Formalizing IT Governance
Are your board members tired of the cost and strain in keeping up with IT's growing
spurts?
How long will they keep throwing money at a doomed infrastructure that YOU can fix today?
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million... and developing important synergies that empower the entire company.
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Formalizing IT Governance, by Richard McLaughlin
The Five Steps of Project Portfolio Management
"The CIO who doesn't make money for his company, who doesn't drive its stock price higher, who has never had to produce a profit and loss
statement risks losing his seat at the executive table for good."
Being a CIO isn't easy these days. With technology now comprising almost 40 percent of total capital spending by companies today, CEOs can no
longer afford to fund Telecon and Technology projects that don't deliver on expectations. In fact, CFOs are now making IT departments live by the
same rules as sales and marketing business units, with CIO’s now required to improve operational efficiencies and justify all their IT
investments, even the most essential ones. In response to these pressures, CIO’s world-wide are rapidly embracing IT governance strategies to
control costs while delivering IT value, with 70 percent of the Global 1000 expected to have a highly centralized IT governance strategy in place
by 2006.
So what's behind all the rush to adopt Technology governance strategies? If you were to guess Sarbanes-Oxley, you'd be partially right, as
CIO’s are scrambling to put into place effective internal controls, real-time disclosure mechanisms, and transactional systems that deliver
bullet-proof financial statements. But Sarbanes-Oxley is just one of a whole host of regulations that are forcing CIO’s to take a hard look at
their IT systems, with the Health Insurance Portability and Accountability Act (HIPAA), the Patriot Act, the Basel II Capital Accord, and
International Financial Reporting Standards also on the radar screens of CIO’s around the world.
Although improving IT governance is a top priority for most CIO’s, they must first overcome a host of organizational and technological barriers
that limit the operational effectiveness of their departments. For example, 80 percent of IT managers in the United States say that their staffs
don't have the financial skills needed to quantify the benefits of IT investments. Many companies also lack the robust transactional systems
needed to provide detailed information on project costs, resource usage rates, and other key metrics.
So how do you bring greater discipline to your IT operations? You need a roadmap to formalize IT governance and possibly a vendor to offer an
end-to-end solution for the selection, evaluation, monitoring, and financial management of a company's portfolio of IT projects.
Common Barriers to Formalizing IT Governance
No formalized IT request process and filtering mechanism, which creates an inability to correctly anticipate IT demand and effectively prioritize
IT projects into an enterprise-wide portfolio.
Multiple tools and manual processes that create complexity and decrease visibility into IT operations.
Lack of transparency into project costs across a variety of levels (for example, software, hardware, maintenance, help desk, network costs),
which make it difficult to identify, track, and allocate costs to projects.
Lack of scorecards, dashboards, and other communication tools to help visually communicate the value of IT to other business units, executive
management, and corporate boards.
Separate databases for maintaining inventories of applications, hardware, storage, projects, and resources, which make it hard to effectively
track usage and allocate assets and resources.
Difficulty in communicating with other business units to anticipate IT demand and improve service delivery-
Little or no consensus around what differentiates an IT project versus a business project.
If you've been around IT operations for a while, you've probably run into a few of these barriers yourself. The good news is that technology
solutions are now available to eliminate most of these barriers through the automation of key IT processes, much in the same way that CIO’s have
deployed ERP solutions to automate finance, human resources, and supply chain business management.
The Five Steps to Project Portfolio Management
Working with leading CIO’s, PeopleSoft created a five-step roadmap to help you formalize IT governance in your own organization. The roadmap uses
PPM methodologies, IT best practices, and world-class technologies to help you run your IT department like a high-performing business that adds
real value to your organization's bottom line.
Step #1: Take Inventory of Your IT Projects
Payoff: Gain Visibility and Control Over IT Investments
According to a recent report, 75 percent of IT organizations have little oversight over their project portfolios. Some of the leading reasons why
companies have poor visibility into IT operations include mergers and acquisitions, which create multiple IT operations; decentralized,
geographically dispersed IT operations; and the large number of independent business units prevalent among corporations today.
To gain visibility into your IT operations, you need to create a list of all your IT projects, including those being managed by individual
business units. Once that list is completed, you should work hand-in-hand with business units to identify duplicate projects and consolidate any
overlap. By using that consolidated list, you can then match remaining projects to strategic corporate objectives and eliminate those that don't
support current goals.
The payoff from executing this step alone can be huge. Eliminating redundant or nonstrategic projects can free funds that can be redeployed
to:
Speed time to benefit on remaining projects.
Approve more projects that do support strategy. Meet lower IT budgets.
Step #2: Define the Project Request Process
Payoff: Improve IT Accountability and Value
According to AMR Research, 75 percent of IT organizations employ a nonrepeatable, chaotic process when planning IT investments. In layman's
terms, that translates into lots of pet IT projects that get approved by executives outside of IT, only to disappear into information black holes
where bad projects can linger forever and good projects get cut.
To gain control over the IT planning process, you need to put structure into the IT planning process. That means getting individual business
units involved right from the beginning, from the time a project request is submitted through budgeting, review, evaluation, and approvals.
The first step? Create an IT planning committee led by the CIO and composed of business unit heads to identify best practices for project
evaluation, selection, and performance monitoring against strategic corporate objectives. The committee can meet annually or semi-annually to
identify the projects that best map to strategic goals identified during the company's budget planning process. Throughout the rest of the year,
functional heads from each business unit can meet on a regular basis to carry out the IT planning and evaluation process.
Step #3: Build a Business Case; Payoff: Know the Value that IT Is Delivering
You don't need to be a graduate of the Harvard Business School to know that building a business case is an essential part of business strategy.
So why is it that 84 percent of companies don't
build business cases for their IT investments? According to CIO Magazine, that's because the biggest IT projects are oftentimes awarded to the
squeakiest executives, approved by corporate boards that lack any real understanding of the project's objectives or expected return on
investment. Too many times, CIO’s are left holding the bag, selling projects that should have been sponsored and sold by line-of-business
heads.
Working in conjunction with their business units, CIO’s must establish a strong business case to their CFOs to justify any IT investment-even
those mission-critical infrastructure projects. To build a strong business case, you need work closely with members of your IT planning committee
to:
Quantify the costs, risk, and ROI of the project and the expected benefits the project will deliver.
Get buy-in from executive management by using business terms and ROI calculations that they know and understand
Evaluate the project's IT and resource requirements against existing and other proposed projects across all business units.
Because projects differ greatly in the value they can bring to organizations, it's sometimes hard to know which IT projects to approve-even by
using business cases. Analysts point to metrics like cost, value, risk, and ROI as the value currency of IT, enabling managers to measure project
performance and balance riskier, higher-reward projects against lower-risk ones. To improve your chances of funding the right IT projects, you'll
need to divide your IT portfolio into specific investment categories, such as infrastructure (keeping the lights on), informational (supporting
organic growth), and strategic (finding new ways of doing business using technology).] Once you've divided all your projects into these buckets,
you can use metrics to compare and contrast project requests within specific categories, then assess how well each one aligns to your
organization's overall strategic goals.
Step #4: Monitor Project Progress
Payoff: Maximize IT Investments ,
In many companies lack the robust transactional and analytical systems that are needed to provide
detailed information on project costs, resource usage rates, and other key metrics. Without the right metrics, it's not surprising that 89
percent of companies are flying blind when it comes to monitoring the performance of their IT projects.
Having the right metrics in place allows you to improve project performance and IT value, keep business units up-to-date on project status and
ROI, and deliver real-time information to senior management on project status and performance.
Step #5: Adjust to Changes
Payoff: Use IT for Competitive Advantage
Technology has become a key driver of competitive advantage, accounting for almost half the capital expenditures that companies invest in to
create more efficient supply chains, improve customer service, and expand into new markets. Technology can also help companies capitalize quickly
on market opportunities during market contractions and expansions.
CIO’s need to be able to anticipate and react in real time to these shifts, yet META Group notes that almost 85 percent of all companies are
unable to adjust or align their IT budgets more than one or two times a year. As more companies move to rolling budget forecasts to deal with
rapidly fluctuating market conditions, CIO’s must be prepared and reprioritize IT funding and resources at a moment's notice to meet off-cycle
requests as they arise.
Conclusion
Although the screws have tightened on IT budgets over the past few years, smart companies continue to invest in technology to improve
productivity, stay competitive, and establish themselves as leaders as the economic recovery strengthens. The key to wise IT management is
knowing when and where to invest, so that the funds your company does allocate to IT projects deliver a sustainable, competitive advantage-and
not disappear into a black hole.
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