Information Technology (IT) Governance

IT Governance.

The ambiguity in quantifying Information Technology's (IT's) business value, the lack of communication with the business side of the house, executives' limited understanding of and low respect for IT and IT staffers' inadequate business skills all contribute to an organization's inability to maximize their return on IT investments (Jeffery and Leliveld, 2004). IT management and governance is a discipline that is receiving lots of recent attention because it offers potential for removing many of these barriers to IT success. This paper discusses what IT management and governance is, why it is important, potential benefits, industry success rates, successful implementers, and vendor solutions. Despite potential pitfalls in organizations, surmounting these hurdles is necessary for companies to survive in an economically challenged and highly competitive environment. Just as companies manage all business processes via enterprise resource planning and other enterprise applications, businesses will begin to manage their IT operations and processes in the same disciplined manner.

IT Management and Governance Defined

IT Management is about the decisions an IT department makes (Nageshwar, 2004). Examples include deciding what IT project to invest in, which solutions and technologies to consider and which consultants and vendors to work with. Governance, on the other hand, is about the parameters within which management decisions are made. No matter how talented the management team or individuals, a good IT governance structure is required to achieve consistent results.

The major responsibilities of IT governance include (IT governance executive summary):

Taking stakeholder values into account when setting strategy

Giving direction to the processes that implement the strategy

Ensuring that processes provide measurable results

Being informed about the results and challenging them Ensuring that the results are acted upon The basic principles of IT value are delivery on time of projects that support, enable or enhance the business, within budget and with the benefits that were promised" (Williams, 2002). The value that IT adds to the business depends on whether the IT organization is aligned with the business and meets the expectations of the business. This requires constant attention, not only on the part of IT management, but also very specifically by board members and executive management in the discharge of their governance responsibilities.

Why IT Management and Governance is Important

While initially thought of as an essential productivity enhancing tool, the role of IT has become even more strategic for reducing costs, leveraging investments, enhancing products and services, enhancing executive decision making and reaching the consumer (McNurlin and Sprague, 2002). Increasingly, business goals cannot be achieved without successful IT implementations (IT governance executive summary). In most organizations the enterprise would cease to exist without IT. An enterprise's business models are based on IT for supply chain management, automation is necessary to support revenue streams and IT is required to comply with regulations and contractual service levels. And, information has become a valuable competitive asset that revolves around the use of IT to obtain and exploit it.

Firms are accustomed to using formalized approaches to manage many assets - people, money, plant and customer relationships, but information and the technologies that collect, store and disseminate information are often woefully under-managed assets (Weill and Ross, 2004). IT implementations involve both up-front and ongoing investments for outcomes that are highly uncertain. The Standish Group, an IT research firm, found that three out of ten projects fail outright, two of ten are seriously challenged, and five out of ten deliver below expectations (IT governance executive summary). In 2002, $780 billion was spent on IT in the United States alone (Jeffrey and Leliveld, 2004). During 2002 and 2003, $100 billion to $150 billion of IT projects in the United States failed.

Further, fifty percent of companies in a European survey reported that IT is just considered an operator or service supplier rather than a true business partner; sixty percent said that there was no strategy integration with the business and eighty percent believed there was no true strategic alignment (IT governance executive summary). In a research study of 130 Fortune 1000 chief information officers conducted by the Kellogg School of Management, forty-one percent of companies do not have central oversight of the IT budget, forty-six percent do not document their applications and infrastructure well, forty-seven percent do not track projects centrally, fifty-seven percent do not have criteria to define project success and sixty-eight percent do not track the benefits of projects (Jeffery and Leliveld, 2004).

The risks of bad information technology investments are just as high, if not higher, than bad financial investments (Beck and Conrad). Many experts believe that, information and decision making are more valuable than capital, which is becoming "just another commodity" in the international markets. Yet, senior management has largely turned decision making in information technology over to technologist who select and implement technology in a relative vacuum. This is a dangerous situation because these technologists are indirectly defining corporate policies. Unlike their financial counterparts, unfortunately, the impact of poor information management policies and investments isn't as observable or as measurable. This means that the damage done by inappropriate solutions can remain unrealized for years or decades, hampering organizational performance and competitiveness. CIO turnover, outsourcing, lost opportunities, and downsizing are just a few of the results of poor information investment strategies. Even more alarming, an increasing number of organizations and analysts are failing to find any relationship between IT investments and organizational success. Cost savings and improved productivity can no longer be assumed, as these promises routinely fail to be realized.

Benefits of IT Management and Governance

Off-the-shelf products vary in their capabilities to manage and govern and people, projects, and processes required to run an IT organization like a business, but the most complete offerings have an integrated suite for tacking demand management, portfolio management, program management, project management, resource management, financial management, change management, and time management (Mercury Web site).

Function

Definition

Benefits

Demand Management

Manage routine, high-volume work such as service requests, software defects, new employee provisioning, and project issues

Improved ability to prioritize

Cost cutting

Accelerated resolution

Portfolio Management

Govern an IT portfolio by evaluating, prioritizing, balancing, and approving both new initiatives and the existing portfolio

Capture real-time IT status automatically

Provide accurate, up-to-date information for difficult portfolio decisions

Govern the portfolio lifecycle from proposal initiation through benefits realization

Align the IT portfolio to support business strategy

Program Management

Manage scope, risk, quality, issues, and schedules to improve ability to deliver programs

Deliver programs on time and on budget

Implement best-practice processes quickly.

Monitor complex, multi-project programs and drill into current project details

Enable collaboration and stakeholder alignment throughout the project lifecycle.

Project Management

Manage projects by exception and track project-to-project dependencies

Integrate projects and processes, and support project collaboration.

Gain real-time project visibility into resources, processes, status, and dependencies.

Focus on highest-priority items and ensure resources are allocated appropriately.

Resource Management

Manage resource capacity and allocation

Make effective resource-allocation decisions.

Perform high-level resource budgeting to detailed project planning, execution, deployment, and benefits realization.

Use automatic real-time updates and an enforced process to effectively utilize resources.

Gain real-time visibility into capacity, assignments, utilization, programs, projects, costs, and overall IT demand.

Financial Management

Manage IT budgeting -- from project proposals, justification and review to project initiation, execution, deployment and benefits realization

Make effective portfolio decisions.

Track and compare actuals to budgets.

Align IT budgets, activities, and costs.

Change Management

Plan, package, release, and deploy changes to the applications portfolio.

Automate migrations and deployments of software changes across the system landscape -- from development to test, staging, and production.

Digitize change management best practices and methodologies to uniformly plan, deploy, and manage changes.

Hide the complexity of point tools such as version control and testing, while leveraging their functionality.

Pinpoint problems quickly and roll back changes if necessary.

Time Management

Streamline the end-to-end time collection and reporting process

Provide stakeholders with essential, up-to -- the minute data.

Synchronize project IDs, request IDs, and other chargeable work items across a common work and time-management system.

Improve accuracy by collecting time as work is performed.

Enforce business-rule-based timesheet review and approvals.

At a higher level, vendors of IT management and governance solutions claim that their solutions will help IT organizations run like a business, align spend with business priorities, demonstrate measurable business value, take advantage of outsourcing and other cost reduction mechanisms, and adhere to corporate governance requirements. Underlying these claims, are centralized repositories and collaboration tools that allow IT to communicate more effectively with business partners and other stakeholders to create transparency, accountability and agility.

Industry Success

Many industry studies quantify the benefits of IT management and governance. Weill and Ross (2004) studied 250 enterprises worldwide to gauge the IT business value directly resulting from IT management and governance. The authors found that top-performing enterprises proactively seek value from IT by:

Clarifying business strategies and the role of IT in achieving them Measuring and managing the amount spent on and the value received from IT

Assigning accountability for the organizational changes required to benefit from new IT capabilities

Learning from each implementation, becoming more adept at sharing and reusing assets

As a result of these efforts, these organizations generated returns on their IT investments up to forty percent greater than their competitors. And, firms with superior IT management and governance enjoyed at least twenty percent higher profits than firms with poor governance, given the same strategic objectives.

In yet another study by the Center for Business Practices (Value of project management in IT organizations), average overall return on investment from implementing project portfolio management (another name used for IT management and governance) was found to be 27.9%. Results of the Center's survey showed that improvements were achieved in twenty IT measures, with average percentage improvements of 21.7 in time to market, 37.6 in customer satisfaction, 37 in alignment to strategic business goals, 32.5 in time and budget to date, 31.9 in quality, 25.6 in labor hours performance, 32.1 in schedule performance, 23.8 in cost performance, 12.9 in defect rate, 3.9 in component size, 11.9 in defect per peer review, 22.8 in staff productivity, 23 in response time, 11.8 in average time to repair defect, 38.6 in schedule estimating, 32.8 in cost/hours estimating, 12.9 in defect rate estimating, 5.1 in component size estimating and 7.6 in quality estimating.

The Center for Business Practices also identified characteristics of top performers vs. poor performers (Value of project management in IT organizations). It discovered that areas where to performers are better than poor performer include having a central repository to capture project information, having information available on resources, optimizing the project portfolio, planning from a portfolio perspective, actively balancing resource capacity and demand and making changes based on optimizing the portfolio. Top performers use ranking methods for project selection and prioritization more than poor performers and consistently use project portfolio management to make go/kill decisions for projects far more often than poor performers. Finally, top performers were far more likely to know the return on investment of projects than poor performers and were more likely to have executive support and a business case for project portfolio management.

Case Studies

Harrah's Entertainment has used what it refers to as a synchronized IT portfolio management process to fundamentally change its IT operations (Jeffery and Leliveld, 2004). Every projects must have a business case describing the business need, what the investment should be provide, and the change in business conditions that the investment will facilitate. Next, on the basis to the total cost of ownership of putting the investment in place, they determine the required support and infrastructure. To further tune its IT portfolio, Harrah's conducts after-action program review. It surveys customers after implementing any service-improvement initiative and analyzes customer satisfaction scores. The company has quantified the value of increasing the satisfaction level of a customer by one level. For example, it knows that moving a customer from a B. To an A rating represents an annual increase in revenue of about six percent for that customer. As a result, Harrah's is one of the few companies that can objectively measure the value of customer-satisfaction IT initiatives and tie the results back into the IT portfolio management process.

Xcel Energy is another example of a company that has used IT management and governance to transform its IT services (Xcel energy runs IT as a business with Mercury IT Governance Center). Xcel's goal was to shift IT discretionary spending toward strategic, value-creating solutions for the business and gain real-time visibility into the policies and status of the decision making and delivery processes. The first steps Xcel took to achieve its objectives were creating a program management office and implementing an IT management and governance solution to put business gates into its IT processes so that it could quickly identify projects that were unaligned with business goals or redundant of other projects. Xcel state that standardizing its IT business processes allowed it to combine separate customer service groups into a unified delivery model, yielding a thirteen percent reduction in operating expenses. The company was also able to obtain full participation by the company's business units to translate their strategic and operating requirements into an enterprise-wide technology strategy to keep business users involved in IT program and projects, thus maintaining alignment with evolving business goals and priorities. Xcel estimates that it derived the following quantifiable benefits: