IT Governance in the Mid-Market
A structured approach to managing corporate information resources and assets.
by Sonny Origitano
Vice President, PSC Group, LLC.
Abstract:
Today's senior executives face constant economic demands and pressures from a number of different sources such as Sarbanes-Oxley, Globalization, Maximization of Shareholder Value, Merger and Acquisition activity, Security and New Reporting Regulations. These demands are in addition to the normal organizational drivers of revenue growth, customer acquisition and cost reduction. While there may be some discussion on what to do and in what order to do it, there is no question as to which department will end up with a significant piece of the action Information Technology. These days, IT is involved with just about every aspect of the business. The problem is that IT has become an orphan, a black box, a necessary evil, an organization that no one really understands but takes for granted. Whatever you call it, it is now time to take a second look and develop a new appreciation of its absolutely critical role in the functioning of any modern business.
Introduction
Today's senior executives face constant economic demands and pressures from a number of different sources such as Sarbanes-Oxley, Globalization, Maximization of Shareholder Value, Merger and Acquisition activity, Security and New Reporting Regulations. These demands are in addition to the normal organizational drivers of revenue growth, customer acquisition and cost reduction. While there may be some discussion on what to do and in what order to do it, there is no question as to which department will end up with a significant piece of the action Information Technology. These days, IT is involved with just about every aspect of the business.
The problem is that IT -- the solution -- has now become the problem. And, it is not their fault. Charged with developing and delivering responses to executive decisions one at a time, IT has had no time to give any thought to its own well being. Given the continuing concern about spending and budgets, most organizations have adopted a concept from the manufacturing industry to deploy a lean model in the IT department.
While many organizations claim they are running lean IT departments, they also claim that they are doing so at a price. They simply don't have enough resources to meet the increasing demands on the business. So, while the front office continues to pile on strategic projects, mandated projects and enhancements, IT is left to struggle with supporting daily operations or to keep the lights on.
Simply stated, IT has become an orphan, a black box, a necessary evil , an organization that no one really understands but takes for granted. Whatever you call it, it is now time to take a second look and develop a new appreciation of its absolutely critical role in the functioning of any modern business.
This is where Governance in the mid-market comes to the rescue and separates the market leaders from contenders. While we do not intend to cover all topics in the space of Governance, we aim to focus on the key considerations that drive the bottom line.
Typically, organizations entrust close to 45% of their IT operating spend toward staff and related expenses. Add an additional 6% for outside services, and over half of the Information Technology department operating budget is allocated for personnel expenses. Factor in the hidden expense of IT consultants in other business departments and the IT personnel cost continues to escalate. As a result, any inefficiencies in the IT department are magnified and become extremely costly.
Consider the following in this context. If 30% of resource time is wasted due to miscommunication, working on the wrong projects, scope crepe, or inefficient processes, it can mean adding 15% waste to the IT budget. An organization that has an IT budget of $5 million dollars may be wasting $750 thousand dollars per year ! Factor in that the average IT resource cost is typically between $72,600 and $87,700 which includes salary, benefits and other related expenses, a mid-market company is wasting the equivalent of 10 full-time employees (FTE’s) per year. Most CIO’s and IT Managers, when asked if 10 FTE’s a year would assist them in accomplishing their yearly goals, would agree that those additional resources would go a long way in solving their problems and providing the business with tremendous value.
While most organizations would agree that IT provides value, the question then typically centers on how much value. It is this value that is difficult to quantify due to a number of variables and factors. The key to developing and communicating the value of IT to the business is Governance!
IT Governance in the Mid-Market
What is Governance, and what does it mean to the mid-market?
Governance is a business process that is applied to IT. Though it can be applied to other areas within the business, IT Governance integrates a number of functions to assist organizations in planning, prioritizing, performing and profiting from the activities that the organization wants to implement. For example, let’s pose a common scenario that most organizations are faced with today in which they may utilize four stages in a very loose process.
The first stage is planning, which encompasses the analysis of all demand placed on the IT organization. The demand funnel is typically a blend of service requests for fixes, strategic projects from the executive team, maintaining lights on operational activity, application enhancements, and business partner mandates. The requests come through a number of channels such as email, spreadsheets, help desk applications and voice mails. IT then has to conduct a very high-level analysis to determine which of the projects they have the resources to complete while at the same time gathering more information about the problem or opportunity they are trying to solve.
The demand pipeline into IT quickly increases in the triple digit range, which leads us to the second stage where the organization attempts to prioritize the entire project list. IT reviews the entire list by identifying projects they can and can’t complete based on available resources. This can be more complicated than it seems. For example, suppose there is a developer that is available to spend two days creating reports that Marketing has been asking for during the past year. However, once the code was developed and tested by IT, management discovers that the requestor is no longer able to conduct user testing because they have left the company. No one else wants the report so we just wasted two days of development effort at the same time as the CFO has been quite vocal in asking for enhancements to ensure the company is SOX compliant.
The process then moves to stage three -- planning, scheduling, and most importantly communicating the status, progress and challenges facing the project. At this point, someone in IT is asked to lead the project. They determine a set of steps that must be completed, and start the process one step at a time. Time passes and the business user asks if the project will be ready for testing at the end of the week in preparation for launching the following Monday. The project lead then informs them, that there were issues that involved the vendor and that they are still working on their resolution. The project is finally delivered for testing. A week passes with no communication and the project lead calls the business user and asks if they will be done testing at the end of the day so that they can move to production tonight. After a series of heated conversations, they determine an appropriate timeframe and migrate to production.
Stage four is where we evaluate the real results – the ROI. As the end of the quarter approaches, a business user proclaims that the company will not meet the stated revenue goals. Asked why, the response is that the strategic forecasting project was not implemented, and IT was too busy conducting other projects. IT then informs the user that they completed fifteen enhancements, mostly for the Marketing department, during the quarter. The user responds that wasting time on ten of the marketing initiatives instead of completing the forecasting project caused the company to miss the stated revenue number. This combined with the fact that once projects are completed, no one reviews the success and failure rate of the project based on the forecasted numbers. These factors drive the ROI at the project level and ultimately connect the revenue and profit to the business.
Aligning Revenue and Profit to the Business
There are many questions at this point…
How do we begin capturing the value that IT provides the business – the alignment between IT and the business?
How do you develop the alignment and how do you successfully prioritize and plan all the necessary projects that IT must accomplish?
How does an organization identify inefficiencies, and then address those inefficiencies?
What type of budget should be allocated to IT to effectively handle the list of projects?
How does IT become a value added asset to the organization and work collaboratively with the business to bring true business value?
How does an organization ensure they are planning at an Enterprise level and not at the Departmental level?
What tools, technologies, applications and resources does the organization need to accomplish the business objectives?
Lets take a step back before discussing the answers. We have mentioned, more than once, that the business process is defined as a repeatable set of activities that form a process. It is the core of every business and often separates the profitable and successful organizations from those that fail.
The question that is frequently asked at this point is what does business process have to do with IT Governance and Project Portfolio Management? The answer is everything. IT Governance is the business process that IT then utilizes to initiate, prioritize, plan and communicate the objectives and projects of the organization.
There are several key considerations that an organization should look at regarding Governance.
The first consideration is the demand being placed on IT. What channels do the requests come from and how many systems, spreadsheets, emails and phone calls are utilized to capture the requests. Each department is typically submitting requests through various channels, including the unofficial channel provided by a friend or business associate that is only discovered when it causes problems downstream. This circumvention of the process pulls resources away from the projects that are deemed the most important to the organizations. Projects in this day and age have to be based on a sound business case. In the past, organizations were able to take on technology projects for the sake of technology. Some took them on as the panacea to other problems plaguing the organization. However, the point is that a sound business case must be developed to determine the feasibility of a project. Such a foundation will assist in determining the go/no-go decision process. The business case assists in determining if a project should be a capitalized project due to an ROI, and how valuable that project is to the organization against all the other projects that are being requested.
The second consideration is the prioritization of projects. Most organizations are constrained by resources, time or dollars. Therefore, they must chose a balance of projects that meet the objectives of the organization, given they have finite resources, dollars and time to accomplish the projects and objectives.
The third consideration is communication, progress, status, issues and risk. This is the execution or project phase. This is the sound project management that should occur for all projects. Stakeholders should be apprised of the progress of the project. Communication throughout the business with all the key stakeholders is critical so that project teams remain focused.
The fourth and last consideration is tying all of the elements together and determining if the stated benefits have been met. How does an organization identify and then prioritize the initiatives that bring the most value to the organization, when often they are challenged with developing their own set of processes? We are not discussing technology that provides a differentiating advantage in the marketplace versus one’s competitors. However, we are discussing sound business practices applied to the IT department that facilitates in driving real value to the organization. The process applied to IT allows the enterprise a view into all the projects and demand that is being asked of IT. The process ensures that sound business practices are applied to ideas before a department spends any significant hours on a project. If the project is considered a capital project, the business case must accompany the idea along with executive sponsorship and a budget. If the project is considered operational, it should be prioritized among all the other initiatives that are being conducted by IT or various departments. This becomes the process that takes an idea to a project all the way through the project life cycle to implementation.
Project and Portfolio Management Tools
It is the IT Governance tools that allow management and the executive team to view the risk, budget and complexity of the projects they are proposing. These tools allow what-if scenarios to view the mix of projects that they are trying to complete. The project and portfolio management tools underlying IT Governance initiatives are becoming the key to answering and handling these challenges. Like many other technologies that organizations have adopted such as ERP, CRM or E-business capabilities, the suite of project and portfolio management tools are impressive, in that they provide the foundational business process to plan and manage these activities. These tools assist in reviewing and evaluating the true cost of a project as resource time is expended on a project. It provides the visibility back to management and the executive team with the status, progress and issues the project team is facing as they work through the project life cycle.
In the case of IT, it is identifying the problem, developing a solution or set of solutions and implementing the solution.
The Bottom Line
If in today's fast-paced, high pressure environment, information technology no longer just supports the business, it is becoming the business. To be in command of your business is to be in control of your information. Although we think we have that control, we are more often controlled by our information than the other way around. Stated another way, if your information technology is minding your business, what is minding your information technology? Gaining command and control of your business means investing in the resources needed to get control of your information.
You have to spend money to make money, so spending it on the proper governance of IT can make the most sense. The trick is to spend it wisely. Throwing money and technology at bad processes only makes bad thing happen faster. A far better approach is to discover and implement new ways of managing your information, ways that will drive significant change in the way you run your business, ways that will yield a much greater, enterprise-wide ROI. Because information management affects the entire business, the sooner you make that investment, the sooner the business can deliver the results.
IT Governance fills a very important role in the overall information management process. IT Governance becomes the process that assists IT and ultimately the business in meeting the organization's stated goals. It transforms IT into a value added department that is aligned to the business and assists the organization in meeting the stated revenue objectives and not hindering it!
1 CIO Magazine September 15, 2005
2 Information Week September 19, 2005
For more information on IT Governance, PSC Group at 1-800-952-8003 or send an e-mail to info@psclistens.com
PSC Group
The Collaborative Commerce Experts...where, it's all in the way we listen!
PSC is a professional services consulting firm that helps companies withstand the challenges of change. We specialize in the development of solutions that help our clients achieve their strategic business objectives. We solve business problems with long-term solutions that use only proven technologies. Our goal is to identify, design and implement not simply a good solution but the best possible solution - a process that begins with the way we listen and ends in our clients experiencing a greater return on their investment. Our vision is not limited simply to mastering new technologies. Rather, we look beyond them to the new processes and business models that will enable our clients to find innovative pathways for success. In short, we believe there are many companies that can show you the 'what' of business. At PSC we go further. We work to show you the 'how' and the 'why.'
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