation of business programs•

setting the IT budget and balancing the supply / demand equation•

program and project delivery•

benefits realisation•

planning and delivery of IT services to agreed business requirements•

This guide builds on the CPA publication IT Governance: A Practical Guide for Company Directors and Business Executives which helps directors:

understand what IT governance is and why it is important•

assess the level of attention directors should be paying to IT-related issues in the board room•

understand the business issues in planning, building, running, and managing IT •

ensure good IT governance is implemented across the enterprise•

Executive summary

1

1 What is BMIT and why is it so important?

1.1 What is BMIT? 3

1.2 Why is BMIT so important? 4

1.3 Assessing the level of BMIT in your organisation 5

2 The BMIT framework and processes 8

3 Foundations of successful BMIT 12

3.1 Implement clear decision-making and accountability frameworks 12

3.2 Promote common language between business and IT 13

3.3 Build business IT relationships 14

3.4 Improve transparency of IT costs 15

3.5 Introduce business measurement of IT value 16

3.6 Recognise that business programs, not IT projects, deliver business value 17

4 Long term strategic planning 19

4.1 Strategic IT demand management and long term strategic alignment 20

4.2 The business of IT strategic plan 22

5 Annual planning and budgeting 25

5.1 Annual project and service level demand management and budget alignment 26

5.2 Business program prioritisation and budget alignment 28

5.3 Business prioritisation forum 28

5.4 Service level planning and budget alignment 29

6 Ongoing management 31

6.1 Ongoing IT work prioritisation 31

6.2 Business program or project gating 34

6.3 Benefits realisation and monitoring and asset decommissioning 36

6.4 Asset life monitoring, evaluation and decommissioning 41

Appendix: useful reference material 44

Table of contents

2

Annual plan and budget Sets out the financial year objectives and the action plans and budgets designed to achieve these objectives.

Architecture Architecture is the continuous planning and management regime used to organise and control the structure of business systems and IT infrastructure for sustained effective, efficient and acceptable support of enterprise business.

BMIT Business Management of Information Technology (BMIT) is a framework of business accountabilities and processes designed to enable business managers to better articulate their technology requirements and proactively plan, prioritise and monitor short and long term technology programs, ongoing service levels and benefits realisation.

Business case Documentation of the rationale for making a business investment. The business case is used to support the decision on whether or not to proceed with the investment.

Business program A structured group of interdependent projects that are managed together to deliver a business outcome. IT is just one of these projects. Others may include business process redesign, customer communications and property fit out.

Governance Governance ensures that management has the accountabilities, processes, and auditable and measurable controls in place to ensure a company is on track to achieve its objectives. Governance is the responsibility of the board of directors and the executive management.

IT Information Technology (IT) is the term applied to the combination of technology, processes and people that allow organisations to cost-effectively capture, store, process, communicate and analyse data and information flows internally for management and staff and externally for stakeholders including suppliers, customers, shareholders, and regulatory groups.

IT demand pipeline Comprehensive list of the business requests requiring IT effort including large projects and small change requests covering all aspect of IT delivery (e.g. desktop change, new applications and changes to existing systems).

Management Management is the process of controlling the activities required to achieve the strategic objectives set by the organisation’s governing body. Management is subject to the policy guidance and monitoring set through corporate governance.

Pipeline / portfolio management Tracking program selection, prioritisation and delivery against the required portfolio and monitoring progress.

Portfolio The collection of planned business programs across all asset classes designed to deliver the business strategy and objectives.

Project An organised effort to complete a specific defined deliverable or set of deliverables usually satisfying one business case. A project has a specific start and end date, specific objectives, specific resources assigned to perform the work and a specific budget.

Strategy An organisation’s overall plan of development describing the effective use of resources in support of the organisation in its future activities. It involves setting objectives and proposing initiatives for action.

Glossary

3

The Business Management of IT is an approach to planning and controlling the use of IT from a business point of view. Figure 1.0 clearly differentiates between the business management of IT and the IT management of IT and highlights the interdependency in decision-making that is essential to delivering successful outcomes from IT investments.

Figure 1.0 Who makes decisions about what?

1.1 What is BMIT? Return on investment is a well-understood concept. Referring to return on IT investment in isolation, however, can result in ‘IT project’ mentality that segregates IT expenditure. As a result, we often find IT managers trying to justify return on investment rather than business managers. The reality is that most IT projects comprise change to several asset classes in concert - process, people and organisation being the most likely. Hence, it is the business that should take accountability for all areas of return on investment including the IT component.

In many organisations, IT management strives to implement better processes methods and practices to minimise failure and deliver value, often with low rates of success. Why? Simply, the issues cannot be dealt with by IT alone.

BMIT is about business managers accepting accountability for making decisions about how IT will be used to achieve business goals. It encourages business managers to take an active role in:

aligning IT with business strategy and objectives•

“IT can build the bike but business has to decide what the bike will be used for, and pedal the bike to deliver the value.”

Judy McKay - Professor, IT Swinburne University of Technology

scoping, estimating and prioritising IT-enabled •business programs

setting IT budget parameters and balancing the •supply / demand equation

program and project delivery•

benefits realisation•

ongoing operations•

1. What is BMIT and why is it so important?

Business Management of ITBusiness Decisions•The‘what’-investmentintherightthing

•Strategicdirection

•Levelofbusinessrisk

•Bottomlineperformance

•Demandmanagementandprioritisation

•Fundingandcapitalmanagement

•Balancingthecost,risk,performanceequation

•Businessprocessdesignanduse

•Identifyinganddeliveringbenefits

IT Management of ITIT Decisions•The‘how’-doingitrightanddeliveringtoestimates

•Technologysolutions/architectures

•Articulatingtechnicalrisk

•Compliancewitharchitecturesandstandards

•Supplymanagementandsourcing

•Productivityandunitcostofdelivery

•Managingriskwithinagreedservicelevels

•Businessprocessautomation

•Deliveringtoestimates

4

1.2 Why is BMIT so important?Despite the falling unit cost of technology, business statistics generally show that the proportion of expenditure on information technology continues to rise. In many organisations, the IT capital spend is well over 50 per cent of the average annual total capital investment. As IT becomes more important and pervasive, business managers are increasingly challenged to get more value out of their IT investment. Unfortunately, failure of IT-enabled change is still a common problem and increasingly associated with lost revenue, lost opportunity, lost customers and, in some cases, lost companies.

There are three key root causes that continually arise when assessing why IT-enabled business programs fail or why IT is not delivering to business service levels:

lack of business planning for IT•

lack of accountability and clarity as to who makes decisions about what•

focus is on IT projects rather than business change programs•

Lack of business planning for IT means that any planning around the development and use of the company’s technology assets is done by IT and relies entirely on the planning capability and experience of the IT management and its view of what the business requires. Small companies with limited resources may rely on technologists with little business planning experience or capability. Or they may rely on business professionals such as accountants who are being expected to take responsibility with little expertise or knowledge of how to make sound plans and decisions with respect to IT.

Additional implications of a lack of business planning:

Long term plans are not connected to business strategies and objectives and the dollar investment over time •is not understood.

What IT does is being determined by the annual budget process and the dollars the business is prepared to •spend, rather than being the result of defined business plans and requirements.

IT ends up setting priorities across competing business divisions.•

The focus is on the technology solution and estimates fail to include the associated business costs such as •process change.

IT goes into “react mode” leading to complex and difficult-to-support IT environments delivering inconsistent service. •

IT plans must be a subset of business plans and formed collaboratively as a result of business strategy and plans.

Lack of accountability and clarity as to who makes decisions about what has three far reaching consequences:

Large investments result in failure because business users are not clear about what they want.•

Systems fail because business managers don’t make the decision on the level of risk it is prepared to carry.•

Business programs go over time and over budget due to continual change of scope as no one business •person has accountability for the final decision on scope.

Benefits are not delivered because accountability for realisation is not clear. •

When accountabilities and decision-making responsibilities are clear, there are important outcomes:

the right people make decisions•

decisions get made because the need for the decisions is clear•

more often than not, the right decisions are made•

Successful delivery of IT-enabled change, value delivery and sustainable service can only be achieved through a well-defined relationship between business and IT, both understanding who makes decisions about what and the interdependencies involved in the decision-making process.

What is BMIT and why is it so important?

5

Focus on IT projects rather than business programs can result in:

IT delivering an IT solution that business is not prepared for or IT delivering a solution that fails to address •the business objectives

Business management not being involved in developing the solution and underestimating (or not •recognising) the resources relating to people, process and organisational change.

The good news is that the solutions required to deal with these fundamental causes of failed IT-enabled business programs lie with business management taking accountability for the decisions that must be made by business (not IT) to affect successful planning, building / acquiring and management of IT assets.

With very little effort, business management can take an active and informed role in managing the IT assets of their company. Introducing BMIT processes into the standard business planning and management cycle helps to demystify IT, highlights the risks the business may be facing without knowledge, and gives business managers a basis for informed decisions. Adopting these processes informs business managers and enables them to be active participants rather than powerless onlookers.

1.3 Assessing the level of BMIT in your organisationMost business managers agree that they are keenly aware of IT’s importance to the business. However, most feel they have very little say in what is delivered by IT and have little idea of the business benefits delivered. As a quick test, fill in these questionnaires to assess the importance of IT in your organisation and your current BMIT capability.

1.3.1 Do you have a clear understanding of the business use of IT?

The following table can help you refocus your expectations of IT in your organisation. Are you sure that your use of IT is aligned with business expectation? For example, you may expect IT to increase revenue but in fact all IT investment is aimed at lowering cost.

Why are we using IT? Now Future

To increase revenues

To lower costs

To increase productivity

To open up new lines of business and new markets, and extend geographic reach

To keep up with the competition

To add value to existing products and services

To get ahead of the competition

For finance and administration systems

For innovative purposes e.g. research and development

Table 1.3.1.1 Business use of IT


6

1.3.2 Do you know how much you spend?

Make sure that the IT spend from all business unit cost centres is included, not just the IT department. You may be surprised at how much you are spending. Use the following table as a guide.

This yearPrevious year 1

Previous year 2

A Total company revenue

B Total company expenditure

C Total IT spend (expensed)

D Total IT spend (capitalised)

Total IT spend (C+D) as a % of revenue (A)

Total IT spend (C+D) as a % of expenditure (B)

E IT spend on keeping current systems running (KIR)

F IT spend on projects (including capitalised $)

G Total IT spend (C+D)

IT KIR spend (E) as a % of total company revenue (A)

IT KIR spend (E) as a % of total company expenditure (B)

IT KIR spend (C+D) as a % of total IT spend (G)

% of IT spend sourced internally

% of IT spend sourced from external suppliers

Total IT spend within the IT department budget

Total IT spend across all other cost centres

Table 1.3.2.1 Total IT spend

1.3.3 How dependent are you on IT?

How long would you be able to do business when faced with severe disruption to your business? Enter your estimate in the boxes below and make your own assessment.

Hours Days Weeks Months

Finance, MIS, HR, Email

Product Service

Customer Facing

Supplier Facing

Table 1.3.3.1 Dependence on IT


7

1.3.4 How well do you plan and manage the use of technology?

How well do you plan and manage the use of IT in your business? Complete the table below. If you answer ‘no’ to more than four of these questions, then your attention to IT is inadequate and it is highly likely IT will not be delivering to your requirements.

Assessment No Yes

Does business management make the IT investment decisions?

Does business management consider the business use of IT when preparing business strategy?

Does the board and executive team determine the level of IT risk the company is prepared to take (e.g.

disaster recovery capability)?

Does business management know where the company will be investing in IT in the next 12 months?

Are long term IT capital spend requirements known and understood?

Are the implications of under-investment in IT known and understood?

Is the IT budget based on long term business plans and short term business demand?

Is there a business forum for prioritising the IT department projects and work?

Is a clear, compelling business case always developed before an IT investment decision is made?

Are business IT program risks fully understood before program commencement?

Are IT projects managed as part of the business programs comprising all aspects of the change?

Are there control points in your business programs where you reconfirm that the programs are still

viable?

Is business management held accountable for the delivery of business benefits from IT investments?

Does business management decide whether to buy a package or build from scratch?

Are IT running costs clearly related to business services level requirements, recognising the cost, risk,

performance trade-offs?

Does business management have measures on unit cost of IT ongoing operations?

Does business management understand what is driving ongoing IT running costs?

Does business management have measures to assess IT success?

Does business management have measures to assess IT risk?

Is there a process in place to help business management make decisions on IT application asset

replacement?

Table 1.3.4.1 Assessment of IT

Good BMIT creates a collaborative relationship between the business and IT where both have processes, controls and accountabilities. It ensures that:

the business knows what to ask for, how to ask for it and how to monitor and assess success•

IT knows how to build / acquire solutions, advise and deliver to business expectations•


8

2. The BMIT framework and processes

Figure 2.0 BMIT framework

BU

SIN

ESS

PLA

NN

ING

AN

D M

AN

AG

EMEN

T C

YC

LE

BUSINESS MANAGEMENT OF IT IT MANAGEMENT OF IT

BusinessProcess

BusinessDecisions

ITDecisions

BusinessFramework

Long term strategic planning

Strategic IT demand management and long term strategic alignment process

strategic use of IT levels of investment value expected

iorityisk

What we aim to achieve

lutionsArchitecturesCosts and risks

Technology opportunities

Annual planning and budgeting

Annual project and service level demand management and IT budget alignment process

rojectsservice

cesuress

iority

How we will achieve

Cost estimates Performance capability

isks

Business IT strategic plan

Pipeline / portfolio of strategic initiatives

Business and IT business plans and budgets

Prioritised pipelines / portfolio of business programs and projectsAgreed business service level agreements

Ongoing management

Ongoing IT work prioritisation process

Business program or project gating process

Benefits realisation and monitoringand asset decommissioning process

Building or acquiring new

capability

Deliver to estimatesAdvise on risk

Completed business programs

Expected benefits and measures

Deliver the serviceAdvise on risk

Delivering the results

se the servicerealise the value

sure the result

rocesschangevalue

its

The BMIT framework (Figure 2.0) is built into the standard business planning and management cycle, incorporating long term strategic planning through to ongoing operations. The framework clearly differentiates between the accountabilities associated with Business Management of IT and the IT management of IT. It illustrates the interaction that needs to take place between business and technology to deliver the company’s objectives.

9

The five BMIT processes (Figure 2.1) in the framework support business management in making the right decisions for effective use of IT. They help business managers understand and measure the delivery of value from IT assets and can be tailored to suit company requirements.

The processes must be supported by foundation behaviours and practices that foster collaboration and constructive interaction between business managers and IT managers.

In section 3, the foundations that will enable this change are examined, with a focus on why the following are so important:

implementing clear accountability and decision making frameworks •

promoting common language between business and IT •

building business IT relationships•

ensuring transparency of IT costs•

introducing business measurement of IT “value”•

recognising that business programs deliver business “value” not IT projects.•

In section 4, the criticality of including IT in longer term business strategic planning is discussed. The decision making accountabilities and interactions between business and IT are set out under the longer term planning framework and the BMIT Process 1 – Strategic IT demand management and long term strategic alignment.

The BMIT process for annual planning and budgeting is reviewed in section 5. BMIT Process 2 – Annual project and service level demand management and IT budget alignment - shows how the longer term strategic portfolio of business programs is translated into annual plans and the decision making accountabilities and interactions, which must occur between business and IT when developing annual business and IT plans and budgets.

Section 6 looks at the last three BMIT processes. Topics discussed are: the ongoing operations framework; the common issues around building and/or acquiring new systems; delivering results and service level monitoring; and asset life monitoring, evaluation and decommissioning. Each is captured under the BMIT Process 3 – Ongoing IT work prioritization, BMIT Process 4 – Business program or project gating and BMIT Process 5 – Benefits monitoring and realisation.

The BMIT framework and processes

10


Business Framework The Business Question Five BMIT Processes Business management will know:


How is the business going to use IT in attaining its goals?

1. Strategic IT demand management and long term strategic alignment process

the long term capital spend •required to deliver the company’s strategy that IT action is aligned with •business strategythe connection between achieving •long term strategic objectives and IT effortthe long term priorities and •dependenciesthe risk associated with reducing •capital spend

Annual planningand budgeting

What is the business going to spend on IT this year to keep it running and to deliver for the future?

2. Annual project and service level demand management and IT budget alignment process

that the IT build / acquire budget •is aligned with business demandwhich projects are funded this •financial year along with guesstimates of the operational and capital spendthat the Keep IT Running (KIR) •budget is aligned with business service expectationthe risks associated with cutting •the KIR budgetthe annual priorities and •dependencies

Ongoing management

Are we working on the right things for the right reasons and producing the intended results?

Are we on track to meet our performance goals?

3. Ongoing IT work prioritisation process

4. Building / acquiring capability and business program or project gating process

5. Benefits realisation and monitoring and asset decommissioning process

that IT effort is focused on what •the business requiresthat conflicting business demands •are resolved in line with the company’s overall intereststhat immediate business •imperatives are delivered with the least impact on long term plans

that projects which are no longer •viable or appropriate are terminated promptlyif dollars and effort spent and •dollars to complete are in line with budgethow scope change decisions have •been made and what impacts this will have on costs and timethe delivery and implementation •risk profile

the service level delivery metrics •and ongoing service risk profilewhen to make application and •infrastructure asset replacement decisionsif the planned benefits are being •delivered in line with the business casethe IT investment spent on •reducing IT operating costs versus new capability

Figure 2.1 The five BMIT processes

11

Figure 2.2 The BMIT process flow

Managing IT costs and investment through the IT budget alone can drive the wrong behaviours

SELLCO recognised that technology could prove to be a key enabler in setting them apart from competitors. Business management was very clear about strategy and how it would use technology. The problem was that the IT department didn’t have the time nor the resources to do what the business asked for. Business management’s frustration increased until the situation came to a head when the company lost a large contract to the competition because it couldn’t deliver on a promised e-retailing capability. The IT manager’s job was on the line.

The IT manager had no idea what to do. His job depended on him keeping to the set budget. He and his team had worked day and night to try and deliver the project at the same time as keeping the current systems running. Business kept changing requirements but didn’t expect the cost to change so getting the right skills on the project was a real issue. In addition, day-to-day running kept him awake at night because part of the infrastructure was obsolete and unsupported and only one person knew how to fix it when it fell over. He had attempted to explain the issues to his boss, the CFO, and failed. If only his business colleagues understood the problems he faced. They didn’t and he lost his job.

A newly appointed IT manager was told of his predecessor’s failure and the warning bells went off. He suggested that before settling into the job he assess just how the place had gotten into such a mess. At the end of his fourth week he presented his findings to the business management team, the key ones being:

Although the business had a clear view of how it wanted to use technology, it had no formal plans and •hadn’t communicated to IT management.

The IT budget was set by the CEO without any regard for the cost of building and delivering to business •demand.

The previous IT manager had assumed that it was his job to just do what he could within the set budget. •He never raised his hand to advise the business of the risk it was carrying with obsolete equipment and no effective disaster recovery capability.

He recommended that the following practices be adopted immediately:

Even though the role reported to the CFO, IT management must be at the business planning table and part •of the business planning process.

The IT budget should be developed as part of the annual planning process, reflecting the true cost of •business demand for IT-enabled change, levels of service and risk.

Business management should conduct a process to better articulate, prioritise, fund and approve •requirements before coming to IT.


12

34

5

Strategic IT demandmanagement and long termIT alignment process

Business Managementof IT Processes

Ongoing IT work planningand prioritisation process

Business program orproject gating process

Benefits monitoring andrealisation and assetdecommissioning process

Annual projectand service

level demand management and

IT budget alignment process

12

A successful BMIT framework is built on strong collaboration between IT and business. There are a number of foundation activities that you can adopt to help change the behaviour, practice and language that promote ’we’ rather than ’them and us’.

Foundation activities include:

implementing clear decision-making and accountability frameworks•

promoting common language between business and IT•

building business IT relationships•

ensuring transparency of IT costs•

introducing business measurement of IT value•

recognising business programs, not IT projects, deliver business value•

Collaborative business IT relationships

Transparencyof IT costs

Commonlanguagebetweenbusiness and IT

Cleardecisionmakingframeworks

Business measurementof IT value

Business programs,not IT projects

Figure 3.1 The five BMIT processes

3.1 Implement clear decision-making and accountability frameworks












IT management often makes decisions by default because it is not clear who in the business should be making the decisions. Without this clarity, neither the business nor IT are likely to achieve their objectives.

Good BMIT ensures that:

business managers understand their responsibility for •planning the use of IT as part of setting business objectives and performance parameters, as well as their responsibility for delivering the intended business outcomes of their investments.

IT’s responsibilities are within their capability to achieve •and that IT is not responsible for things it cannot control or deliver.

“If you are held accountable, you will be held accountable - so put in place the tools necessary to help meet that accountability.”

James Crown CEO Knowledge Group

A simple tool to help establish who is accountable for what throughout the business planning and management cycle is the decision-making matrix (Figure 3.1.1). It can be tailored to your organisation and should cause a great deal of healthy debate when filling it in. This will lead to better understanding of the IT issues facing your organisation.

3. Foundations of a successful BMIT

13

Board Business management CFO Head of IT

Business strategy, objectives and plans A I I I

Business IT strategy I A I I

IT dollar investment over time A I I I

Business benefits case (ROI) I A I C

Delivering business benefits (ROI) I A I C

Measuring delivered benefits (ROI) C I A C

Setting business program priorities I A I I

Program delivery on time and budget C A C I

Defining service level requirements C A I C

Delivering service level requirements C I C A

Risk profile or appetite for risk A I I I

A - Makes the final decision I - Must have input to the decision C - Must be told of the decision

Figure 3.1.1 Decision-making matrix

Once you have agreed who makes the decisions and who is accountable for implementing them, build the results into recognition and reward structures. Think about designing accountabilities and reward structures in a way that will drive collaborative behaviour between IT and the business rather than creating a divide.

3.2 Promote common language between business and IT









Businessmeasurementof IT value



Mistakes often occur simply because the business does not understand what IT is talking about and vice versa. IT speaks its own acronyms and jargon forgetting that the business doesn’t necessarily understand and the business speaks a language that is foreign to the average technologist. In some cases, the problem is exacerbated when business people use IT jargon incorrectly, or when IT people attempt ‘business speak’ without fully understanding.

The solution to this issue primarily lies in recognising that the languages are different and translation mechanisms are required. Simple admission that one does not understand and clarification is required is a good start. In addition:

Channeling communications through translators such as business analysts and relationship managers is •another way of ensuring effective communication.

The introduction of a shared pipeline list of business requirements which outlines business priorities, IT •estimates and resource availability along with agreed business / IT measures will form the basis of a common language that will enable business and IT management to have factual debate around how best to balance the supply / demand equation.

As in the building industry, architectural drawings and plans serve as the translation between the client, •architect and builder. They form the basis of a common language. In IT, architectural models help to translate the expectations and requirements of IT into terms the business can understand. There is a

Foundations of a successful BMIT

14

tendency to think that you must be big and sophisticated to have ’architectures’. This is not the case. IT should be able to show business management conceptual diagrams of the current and future IT environment and be able to describe the solutions and the logic behind the design in terms business management can understand.

3.3 Build business IT relationships












Complex chargeback and buyer supplier arrangements between IT and the business can lead to poor relationships and lack of trust in IT estimates.

There are a number of ways to enhance the business IT relationship:

Filter work requests through a business prioritisation and approval •process before asking IT to estimate.

Understand that IT can’t estimate accurately what the business •can’t define precisely. It’s not possible to do fixed price estimates until all requirements have been specified and detailed design is complete. First cut guesstimates can be out by 100%. The introduction of phased estimating can clear up a lot of misunderstandings between business and IT. The following diagram sets out the estimating tolerances relating to each phase of the program lifecycle.

IT can’t estimate accurately what business cannot define precisely.

Invest in business analysts to work with business managers and IT architects to identify the solution •approach. This role can sit in either the business or IT. Unfortunately, the relationship role can be seen as an overhead and it goes first with budget cuts. This is false economy, as without this capability, IT can end up working on the wrong thing or has to do rework which ends up costing more.

When doing business plans, include IT in the same way that you would your other business colleagues. Ask •questions like:

Are our current IT systems adequate for our ongoing business?o

Are there technologies out in the market that we should be employing?o

What can we do to reduce our ongoing running costs?o

Have you any ideas on how we can bring down the cost of business process?o

BusinessStrategyandObjectives

Estimation Tolerance

Build & ImplementDetailed DesignHigh Level DesignProgram FeasibilityProgram Concept

+100%

-100%

0%

Worst Case

Best Case

Most Likely

Figure 3.3.1 Phased estimating: target of estimating is to provide most likely prediction


15

3.4 Improve transparency of IT costs












One of the core issues is that companies often fail to fully understand the true cost of IT and what drives these costs. In many companies the IT budget does not reflect the total IT spend. For various reasons, often to make them look more palatable, IT costs get spread, in various guises, throughout business divisions.

While companies see IT as a cost rather than an investment, they will continue to focus on short term cost reduction without understanding the impact on the long term viability of IT systems and the business risk and impact of failure.

In order to make proper investment decisions in line with the risk profile of the company, business needs to understand the link between the IT-enabled business process and volumes and the cost of the IT services and resources it consumes to deliver these processes. Business needs to know what it is getting for its money and what levers it can pull to change what it is spending now and in the future.

IT costs are very often understated. Anywhere up to 30% in additional costs can be found when IT costs from business costs centres are analysed. This can be a real issue when benchmarking against other organisations or when understated figures are used in the metrics to assess the business value of IT.

In many organisations, chart of account design and project accounting methods do not easily enable IT costs and measurements to be clearly linked to business outcomes, for example, cost of ongoing operations directly related to the level of service delivered. (See Figure 6.4.1 – Cost of Service Agreements.)

The first step in improving the transparency of IT costs is to separate them into two baskets:

Keep IT Running (KIR) and1.

Discretionary spend (capital and operational)2.

KIR is defined as the cost of supporting, maintaining and growing the current business. It includes the cost of maintenance and regulatory and compliance changes but does not include the cost of business change. This is committed spend to keep the current business running and is determined by:

business volumes•

service level agreements with the business•

level of risk the business is prepared to live with e.g. disaster recovery capability•

additional ongoing maintenance costs of new applications or infrastructure implementations and upgrades•

asset replacement schedule•

KIR spend should be determined interactively between the business and IT. The process to arrive at this spend is set out in section 5.1. To vary KIR costs, the business can use the following cost levers:

agree to a longer time for recovery in case of a disaster which would decrease the outlay on disaster •recovery infrastructure

accept a higher level of risk by running on obsolete assets which would defer the cost of replacement•

accept slower response times which would defer the cost of communication line upgrades•

reduce the length of time history files are kept which will result in a lower cost of storage•


16

Discretionary spend is defined as the cost of the IT investment in IT-enabled business programs to introduce new business or to enable the existing business to be conducted in a better way.

Long term investment programs (3-5 years) are scoped and costed at a conceptual level as set out in section 4.2. The process for determining annual discretionary spend is set out in section 5.1.

Justification for discretionary spend is usually associated with a business benefits case outlining the financial and non-financial benefits that will be delivered when the program is implemented. Often the problem with benefits delivery stems from the quality of the up-front planning and scoping work resulting in costs being understated and benefits being overstated to get the program across the line. Finance must play a key role in ensuring that:

all costs, business and IT, have been taken into account•

phased estimating is a reality and that contingency calculations are in line with the level definition available •for estimating

the stated benefits are reasonable and achievable•

there is a clear differentiation between financial and non-financial benefits •

the metrics that will be used to measure benefits delivery are determined up front in the business case•

costs are monitored throughout the program and the benefits case is reassessed if costs blow out•

The introduction of the program gating process (Section 6.2) will assist in getting this right.

3.5 Introduce business measurement of IT value












If you can’t measure it, you can’t manage it. Credible business measures of IT effectiveness are essential to all levels of business planning and prioritising the use of IT. However, in many companies, much of the measurement of IT success is carried out and communicated by IT in IT terms that are not understood by business managers and are of little use in the assessment of IT effectiveness to the business.

The following table sets out examples of measures typically used by IT along with measures business management can introduce to assess IT effectiveness from a business perspective.

Business measures IT measures

Business time lost Up time percentage

Unit cost per transactionNetwork costs, hardware costs, total MIPS used

Customer complaints Number of severity 1 problems

Cost of business process Mean time to fix problems

Cost per delivery channel Application maintenance costs

Business risk IT personnel turnover

ROI Within budget

Table 3.5.1 Measures to assess IT effectiveness


17

Fundamental to successful BMIT is management fully understanding and articulating why it is using IT in the first place and what ‘value’ means for their area of the business and the company. (See Table 1.3.1.1 Business use of IT.)

Business management often has difficulty establishing measures due to a lack of understanding of the behaviour of their costs and the associated cost and revenue drivers. Finance is a critical player in supporting business managers in gaining this understanding and in establishing business metrics for measuring both the effectiveness of the current operations and the value delivered by additional investment in IT-enabled business programs.

Metrics for the effectiveness of the current operations are ideally derived from the business measures set out in the service levels agreed between business and IT management. (See section 6.3.1)

Metrics for value delivery from IT-enabled change programs are ideally based in the company’s strategic decisions, for example:

increase revenue e.g. improved sales capability, new products and services•

decrease costs e.g. further automation of business process •

increase productivity, improving existing process improvement•

improve customer satisfaction•

3.6 Recognise that business programs, not IT projects, deliver business value












Many companies have issues in running combined business / IT programs where both business and IT resources report into a single program manager. This problem seems to be a legacy issue stemming from the times when anything to do with IT was left to the IT department and they were accountable for the lot, including benefits. Times have changed. Today we need to recognise that there is really no such thing as an IT project. Most programs of change comprise change to several asset classes in concert including IT, business process, people and organisation. IT cannot be justified in isolation from the business program it supports. (See Figure 3.6.1.)

Busi

ness

Str

ateg

y

Busi

ness

Pro

gram

s

PROPERTY

PEOPLE

TECHNOLOGY

PLANT & EQUIPMENT

FINANCIAL

INFORMATION

Enterprise assets

Inte

rdep

ende

ncie

s

Building or acquiring IT assets is rarely stand alone. The best results occur when the entire business program of change is planned, costed and managed as one program and the benefits case is based on the delivery of the full program. Trying to manage change in any one of these areas in isolation is destined to fail.

Figure 3.6.1 Business programs composition


18

Divided we fail

REPLACECO IT costs had increased over time due to increased maintenance costs on ageing and fragmented software. The decision was made to replace existing applications with a highly configurable ‘industry standard’ package chosen by the business. The business had been convinced by the supplier that the package would be easily configured and implemented to meet REPLACECO’s business needs. IT was not involved in the decision. The package was purchased. Business handed over responsibility for implementation to IT.

An IT project manager and project team were appointed to work with the supplier to implement the package. The list of variations from the ‘out of the box’ configuration continued to grow. A heavily modified package was finally implemented 18 months late and 50% over budget.

A post-implementation review by an external party found a trail of poor decision-making and unclear accountabilities. Root causes of the problems were:

no-one owned the business solution•

the solution approach was not tested or estimated before buying•

the business benefits case was not revisited•

business management expected IT to implement with little involvement from themselves•

IT was not involved in the decision to purchase the package•

appropriate IT due diligence of the claims of the supplier and the appropriateness of the package were •not carried out by IT

The REPLACECO Board learned of the project failure. When the full picture emerged, they had little confidence in either the business or IT. REPLACECO had more large IT projects coming up on the product front. The board was skeptical that the company had the capability to deliver and asked to be convinced by business and IT management that it was up to delivering future demand. The changes presented to the board included:

• an IT / business decision matrix be implemented to ensure clarity around who makes decisions about what

from now on all IT developments would be part of business programs under business ownership•

all programs of change must go through a rigorous process upfront to thoroughly test the solution •approach and benefits before investing significant dollars

a program gating process be implemented with clear GO / NO GO check points to identify problems, •revalidate benefits and costs to complete


19

4. Long term strategic planning

Most companies depend on IT for day-to-day activities. What many fail to realise is that strategic growth also depends heavily on IT. They also depend on the IT of their business partners and customers. Moreover, many businesses must also take into account how IT is or will be used in their markets – by competitors, regulators and so on. For these reasons, it has become imperative that organisations give specific attention to IT as they prepare their long term plans.

The danger in leaving IT out of the long term strategic planning process, or with short term direction only, means that IT cannot formulate long term future architectures and may end up building IT applications and infrastructure piecemeal. Lack of effective future planning has led to problems in many companies in that unnecessary complexity has been built into the business and consequently, into IT. This complexity can act like reinforced concrete - it’s a barrier to change.

“Plan to grow into your IT assets not out of them.”

Neil Wilson - CEO Oakton

If you don’t know where you are going, any road will take you there.

Building the IT environment piecemeal leads to duplication, complexity, inflexibility and higher running costs. It also delays business innovation and competitive advantage, and it may mean that business is overrun by competitors that are more effective in planning their IT use.

IT long term planning is an integral part of the business strategic planning processes. As with a manufacturing plant or property, many IT assets have long asset lifecycles and often take years to implement, making IT dependent on effective long term business planning.

Long term strategic planning framework (Figure 4.0) highlights the business and IT decision areas along with the interactions and outcomes of long term business planning. This process occurs annually reviewing the relevance of the long term business strategic directions and the alignment of IT and other asset class plans with these directions. This is a two way process that cannot be done by either party in isolation. The process can be led by either IT or business but should be owned by business management.

BusinessProcess

BusinessDecisions

BusinessIT Interaction

ITDecisions

Long term business strategies and targets

Business use of IT

Competitive positioning

Business benefits

Priorities

Funding

IT architectures and architectural principlesCurrent and target IT architecturesIT migration plans and initiativesTechnology infrastructures

Business strategies, priorities, funding, strategic business benefits

IT trends and opportunities, future architectures, costs

estimates, risks

3-5 year Business IT Strategic Plan:

Target IT architectures

Key IT initiatives to achieve targets

Estimates of IT capital investment

Estimated ongoing operational cost dependencies

Business IT strategic plan

Pipeline / portfolio of strategic initiatives

Alignment

3-5 year business strategic plan:Business targets Key initiatives to achieve targets across all asset classesEstimates of capital investment Priorities Benefits

Strategic IT demand management and long term strategic alignment process

Figure 4.0 Long term strategic planning framework



Ongoing management

20

Implementation of the strategic IT demand management and long term strategic alignment process (Figure 4.1.1) will ensure that when business management has completed its long term strategic plan it will have:

an updated business IT strategic plan that will ensure future IT architectures are still valid and aligned with •the business strategies and priorities, and dependencies are understood (see Figure 4.3)

a qualified portfolio of the strategic initiatives or business programs that the organisation will be •undertaking over the next 3-5 years (Figure 4.2.2)

The strategic initiatives or business programs identified by the plan become the basis for Business Management IT decision making and the setting of IT priorities.

4.1 BMIT process 1: strategic IT demand management and long term alignment process

This process outlines the business and IT actions and accountabilities which will:

align IT architectures and plans with long term business strategy•

create and maintain the two way link between IT-enabled business initiatives and IT spend•

validate long term priorities•

align interdependencies between all long term strategic initiatives such as people, property and IT•

form the framework for ongoing business program prioritisation and portfolio management•

consider the long term demand supply equation and the overall capability to absorb change•

The business IT strategic plan (Figure 4.1.1) should be owned by the business and developed jointly by the business and IT. This is not a technical plan although IT may do a lot of technical work behind the scenes. It is a plan that outlines the IT implications of business strategic intent and translates these implications into the key IT initiatives that will be required to deliver the strategy.


21

Action Who Description

Business strategy review Board, business managers and IT manager

Review of the company’s strategic direction and objectives to determine if the company is on track to achieve the objectives and to make changes in strategy as required. IT brings to the planning table advances / opportunities which may be considered by business to better enable strategy achievement.

Strategy to business action Business managers Workshops of business management aimed at translating business strategy into business action. What is the business going to do to deliver the strategy?

IT implications of business action

IT manager, IT architects and business analysts

Analyse the business and IT impact of the proposed business actions and group impacts around application families, i.e. customer, finance, workflow, and warehouse.

Gap analysis IT manager, IT architects and business analysts

Analyse how well the existing IT architecture can deliver on the proposed business action and what will have to be done from an IT perspective to bridge the gap.

Develop transition plan IT manager, IT architects, business analysts and business managers

High level design of the business programs that will need to take place to transition from the present to the future including dependencies and guesstimated timeframes.

Initiatives, costs and times to bridge the gap

IT manager, IT architects, business analysts and business managers

Cost estimates, benefits and risks (important that the total cost, not just IT cost is understood)

Feasibility assessment Business managers and board

Analysis of the proposed transition plan, costs and change impacts. Can the company afford it? Can it absorb the change?

Prioritisation and culling of business action

Business managers and board

If in the feasibility assessment, the long term spend is determined to be too high, the board and business go back to square one and look at what actions they will not do or defer, then resubmit to the IT architects to reassess costs.

Business IT strategic plan3-5 year pipeline / portfolio of strategic initiatives

business measures

Figure 4.1.1 strategic IT demand management and long term alignment process


22

4.2 The business IT strategic plan The business IT strategic plan sets out:

the current baseline and evolution plan for future framework architectures•

the technology gap between now and the future•

the principles and policies to guide IT decisions and architectures in building the future•

the prioritised sequence and cost estimates of the initiatives required to migrate the organisation towards its •target along with estimated impact on ongoing running costs

capital expenditure and depreciation schedules•

a high level implementation plan, highlighting implementation dependencies with other asset classes•

The business IT strategic plan is the vehicle that:

clearly interlinks business strategy with IT architectures•

balances long term demand against long term IT spend and long term benefits•

establishes a clear link between business strategy and IT initiatives so that the impact of change in business •strategy on IT plans is understood and appropriate action is taken

sets a two-way link between business strategy and IT spend i.e. if IT spend is cut, the impact on strategy is •clearly understood by business management and strategy can be adjusted accordingly

manages long term strategic demand including long term capital requirements, change impacts and informs •business management of the levers it can pull to vary the dollars over time

forms the basis for business programs that deliver capability and value, rather than IT projects that just •deliver the potential


23

Figure 4.2.1 sets out a simple example of how the IT implications of high level statements of strategic direction can be translated into IT initiatives and costs. There is a significant amount of architectural work required behind the scenes to achieve this level of connection but it is worth the one off investment to fully understand the investment required over time to deliver business strategy.

Business strategy

Business action required to deliver the strategy

IT implication of the business action

Can the current environment deliver the capability?

Gap between the current and future

Impact on other asset classes

Cost of initiatives to fill the gap

Doubling

business

in 5 years

Acquire •complimentary business

Extend into ACT •and Qld

Increase the •capacity of the core product system to deal with additional volumes

No Core product system upgrade to latest version of the package

Property acquisition in ACT and QLD

$1.5m

Extend warehouse •capacity

Extend network and •infrastructure to include ACT and QLD

No Link between customer information systems

ACT and QLD Office set up

$.5m

Introduce internet •catalogue sales

Catalogue sales and •payment capability on the website

No Financial systems link to BPAY

HR $3.5m

Cross sell acquired •product business to existing customer and vice versa

Upgrade website

Marketing and product design

$.7

Figure 4.2.1 Alignment - establishing a two way link between business strategy and action with IT costs

The long term strategic planning process will deliver an integrated picture of the initiatives and costs required to fill the gap and take the organisation from the present to the future. This big picture serves as the base for business and IT annual planning and for the ongoing prioritisation of work.

Major Initiatives Year 1 Year 2 Year 3 Year 4 Year 5

IT-enabled business program 1


Property initiative

New product initiative

Interstate expansion

IT infrastructure program


Total Asset Capital Spend $ XXX $ XXX $ XXX $ XXX $ XXX

Total IT Asset Capital Spend $ XXX $ XXX $ XXX $ XXX $ XXX

Total IT Operational Spend $ XXX $ XXX $ XXX $ XXX $ XXX

IT Asset Replacement $ XXX $ XXX $ XXX $ XXX $ XXX

Figure 4.2.2 The big picture


24

Complete the following table. If you score ‘no’ to more than three questions, it is highly likely that the strategic use of technology is not being considered or planned appropriately in your company.

How effective is your BMIT in the long term strategic planning process? Yes No

Does the business management have a clear understanding as to why it is using technology and what it expects from technology?

Does business management understand what the competition is doing with technology?

Has business management established a consistent way of determining long term IT investment and benefits?

Is IT management considered to be an essential participant in, and contributor to, the long term business strategic planning process?

Does IT management keep business up-to-date on an ongoing basis with technology advances and the latest application packages in the market?

Does IT management bring new technologies to the planning table as potential enablers of new or existing business strategies?

Does the strategic planning process take into account the short, medium and long term viability of its current IT?

Does the business management consider the risk implications of under investing in the longer term

Do investment decisions take into account long term statutory and regulatory requirements?

Are ongoing operational costs, service levels and asset replacement schedules considered in the long term strategic planning process and in assessing long term investment dollars?

Does the business have a process to prioritise longer term spend against business strategy and objectives?

Does the business have a roadmap of the business programs and IT initiatives and costs required to deliver business strategy and plans (the cost and effort of getting from the present to the future)?

Table 4.2.3 Effectiveness of BMIT

IT long term planning is an integral part of the business strategic planning processes.

SALESCO’s expansion plans were well on the way and business appeared to be going really well. Revenues were increasing at 20% per annum however bottom line performance was being impacted as margins were being eroded by lower cost competition. A company-wide program was put in place to cut costs right across the board, including IT. Margins improved and everyone was happy, except the IT manager. He had tried to get the business executive to understand the implications of further IT cuts but he couldn’t get the message across.

SALESCO systems had been purchased 10 years ago and were designed for companies running around half of SALESCO’s volumes. The system just couldn’t keep up, errors increased, response times died and the diminished business and IT workforce became quite demoralised. Staff turnover increased with some key IT skill sets walking out the door.

Margins had improved but SALESCO started to lose key customers as a result of poor service and increasing IT errors. Revenues started to fall. The company had started on a downwards spiral.

SALESCO executive had taken IT for granted and failed to really quantify the contribution IT systems were making to business process efficiency and effectiveness. They hadn’t really thought about why they were using IT and that lack of investment meant that IT systems could not longer support the very processes it was designed to automate.

SALESCO executive learned its lesson and started to invest heavily in IT. Unfortunately it was too late. The replacement program took three years. It took SALESCO five years to recover.

The investment should have commenced five years earlier when SALESCO started the planned expansion. The investment costs and benefits should have been built into the long term business plans, not after the expansion had taken place.


25

Once the business’s long term strategic direction, objectives and priorities have been confirmed, financial targets are set for the coming financial year and business management then develops divisional plans and budgets to deliver these targets.

There are two common scenarios which severely impact IT in this process:

IT is not involved with the business in developing its annual plans and as a result the IT resource and 1. budget impacts of the plans are not catered for.

The budget process often overtakes the planning process and the IT budget is developed in isolation of 2. the business plans and budgets.

Both scenarios end with the same result - the IT budget and plans (supply) are not formulated on planned business requirements (demand) potentially leading to inferior service and lack of resources to deliver business programs, projects and services.

The cost of IT is a direct result of the business demand (long and short term) for the delivery of service levels and the IT component of business programs (IT projects). For business management to understand its IT costs and the levers it can pull to vary these costs, IT budgets are best formulated interactively with the business over the following three key areas using the annual planning and budgeting framework (Figure 5.0):

KIR – largely the commodity infrastructure determined by service level required by the business•

enhancing current capability - cost of resources to make the changes or enhancements that arise during the •year as a result of short term business imperatives

building / acquiring new capability – mostly treated as a capital cost that should have been identified the •long term strategic plan

Adhering to the framework will ensure that:

the IT budget is not developed in isolation from the business budget and the costs of proposed IT initiatives •is allocated in the business or IT budgets

the business cost of IT initiatives (e.g. training, process re-engineering) is included in either the IT or business •budget

the gap between the business demand on the IT budgeted supply is addressed in the business planning •process and realistic expectations are set of IT delivery capability

5. Annual planning and budgeting



Ongoing management

26

Business and IT business plans and budgetsPrioritised pipeline / portfolio of business programs and projects

Agreed business service level agreements

Business IT strategic planPipeline / portfolio of strategic initiatives

BusinessProcess

BusinessDecisions


ITDecisions

Annual project and service level demand management and IT budget alignment process

response times

to existing systems

projects and benefits

budget

budget

and resource capacity

Figure 5.0 Annual planning and budgeting framework

5.1 BMIT process 2: Annual project and service level demand management and IT budget alignment

A number of issues arise in the ongoing delivery of service that could be avoided if the time is taken in the annual planning and budget process by business and IT management to agree on the levels of service required and the costs and risks involved. BMIT process 2 – annual project and service level demand management and budget alignment process will:

link business plans and budgeted benefits to the IT project resource (discretionary) budget•

ensure that IT supply is funded and capable of delivering to annual business plans•

align annual IT program of work with long term business strategy•

link IT KIR budget with business service expectations•

balance the annual demand supply equation•

deliver the first cut annual work plan, dependencies and priorities•

On completion of the annual planning and budgeting, business and IT management should know:

the IT contribution to strategic business programs (capital spend and resourcing) and the annual list of •prioritised IT work required to deliver the annual business results

the overview of the non strategic projects and enhancements (discretionary operational spend)•

the service levels IT will be required to deliver to the business and a clear understanding of the cost, risk and •performance issues relating to the agreed budget (KIR spend)


27

BMIT process 2: annual project and service level demand management and IT budget alignment process


Set annual objectives

Board and business executive

Annual objectives (financial and other) are set for the company in line with the long term strategy and a decision is made on strategic program investment (capital spend). Business divisions translate these objectives in specific divisional objectives and plans.

Actions to achieve objectives

Business managers

Develop operational plans to deliver the objectives e.g. change initiatives (new function, products, processes)•increase in volumes, geographies etc•productivity improvements•

Business budget development

CFO, business managers and IT manager

IT works with business management to identify the IT implications of the proposed operational plans. This encompasses:a) KIR and service level implicationsb) strategic programs or changes to existing systems to be initiated this financial year (subset of the long term strategic plan and roadmap)

IT project cost and benefits of guesstimates

IT manager, IT architects, business analysts and business managers

Interactive process between business managers and IT analysts and estimators to establish ‘order of magnitude costs’ that will enable business to validate the IT costs and benefit assumptions in their operational plans and budgets.Business managers agree preliminary cost and effort estimates and set priorities for each requirement to assist in the elimination process when the IT budget is being finalised.

IT service level costs

IT manager, IT operations and business managers

Interactive process between business and IT managers to work out the ongoing cost implications of increased volumes, changed geography etc. IT estimates and advises on costs, performance and risk and business managers decide how much they can afford, the risk they are prepared to carry and the performance they can live with.

IT budget development

IT manager Develops IT budget based on the business division requirements for projects and service levels.

Assessing total IT demand

IT manager and business executives

IT will have analysed and guesstimated the requirements from all business areas and come up with the total budget for KIR, a budget for operational projects and a capital budget for strategic projects. The CEO and executive will decide if the company can spend this amount on IT. The answer is usually no.

Prioritisation and IT budget alignment

Business managers and the CEO

Business divisions get together and decide what will be cut from the business requirements list using the priorities set by each of the business units. The business and IT executives work together to balance the supply / demand equation.

Finalise budgets

CFO, business managers and IT manager

Business unit operational plans and budgets are consolidated into group operational plans and budgets.

Business and IT business plans and budgetsPrioritised pipeline/portfoio of business programs and projects

Agreed business service level agreementsBusiness measures of IT

Figure 5.1.1 BMIT process 2: Annual project and service level demand management and IT budget alignment process


28

5.2 Business program prioritisation and budget alignmentThere can be many reasons why business priorities change, for example, the competition doesn’t always do as expected. When priorities change, it is essential that the change is quickly reflected in plans so that wasted effort is avoided in all asset classes.

Prioritising long term investment requirements and short term business imperatives is an ongoing process, not an event. The long term strategic plan sets out the overall priorities for the company, however it is critical that these priorities are revisited in the annual planning process and during ongoing management to ensure that resources, skills and funding are in place and budgeted, in all asset classes including IT. Priorities need to be reassessed through all phases of the planning lifecycle to ensure that IT is best positioned to respond to changes in business demand (Figure 5.2.1).

Long termstrategic planning


Ongoing management

Sets strategic prioritiesthe 3 – 5 year prioritised roadmap to achieve the •company’s objectives

Sets Financial Year priorities

prioritised plan of work and budgets which will •deliver this years objectives and keep the company on course to deliver long term objectives

Sets the IT work plan

re-prioritisation of the annual program of work to •deal with unplanned events as they arise

Pipeline of planned work

Figure 5.2.1 Business prioritisation of business demand

5.3 Business prioritisation forumEffective prioritisation relies on well-conducted long term and annual planning processes and a well organised business team assigned with the authority to make prioritisation decisions on behalf of business management.

Establishing a business forum to support the ongoing IT work prioritisation process and charged with the following tasks will ensure that IT resources are put to best use and are not losing time on non essential work:

prioritising long term strategic demand along with short term business imperatives against IT supply •limitations

ensuring that work on existing applications has benefit and that IT effort is focused on adding value through •new projects and programs (see Figure 5.3.1)

dealing with the strategic alignment and risk issues that may arise from having to juggle competing •demands for a limited budget

continually assessing the impact of work rescheduling on proposed business case outcomes•

supporting the annual planning and budgeting process and advising business management on IT investment •priorities taking into account the company’s long term and annual business objectives and making recommendations on which programs should go ahead and which could be deferred or cancelled

advising business management on investment ratios (dollar spend on KIR versus new capability and •innovation) and the risks associated with under or over investing in particular areas


29

Evaluate Assess individual applications

Rationalise Streamline spending

Govern Use IT governance to control diversity

20/80 ratio 40/60 ratio

Newprojects

ExistingApplications

Newprojects

ExistingApplications+ =

Figure 5.3.1 Effective prioritisation of IT effort

In some companies, the prioritisation forum charter extends beyond IT and covers the prioritisation of all business change across the company.

A word of warning: when establishing a business forum, ensure that this is not a representational group with each member fighting for their own divisional interests. The group needs executive leadership, the skills and experience to set priorities and delegated authority to make decisions on behalf of the company. IT management is a critical member to articulate supply constraints which will effect prioritisation. In smaller companies the forum may be a subset of the management team chaired by the CFO.

To support the ongoing work prioritisation process (Section 6.1), the business forum requires a comprehensive pipeline list of the total demand and work in progress, including:

strategic initiatives (from the strategic planning process)•

additional business requirements (from the annual planning process)•

adhoc requests for change resulting from day-to-day business imperatives•

The pipeline list provides the vehicle with which the forum can prioritise business demand and IT management, and develop and resource the work plan of programs, projects and minor work requests.

The level of sophistication of the pipeline list will vary depending on company size, dollars and complexity of demand. An excel spreadsheet can work quite well. There are also a number of packages on the market that support the recording, categorising and analysis of business demand and produce information that enables business to prioritise its discretionary spend in line with the business strategy, plans and objectives (portfolio management).

A number of organisations have established a program office to manage and oversee discretionary spend for all assets classes including IT. This office is often located in finance and supports all programs of work across the organisation, not just IT.

5.4 Service level planning and budget alignmentMany organisations cannot operate if their IT systems are not functioning. Service failures can negatively and rapidly impact large numbers of customers, suppliers and internal staff. Network outages, server failures, email downtime, broken desktop computers or widespread damage caused by viruses can significantly impact the productivity of an entire company. At best, IT failures cause inconvenience; at worst, they destroy companies.

Reliable IT service is the direct result of a well-planned and organised IT department working proactively with the business to deliver on agreed service levels. Good planning can result in decreased costs and improved service levels through:

commodity buying•

better leasing deals•

longer term contracts with suppliers at better prices•


30

Without properly articulated service requirements (e.g. volumes, response time etc), IT is forced to make assumptions which may result in:

over catering of hardware and network capacity•

upgrades to later technologies when unnecessary•

insufficient disaster recovery•

asset replacement is deferred resulting in dependency on obsolete and unsupported systems•

All of the above could lead to higher than necessary operating costs.

Regardless of the size of the company or whether production services are sourced internally or externally, business driven service level agreements must be in place to give IT management the information it requires to establish the KIR budget and proactively plan the resources, capacity and capability to deliver services in line with the level of performance and risk defined.

When setting the KIR budget it is also worthwhile looking at IT costs from a business perspective. The following table gives some examples.

Business action which drives IT cost IT cost

Number of help desk calls Cost of running the help desk

Number of requests for small changes Maintenance of existing systems

Number of mobile phones and phone plans Telecommunications costs

Diversity of desktop applications Desktop software license costs Table 5.4.1 Examples of IT costs

When setting the KIR budget it is imperative that business management clearly understands the service consequences and risks of cutting costs below those recommended by IT management.

Complete the following table. If you answer ’no’ to more than three questions, it is highly likely that IT operational and capital spend budgets will not deliver to business expectations.

How effective is your Business Management of IT in the annual business planning and budgeting process

Yes No

Is the IT project budget determined as a result of long term business plans and annual business demand?

Are part of or all IT projects linked to business programs?

Is the IT operational budget determined as a result of negotiating service levels (cost, risk, performance, quality) with the business?

Are IT service level agreements articulated in business terms e.g. response time, service windows, volumes etc?

Does the business management know if it has the resources to cope with the extent of change IT has been funded to deliver? Is the IT operational budget determined as a result of negotiating service levels (cost, risk, performance, quality) with the business?Does business management have a forum in place to prioritise business demand against IT supply and to prioritise programs of work against short and long term objectives?Does business management have a method of estimating the business skill and effort required to deliver a business program / project?

Do business management allocate business skills full time to a project and cost the backfill in the cost benefits case?

Does business management understand the need for phased estimating and use of contingency calculations?

Does business management keep a pipeline of planned work, i.e. does the business understand the total demand it has on IT services and resources?

Does business management have a clear view of the IT cost drivers, e.g. transaction volumes, product complexity, geography?

Table 5.4.2 Effectiveness of BMIT in annual business planning and budgeting process


31

The annual planning and budgeting process outlines the business programs that are planned and funded for the year along with the capital and operational budgets. Ongoing management ensures that business and IT management work together to deliver the planned programs and service levels.

The operational framework outlines the business and IT accountabilities and interaction that must take place for the successful delivery of any IT-enabled business program, agreed service levels and business benefits (Figure 6.0).

Delivery to agreed service levelsApplications and infrastructure asset replacement assessments and schedules

Delivery of agreed business benefits


Agreed business service level agreements

BusinessProcess

BusinessDecisions


ITDecisions

Ongoing IT work prioritisation process

Business program or project gating process

Benefits realisation and monitoring and asset decommissioning process

requirements

and priorities

management

supply

Building or acquiring new capability

management

$ and time estimates,

performance, risk

scope,

timeframes, priorities

Delivering service levels

performance statistics and risk

profile

priorities

operational cost estimates

estimates

Figure 6.0 Ongoing management framework

6.1 BMIT process 3: Ongoing IT work prioritisation process No matter how well programs of work are planned and prioritised in the long term and annual planning processes, the reality for all companies is that adhoc requests for work still continue. It is really important that this adhoc work is vetted and prioritised against the overall objectives of the company. Many IT departments find themselves bogged down with adhoc work leading to underperformance on project work as they try to be all things to all people. The business prioritisation forum (Section 5.3) along with a solid and credible prioritisation process will nip many problems in the bud and ensure that:

business and IT resources are working on the right things•

the right business management people with the right skill and experience are making the decisions•

business division conflict for IT resource is resolved by business management not IT•

immediate business imperatives are prioritised against long term initiatives•

there is an ongoing IT alignment of with other key asset programs•

there is continual assessment of priorities to make best use of IT resources•

6. Ongoing management



Ongoing management

32

One of the critical roles of the ongoing work prioritisation process is to review the viability of the benefits case if a program of work is delayed. In a case where time to market is fundamental to the business case, delay may completely invalidate the case and the reason for going ahead would need to be revisited.



Raise a request for work

Business manager, IT relationship resource

A request for work can arise out of the strategic planning process, annual planning or as an adhoc request. A request must contain the following basic information:

overview of the business requirements and impact•

the benefits that would arise if the requirement was fulfilled•

order of magnitude guess on size and cost including business and •IT resources

It’s worth considering a benefits case policy for small changes as they can consume a great deal of resources on work that doesn’t help meet overall objectives.

Record request Program office business demand coordinator

Records the request in the pipeline. It is worthwhile recording all work requests even if they don’t go ahead. Analysis of this data can advise management on the level of unmet demand across the company.

Business validation

Seniorbusiness management

Before IT uses resources to examine the solution approach, it is wise to have senior management sign off. A great deal of effort can expended on work that goes nowhere.

Analyse solution options

Business management, business analyst and architect

For many business requests for work, there are a number of solutions of varying cost and risk profiles. Before expending effort, business management needs to understand these options and make a decision, for example, on a quick fix versus long term solution.

Estimate costs and resource availability

Business analyst, architect and IT work scheduler

The business analyst and architect estimate of IT effort, business effort, costs and skill set requirements. The IT work scheduler will give an estimate of the timeframe the work can commence in taking into account current resource usage on work in progress, specific skills requirements and already committed work.

Business case and business unit sign-off to proceed

Business requestor Business management prepare the business case. In many companies this is done by the IT resources because business doesn’t have the time or skill. This does not mean IT owns the business case.

Business unitprioritisation

Business unit management

Business units prioritise their work requests taking into account the divisions’ annual and long term objectives. Approved work is then submitted to the business prioritisation forum.

Groupwide prioritisation

Business prioritisation forum

Work is prioritised by the forum and the forum advises requestors of priority and approximate timeframes. (See Sections 6.2 and 6.3.)

Schedule work requests

IT work scheduler Work is scheduled into the IT work program ensuring that dependencies on business and technical resources are covered.

Scheduled program of work


Figure 6.1.1 Ongoing IT work prioritisation process

Ongoing management

33

6.1.1 Building and / or acquiring new systems

Being able to build or acquire new systems within the timeframes and costs set by the business plan can make or break a business. Although this is an area that generally gets a lot of project governance and management attention, it is still subject to the highest failure rates. The most common causes include:

the IT component of the program is planned and executed in •isolation of the business

jumping straight into delivering the program without revisiting •the solution approach, estimates and business case

the business is not prepared for change and not ready to •implement

the business has a problem allocating skilled resources because •they are required to deliver the business bottom line objectives

Business effort is underestimated, on average 50% of the effort •on most projects requires business skills, not IT

People in charge of the project don’t have the authority or the •support to make things happen yet are held accountable when nothing happens

Planning without action is futile, action without planning is fatal.

These problems are overcome by business management and IT working together, and by top executive control to ensure that the right people (particularly business people) remain engaged right to the end of the project. Business management takes accountability for planning and executing IT-enabled change and IT management takes accountability for delivery of the technical solution.

Fundamentals to success:

establish one program and one plan reporting to one accountable program manager • (Figure 6.1.1)

ensure the program manager has the business and project management skills and experience to do the job •- IT skills are secondary

make business management accountable for all areas of ROI including the IT component•

ensure that all associated business costs are understood and included in the business case•

Some business programs may require upgrades to IT infrastructure, for example, upgrades to desktop equipment and / or data networks and software products. These should be traceable back to the business program that requires them.

Figure 6.1.1.1 Program management organisation

Ongoing management

34

6.2 BMIT process 4: Business program or project gating processAnalysis of a number of project failures has found that business requirements and solutions are still being formulated well into the build phase causing rework, redesign and costs and time blowouts. Effective Business Management of IT will ensure that the hard work is done up front and approval to fund is not given until scope has been locked down and the solution concept has been fully tested. The business program or project gating process reinforces business ownership and focuses attention on the scope, dollar and benefits case alignment. The process will ensure that:

checks are carried out at key stages throughout the program lifecycle to monitor, forecast and complete the •validity of the benefits case

information to make decisions to change or cancel projects is monitored and acted upon•

This process can be tailored to your company’s requirements.

There are some simple rules that business management can adopt to reduce business program / project failure.

Treat every IT initiative as a business initiative. 1.

Do not start a project without having identified and tagged the 2. availability of both the business and IT resources.

Introduce a program / project gating process where business management 3. assesses progress against predetermined milestones and revisit the decision to proceed based on the business case still being valid and the dollars to complete are on target.

Ensure that the right business resources are on the program and taking 4. accountability for all business requirements.

Planning and organising a program or project can be seen to be an 5. overhead which just delays the start. It is not.

“... the end cost of the program depends on the quality of business management control over the journey.”

Neil Wilson - CEO, Oakton

Answer the following questions. If you score ‘no’ to more than two questions, then the chances are that IT-enabled change in your company will have a high failure rate.

How effective is your BMIT in changing existing systems and building and / or acquiring new systems?

Yes No

Are IT projects always part of business programs, owned by the business?

Are all costs, business and IT, considered when formulating the benefits case?

Does business management allocate full time resources to programs as required by the plan?

Are programs / projects thoroughly planned, organised and resourced before they commence?

Does business management work with IT and insist on testing and retesting the solution approach before final approval and commitment to fund the program?

Does business management have a program gating process in place too?

Does business management retest the business case throughout the life of the program?

Does business management thoroughly review projects that are not performing to plan and reject assurances that ‘it will be OK in the end’?

Does business management recognise and terminate projects that are no longer viable?

Does business management have plans in place to deliver business benefits once the IT-enabler has been implemented?

Table 6.2.1 Effectiveness of BMIT on systems

Ongoing management

35

Phase What does business management review

Decision gate What does business management check?

Initiative concept

•Initiativescope•Businesscaseconcept•Costestimates•Solutionapproach

Decision that the concept is feasible and worth pursuingrecommendation of spend

Is the proposal part of the overall Business IT strategic plan? •Is the solution approach feasible? •Has the scope covered all aspects of the initiative, business, IT •and external stakeholder impacts?Have all stakeholders been consulted?•What are estimating assumptions? Do they cover all aspects •of the scope?Is the conceptual business case valid? Does it cover financial •and non-financial benefits?What are the risks in proceeding to detailed planning?•How would detailed planning be approached? •Who would do it? What are the estimated costs? How would this be governed?

GATE 1

Business case and high level design

•Highleveldesigntodeliver the solution

•Detailedbusinesscase

•Financialandnon-financial benefits and measures

•Guesstimatedbuildcosts and ongoing operating costs

Decision to fund the project /program

What process was used to establish the scope of the program? •What process was used to deliver the high-level design? Were •all stakeholders involved?Has the high-level design been tested from both a business •process and IT solution perspective?Have all aspects of the scope been included in the estimating •assumptions?Is the high-level design compliant with the architectural •direction?Have the ongoing operating costs been worked out?•Have change management considerations been taken into •account?Has the acquisition approach (build or acquire package) been •fully investigated?Have risks been identified and assessed?•Is there a benefits realisation strategy and is it realistic?•

GATE 2

Program /project initiation

•Project/programorganisation and governance

•Milestonesanddeliverables

•Scopelock-down

Decision to commence the build or acquire phase

Are the following in place?Program or project governance and organisation including •steering committee and business ownerBusiness and IT resources (fully available as required by the •program plan)IT development and testing environment•Suitable accommodation•Risk and issue management process•Scope change management process•Benefits realisation plan•Program milestones and budgets for each milestone including •’go live’ Contracts in place with vendors as required•Scope signed off by business owner•

GATE 3

Build and / or acquire

•Milestonereportingagainst budget

•Scopechangereporting

•Riskreporting

Decision to recommend intervention Decision to promote ongoing production

Throughout the build / acquire phase check:Scope changes and treatment•Estimates to complete aligned with work to complete•Risk assessment and mitigation measures•Business case reviews •

Figure 6.2.2 BMIT process 4: business program or project gating process

Ongoing management

36

6.3 BMIT process 5: benefits realisation and monitoring and asset decomissioning process

Monitoring service levels and measuring the effectiveness of ongoing operations benefits delivery is an essential input to long term planning and annual planning and budgeting cycles. It informs whether the investment in IT is delivering to the planned business strategy and objectives for the company’s use of technology.

Questions to ask yourself:

Have the planned programs of work delivered the expected benefits?•

Are priorities still valid?•

Are services delivering to agreed levels? If not, what is required to achieve service objectives?•

What infrastructure assets are due for replacement due to obsolescence or non-performance and what is •the cost?

Are business application maintenance costs and business down-time measures acceptable?•

Answer the following questions. If you score ’no’ to more than three questions, it is highly likely that business management is not paying attention to ongoing operational performance from a business perspective.

How effective is your BMIT in ongoing management Yes No

Does business management have business metrics in place to measure overall IT effectiveness?

Does business management monitor service levels from a business perspective and feedback to IT?

Does business management ensure that business users are working within the parameters of agreed service levels?

Does IT management advise business management of changes in IT infrastructure that may impact business delivery?

Does IT management have an asset management regime in place to assess IT assets and schedule replacements?

Does business management understand the cost of specific IT service levels and the cost drivers behind this service?

Does IT management keep business management informed as to the health of IT assets and associated risks?

Does IT management advise business management on ways IT costs can be reduced or reallocated?

Is the effort and cost of adhoc business work requests monitored?

Does the business and IT management have an ongoing work prioritisation process in place that takes into account immediate business imperatives?

Does the business have a benefits management system in place?

Are benefits realisation, IT effectiveness, service level and asset replacement metrics fed back into the strategic planning process?

Table 6.3.1 Effectiveness of BMIT on ongoing management

Ongoing management

37



Appoint the benefits plan owner

Business management

The plan owner could be a business manager or the CFO. The plan owner ensures that all aspects of the benefits are being delivered and that the total case has been achieved.

Assign responsibilities

Plan owner Assigns accountabilities as per the business case to the responsible manager. For example:

sales targets to the sales manager•

headcount reduction to human resources manager•

process improvement to process line managers•

travel savings to the executive team•

Submit specific plans

Responsible manager

The responsible manager submits plans to the plan owner on how and when the benefits will be delivered. This plan should have developed during the conduct of the program / project.

Assess assignee plans

Plan owner The plans are assessed by the plan owner and unrealistic benefits are eliminated.

Baseline the measures

Plan owner Financial and non-financial baseline measures are recorded for each benefits area and planned milestones and deliverables are built into key performance indicators.

Financial benefits in financial budgets

CFO, plan owner

Financial benefits are included in financial budgets.

Deliver benefits Responsible manager

The responsible manager carries out the action plan to deliver the benefits and keep record of status against activities, risks and issues.

Collect results Plan owner Each month, or defined time period, the plan owner collects the results and records against the baseline.

Monitor delivery Plan owner The plan owner keeps track of delivery of both financial and non-financial benefits and reports to the management on milestone achievements and ultimately when all benefits have been achieved.

Preferably all benefits realisation baselines and measures are kept on a single database facilitating analysis of results for input into the company’s strategic planning process. This is ideally kept by the CFO.

Quantified benefits

Input into long term strategic planning

Figure 6.3.1 BMIT process 5: benefits monitoring and realisation process

Ongoing management

38

6.3.1 Service level monitoring and measurement

Business management has a significant part to play as the users of ongoing services. It should provide feedback as to whether the agreed service is meeting business objectives and ensure that service requests from users are within agreed parameters.

Business circumstances can change and if IT management is not informed of these changes, service levels are unlikely to be maintained. Likewise, if IT makes infrastructure changes without advising the business or without being aware of the business impact, business services can be disrupted.

Check the back door

The help desk can become the source of a great deal of IT effort in that requests via this channel into IT can bypass the usual vetting and prioritisation processes. There is benefit in business management vetting this work request stream before IT effort is spent. This could result in a reduction in service level costs and resources being freed up to work on more strategic projects.

Understanding service level costs can be achieved through the introduction of a simple service level costing model. IT cost centres are used to account for costs around the key IT delivery components used to deliver services rather than traditional line management cost centres. The following table shows how these costs can be distributed against service levels by percentage usage based on a technical analysis of the volumes and response times expressed by the business in the service level agreement.

Service level percentage usage and caluculated monthly cost

IT Delivery Components

Total Cost per month

Service Level 1

Cost Service Level 2



Cost Total

Mainframe $405,000 10% $40,500 15% $60,750 60% $243,000 15% $60,750 $405,001

Midrange $230,000 40% $92,500 10% $23,000 25% $57,500 25% $57,500 $230,001

Network and comms $130,000 50% $65,000 20% $26,000 10% $13,000 20% $26,000 $130,001

Desktops and laptops $250,000 0% - 50% $125,000 0% $ – 50% $125,000 $250,001

Email $75,000 10% $7,500 0% $ – 50% $37,500 40% $30,000 $75,001

Help desk $150,000 30% $45,000 15% $22,500 20% $30,000 30% $52,500 $150,001

Problem & risk management $75,000 25% $18,750 25% $18,750 25% $18,750 25% $18,750 $75,001

Monthly service level costs $1,315,000 $268,750 $276,000 $399,750 $370,500 $1,315,007

Note - IT delivery cost components include: hardware, systems software, security, disaster recovery, property and people

Table 6.3.1.1 Cost of service level agreements

Understanding service level performance is traditionally measured by the number of times service levels were not met. This does not really help with the business question around balancing the IT cost / risk / performance equation. Introducing quantitative business measures will better enable business management to assess service level costs. Measures include:

customer satisfaction and / or customer retention•

cost of business time lost and / or cost of business errors•

Ongoing management

39

Ongoing management

Assessment of IT effectiveness is often measured against ‘on time – on budget’. This approach can hide a multitude of issues arising from short cuts and scope change. These issues won’t show in project or department budget measures but will start to cause business pain in the long term. Some examples of trend measures are set out below.

10,000

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

01 2 3 4 5 6 7 8 9

0.70

0.60

0.50

0.40

0.30

0.20

0.10

–

Revenue IT Costs Unit IT Cost per Transaction

Unit cost per transaction

Time

$cen

ts

$000

This graphs show IT costs increasing as a % of revenue but the unit IT cost per transaction decreasing significantly over time indicating improvement in IT transaction processing capability. It is highly likely that transaction costs would be on the increase if IT had implemented sub optimal solutions.

40,000

35,000

30,000

25,000

20,000

15,000

10,000

5,000

01 2 3 4 5 6 7 8 9

350,000

300,000

250,000

200,000

150,000

100,000

50,000

–

Revenue IT Costs Unit IT Cost per Transaction

IT cost per sales channel

Time

Do

llars

Tran

sact

ion

s

The comparative information on channel usage and IT costs is valuable input into the strategic planning process and into BMIT discussions as to the future of sales channel 2. If the business predicts that volumes will continue to drop, can IT reduce costs by scaling down infrastructure?

250

200

150

100

50

01 2 3 4 5 6 7 8 9

180

160

140

120

100

80

60

40

20

0

Business impact of IT services performance

Time

$000

Ho

urs

an

d n

um

ber

of

pro

ble

ms

Service Level Problems Business Time Lost Cost of Business Errors

Here business management can see that service level problems are increasing but not significantly. If viewed alone one may not consider the situation serious. The key issue here is that the problems are more severe and are causing greater business down time and business error cost.

20000

15000

10000

5000

01 2 3 4 5 6 7 8 9

9,000

8,000

7,000

6,000

5,000

4,000

3,000

2,000

1,000

0

IT performance versus business growth

Time

Cu

sto

mer

s

$000

KIR Cost Total Assests No of Customers

This graph shows a stable IT KIR cost base supporting a doubling of asset growth in the company. This demonstrates IT effectiveness (providing IT services are performing to required business standards).

40

Ongoing management

6.4.2 Benefits realisation

Measuring ROI or value delivery from the implementation of IT-enabled business programs is primarily dependent on business management being very clear as to why the company is using technology in the first place and what value it expects IT to deliver and how. The expectation should be clearly articulated in the long term strategic plans and should be the basis for determining whether or not a program will deliver overall value.

Companies spend a lot of time preparing the business benefits case as the justification for spending the dollars. The problems for ongoing benefits realisation and value delivery start at conception:

IT develops the business case and it is not owned by the business. •

The business benefits case loses sight of the overall business strategic •direction.

The benefits are formulated on a case-by-case basis when it is the •sum of the cases that will deliver benefit.

Value with the regard to delivering on the overall company strategy •is often ignored.

Consideration is not given to how the benefits of regulatory and •compliance work should be valued.

In some cases, the development of the business case is where the •focus on benefits stops.

The benefits case is not tested and the case is based unrealistic •savings that in practice cannot be realised.

Beware of an IT solution looking for a business problem.

Identifying benefits and realisation measures isn’t difficult if the same disciplines used in the introduction of any other business change are applied.

How will the business use IT?

What are the business cast drivers?

What are the business actions to reduce costs?

What are the planned benefits?

What are the business changes?

What are the IT enablers?

What are benefits realisation measures?

Decrease transaction costs to improve margins to stay ahead of the competition

•Headcount •Floorspace

•Timetopick •Warehouse

space

•Delivertime •Buyingpower

Re-engineer and further automate process

Reduce inventory

Rationalise the number of suppliers

•Headcount500k •Officefloorspace

50K

•Timetopick100k •Warehousespace

700k

•Delivertime100k •Buyingpower500k

Cost of the business program to deliver business action - including IT costs

IT costs $2.5m

Business costs $2.0m

Total $4.5m

Per annum:

Headcount •700k

Office floor •space 50k

Cost of goods •500k

Warehouse •700k

Total $1.950m p.a.

6.3.2.1 Developing the business benefits case and measures

Figure 6.3.2.1 sets out a simple version of the end-to-end cycle from the business decision on the strategic use of IT through to the measurement of implementation success.

41

To ensure that the benefits you start with are the benefits you end up with, it is essential to focus on the following throughout the development of any business-enabled IT program:

Recognise that scope change is a reality and continual testing of the business case through all stages of the •development lifecycle is essential.

Recognise that small, apparently inconsequential changes throughout the project can add up so that •significant planned benefits can not in fact be realised. All project and program changes need to be considered, not just against a project plan but also against a benefits realisation plan.

Be prepared to ditch the program if the business case doesn’t stack up.•

Recognise that in some instances it will be a combination of programs or projects that will deliver the •benefits not a single implementation.

Ensure that the management responsible for realising the benefits is brought in at the beginning.•

Ensure that the business program or project includes the plan and costs involved in realising the •ongoing benefits.

Planning for benefits realisation should commence alongside project planning. The actual realisation of benefits starts once the IT part of the program has been implemented. In many companies celebration occurs when the system goes live but there is a tendency to forget that there is another complete plan to be executed – the ongoing benefits realisation plan. This plan is the basis for measuring and monitoring benefits delivery. It is essential that non-IT management activities are implemented to ensure that changes are made and benefits realised.

Benefits realisation and measurement must apply to both large scale strategic projects but also to the operational spend on ongoing change and service delivery. Assessing and measuring the following three aspects will in turn tell the company if it is getting real value from its IT investment:

service level delivery metrics and ongoing •service risk profile

delivery of the planned benefits associated •with a specific business case or a group of programs

support of the overall business strategy and •objectives

Benefits can’t be realised without successful business change: business change can’t be sustained without benefits.

6.4 Asset life monitoring, evaluation and decommissioningFew business managers have any trouble understanding that physical assets lose performance over time as a result of wear and tear, ageing and the advent of newer technologies. Asset maintenance and replacement regimes are a well established part of the ongoing asset management programs in most businesses. The same applies for IT applications and hardware assets.

Ongoing monitoring and measurement of the operational environment is often overlooked by business and IT. Most organisations have significant dollars tied up in IT assets but few have formal processes in place to manage these application and infrastructure assets with clear policies on when to upgrade, outsource or retire them based on measuring:

investment in additional function•

investment in technology upgrade•

cost of maintenance•

business time lost due to asset failure•

application complexity•

currency of the underpinning technology•

Ongoing management

42

availability of skills and support•

poor documentation•

vendors refusal to continue to support ageing systems and infrastructure•

business change requiring changes to core systems•

Tracking and measuring asset performance from concept through to decommissioning has two key benefits:

It supports decisions to retain, replace or upgrade assets with factual information.1.

It provides fundamental input into long term strategic planning and annual planning, advising on asset 2. replacement, benefits realisation, and strategic positioning.

The concept of business application software deteriorating is sometimes difficult to appreciate. The impact of continuing business change to these applications can result in them becoming complex and requiring more and more maintenance and support over time. Ultimately, these applications are unable to respond to business needs. Companies that do not pay proper attention to IT asset monitoring are likely to expose themselves to this type of risk.

Figure 6.4.1 provides an example of the metrics used to enable better asset ‘keep or replace’ decisions.

25

20

15

10

5

01 2 3 4 5 6 7 8

2000

1800

1600

1400

1200

1000

800

600

400

200

0

Application Life Assessment

Time

Ho

urs

per

Mo

nth

Do

llars

Cost of maintenance Depreciation Business time lost

Figure 6.4.1 Application life assessment metrics

An IT asset management regime needs to track the viability of business applications and infrastructure to ensure that they are maintained effectively and that replacement occurs when appropriate. It can be possible for organisations to release substantial capacity for new investment without compromising ongoing operations through effective asset management and retirement practices.

Figure 6.4.2 (on the next page) sets out examples of how business applications can be factually assessed on their business value and whether the application should be kept, retired, upgraded or leveraged.

Ongoing management

43

Ongoing management

1.0 2.0 3.0 4.0 5.0

5.0

4.0

3.0

2.0

1.0

0.0

5.0

4.0

3.0

2.0

1.0

0.0

5.04.03.02.01.00.0

Business Value

Financial Assessment

IT Value

Business & IT Value

5.0

4.0

3.0

2.0

1.0

0.0

$900,000

$800,000

$700,000

$600,000

$500,000

$400,000

$300,000

$200,000

$100,000

$0

Legal

Business impact

Functional coverage

Data quality

UsageFrequency of usage

Ease of use

Training

Support Design quality

Customisation

Vendor

Integration

SecurityResponse time

Maintenance

Reliability

IT skill

Technology

Totalsupport cost

Book valueto date

Total acquisition cost

Figure 6.4.2 Example application asset measurement and assessment - Oakton Ltd

Ignore IT asset assessment and management at the company’s peril

SERVCO supplies and maintains capital equipment for major organisations, some of which have highly critical 24/7 operations. Naturally, the service contracts demand a high level of rigour. They have substantial liquidated damages clauses which activate when SERVCO fails to meet prescribed service levels.

Fifteen years ago, SERVCO installed a comprehensive package system that has been the basis for running its business. However, over the years, SERVCO made extensive changes to the system and built several custom extensions. Over time, the IT team had dwindled and the remaining staff was inexperienced. Senior IT personnel were not considered necessary, as there was little change happening.

But deep in SERVCO’s systems there was a time bomb ticking. The main computer, a very old machine, was becoming unreliable and spare parts were not available. When the disk drive failed, SERVCO was thrown into disarray because the only solution was to replace the hardware with a newer model. This required changes to the software and rare, specialised skills to work with the technologically ancient code. A last minute discovery of a spare working disk averted disaster but not before several customers had activated the liquidated damages clauses.

If business management had an asset assessment and management system in place the level of risk being carried by the organisation would have been recognised sooner and perhaps in sufficient time for a constructive solution to have taken place.

Upgrade

Retire Leverage

Keep

44

Appendix: useful reference material

Aalders, R. and Hind, P. (2002) The IT Manager’s Survival Guide. Wiley, New York.

Bartlett, John, ‘Managing Programmes of Business Change’, Project Manager Today Publications 1998, 3rd edition.

Broadbent, M. and Kitzis, E.S. (2005) The New CIO Leader: Setting the Agenda and Delivering Results. Harvard Business School Press, Boston Massachusetts.

IT Governance Institute (2003) Board Briefing on IT Governance, 2nd ed. Available online at www.itgi.org (accessed 22 September 2005).

IT Governance Institute, Enterprise Value Govenance of the IT Investment – The Val IT Framework

IT Goverannce Institute (2005) Governance of the Extended Enterprise: Bridging Business and IT Strategies. Wiley, New Jersey.

John Ward and Elizabeth Daniel, ‘Benefits Management – Delivering Value from IS & IT Investments’ Cranfield, 2006.

Jordan, E. and Silcock, L. (2005) Beating IT Risks. Wiley, Chichester.

Lutchen, M.D. (2004) Managing IT as a Business: A Survival Guide for CEOs. Wiley, New Jersey.

Mahmood, M.A. and Szewczak, E.J. (1999) Measuring Information Technology Payoff: Contemporary Appraoches. Ide publishing Group, Hershey, USA.

Thorp, John, ‘The Information Paradox - Realizing the Business Benefits of Information Technology’, McGraw-Hill 1998, Revised 2003.

Weill, P. and Ross, J.W. (2004) IT Governance: How Top Performers Manage IT Decision Rights for Superior Results. Harvard Business School Press, Boston, Massachusetts.

CPA Australia ABN 64 008 392 452

cpaaustralia.com.au

T 1300 73 73 73

National Office CPA Australia Level 28, 385 Bourke Street Melbourne, VIC 3000 T (03) 9606 9606 F (03) 9670 8901C

PA75

960

11/2

007

business management of information technology · pdf filebusiness management of information...

Documents