CGEITEXAMPREP#6

May10,2011

Governance - Value Delivery Domain

Spring 2011 CGEIT Exam Prep

Rajesh Bhatia (rbhatia6@csc.com)
Senior IT Manager @ Computer Sciences Corp (CSC) MS, MBA, CISA, CGEIT, PMI PMP, MDP, ITIL/CobiT Foundations

Agenda
o Introduction
What is Value Management? Importance

o Val ITTM
Why Val ITTM ? The 7 Principles of Val ITTM How Val ITTM works Benefits Examples

o IT Investments
Categories Strategies to achieve business value of IT Business case IT investment approval process Hurdle rate

o Other Frameworks
SDLC ISO 20000 ITIL EA

o Benefits Realization
What is benefits realization? When are benefits realized? Techniques Management Processes & Tools Necessary conditions Examples

o Conclusions
Value Delivery Benefits

CGEITEXAMPREP#6

May10,2011

Introduction

Do you know?

CGEITEXAMPREP#6

May10,2011

What is Value Management?

o What is Value1?
Relative worth or importance of an investment for an organization or its key stakeholders

o Ensure value obtained from IT investments

Select the right investments Manage throughout economic lifecycle Maximize ROI

1Thorp,John,TheInformationParadox(McGrawHill,1998)

Value Management Importance1

o Businesses increasingly dependent on IT
Ever increasing IT investments. IT costs second only to staff costs. Need to select optimum IT investments and ensure value delivery.

o Some IT investments have not delivered proportionate business efficiency & productivity.
Difficult to determine value from IT investments & contribution to stakeholder value.

o Meta survey from 2004:

< 35% approved projects have valid benefits statements < 10% of organizations ensure benefits are realized post project < 5% organizations hold stakeholders responsible for benefits attainment

1ITGI,OptimizingValueCreationFromITInvestments(ITGI,2005)

CGEITEXAMPREP#6

May10,2011

IT Investments

IT Investment Categories1
o Meta Group
Run the business Grow the business Transform the business Transactional Investment Informational Investment Strategic Investment Infrastructure Investment Legislative / Regulatory / Mandatory

o Peter Weill / Jeannie Ross

1ITGI,OptimizingValueCreationFromITInvestments(ITGI,2005)

CGEITEXAMPREP#6

May10,2011

Strategies to achieve business value of

IT1

o Manage for IT business value to maximize benefits o Manage IT budget to enable cost reduction & flexibility. Shift funds from low to high-yield investments o Manage IT capability to enable sustainable competitive advantage to be delivered from IT. o Manage IT like business

1ITGI,OptimizingValueCreationFromITInvestments(ITGI,2005)

The Business Case

o Captures rationale for initiating an investment
Traditional purpose: To obtain funding.

10

o Benefits Realization View Value Case1

Holistic View
o Linkage: Make explicit linkages between projects o Reach: Encourage stakeholders to think reach of impact o People: Look at changes needed on people/culture o Time: Benefits realization over time

Updated & summarized work done to date Reason for killing investment
1Thorp,John,TheInformationParadox(McGrawHill,1998)

CGEITEXAMPREP#6

May10,2011

The Business Case

o Can investments be undertaken w/o business case or business justification? o Are there exceptions?

11

What about IT Infrastructure Upgrades? Even IT infrastructure upgrades must be for supporting business applications which require business approvals.

Business Case Template

o o o o o o o o o Subject Purpose Executive Summary Situation Analysis Assumptions Metrics Strategic / Financial Analysis Risk Analysis Conclusions and Recommendations

12

CGEITEXAMPREP#6

May10,2011

13

Hurdle Rate
o Minimum acceptable rate of return (MARR) on a project a company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other projects. o Put money in bank = 2.5% annual return after tax
=> project return > 2.5%

o Different hurdle rates for medium, high and max risk projects. o Strong eco growth High hurdle rates o Weaker growth Lower rates

IT Investment Approval Process

Business case needed Approval board with IT & business representation Key financial metrics: NPV, IRR, payback period Proper accountability Hurdle rate definition Project management process followed All parts of business involved, resources committed o Understanding potential impact on value return from this investment from previous solution delivery experience o o o o o o o

14

CGEITEXAMPREP#6

May10,2011

15

Benefits Realization
Introduction

What is Benefits Realization1?

o Continuous process of envisioning results, implementing, checking intermediate results and dynamically adjusting the path leading from investments to business results. o Who realizes benefits? IT or Business?

16

o Deliver business results more consistently and predictably.

1Thorp,John,TheInformationParadox(McGrawHill,1998)

CGEITEXAMPREP#6

May10,2011

When are Benefits Realized1?

17

EconomicLifeCycle
1IMA,InstallationversusImplementation:Howtoavoidthetrapofprematureprojectcompletionandacceleratereturnoninvestment (2009)

18

Benefits Realization
Techniques

CGEITEXAMPREP#6

May10,2011

Four Ares Technique1

Thestrategic question Thevalue question

19

Thearchitecture question

Thedelivery question

o Provides a rich framework for assessing value o Gauge odds of success of an investment program for selection o Incorporate questions into measurement instruments for comparison
1Thorp,John,TheInformationParadox(McGrawHill,1998)

Results Chain Modeling1

20

o Comprehensive & accurate

o Powerful selling tool

model of organization's benefits realization process

1Thorp,John,TheInformationParadox(McGrawHill,1998)

10

CGEITEXAMPREP#6

May10,2011

Results Chain Example1

21

1Thorp,John,TheInformationParadox(McGrawHill,1998)

22

Benefits Realization
Management Processes, Tools & Necessary Conditions

11

CGEITEXAMPREP#6

May10,2011

Management Processes & Tools1

o Program Management

23

Manage group of related projects to achieve business benefit Exploit economies of scale, reduce coordination costs & risks

o Portfolio Management
Structured groupings of investment programs Balance risk/reward

o Full Cycle Governance

Benefits Realization operational mechanism Stage gates as decision points Implemented using Val ITTM framework
1Thorp,John,TheInformationParadox(McGrawHill,1998)

Portfolio Management1
o Manage risk to increase value
Diversify risk across variety of investments Portfolios should maximize benefits for given risk level

24

o Adjust portfolio composition to reflect changing conditions in the business environment:

CASE 1 - OVER/UNDER EXPENDITURE WITHIN CATEGORIES?
o Sustaining over budget? Transfer resources from discretionary projects like business opportunities

CASE 2 - PROGRAMS THAT DIMINISH IN VALUE? CASE 3 - WHEN NEW OPPORTUNITIES ARISE?

1Thorp,John,TheInformationParadox(McGrawHill,1998)

12

CGEITEXAMPREP#6

May10,2011

Exercise
Portfolio Management1

25

1ITGI,OptimizingValueCreationFromITInvestments(ITGI,2005)

Necessary Conditions1
o Organizational Structures, Roles & Responsibilities
Investment Decision Board (IDB):
o Review / approve business cases o Assign business sponsor o Review program status, approve funding, conflict arbiter

26

PMO/VMO:
o Track various programs / facilitate issues

Business Sponsor: Most critical

o Accountable for delivering benefits of programs o Provides clear vision of benefits, big picture

o Relevant Measurements o Organizational Change Management

Culture Communications, training, Sr. mgmt reinforcements
1Thorp,John,TheInformationParadox(McGrawHill,1998)

13

CGEITEXAMPREP#6

May10,2011

Examples
Benefits Realization & Full Cycle Governance o Nova Gas Transmission1
Able to assess value of 50 programs and surface the top 10-15 worth $20M. Scrapped dozen investments. Uses full cycle governance: applied stage gates in programs where relative value assessed before it is allowed to proceed.

27

1Thorp,John,TheInformationParadox(McGrawHill,1998)

Benefits Realization & Full Cycle Governance

o Boeing Shared Services Group1
Identify 3 high-level business outcomes targeted by 18 programs Select key projects Plan optimal resource commitments Design individual programs with strong link to benefits

Examples

28

o Oregon Dept of Transportation (ODOT) 1

Unified program view presented to Senior Mgmt. Helped instill business change view of success. Benefits measured incrementally as organization changed Change & BPR more realistic

1Thorp,John,TheInformationParadox(McGrawHill,1998)

14

CGEITEXAMPREP#6

May10,2011

29

Val IT
Thestrategic question Thevalue question

Thearchitecture question

Thedelivery question

Why Val IT ?
1

30

o Implementation framework for full cycle governance

Operationalizes benefits realization tools, techniques and processes

o Stronger governance over IT investments required through full economic life cycle
IT investments not supporting business strategy or providing expected value Too many projects, resulting in inefficient use of resources Projects delayed, over budget, dont provide needed benefits Inability to cancel projects when necessary Regulatory compliance
1http://www.isaca.org/knowledgecenter/valititvaluedelivery/Documents/ValITOverview.ppt

30

15

CGEITEXAMPREP#6

May10,2011

The Seven Principles of Val IT1

IT-enabled investments will:

31

1. Be managed as a portfolio of investments 2. Include the full scope of activities required to achieve business value 3. Be managed through their full economic life cycle Value delivery practices will: 4. Recognize different categories of investments to be evaluated and managed differently 5. Define and monitor key metrics and respond quickly to any changes or deviations 6. Engage all stakeholders and assign appropriate accountability for delivery of capabilities and realization of business benefits 7. Be continually monitored, evaluated and improved
1http://www.isaca.org/knowledgecenter/valititvaluedelivery/Documents/ValITOverview.ppt

Val IT Framework1
Value Governance (VG)
Establishinformedand committedleadership. Alignandintegratevalue managementwith enterprisefinancial planning. Defineand implementprocesses. Establisheffective governancemonitoring.

32
Defineportfolio characteristics. Continuouslyimprove valuemanagement practices.

Portfolio Management (PM)

Establishstrategic direction andtargetinvestment mix. Evaluateandselect programstofund.

Determinetheavailability andsourcesoffunds. Monitorandreport oninvestment portfolioperformance.

Managetheavailability ofhumanresources.

Optimizeinvestment portfolioperformance.

Developandevaluatethe initial programconcept businesscase.

Understandthecandidate programand implementationoptions. Developthedetailed candidate programbusinesscase. Updatethebusinesscase.

Developtheprogram plan.

Developfulllifecycle costs andbenefits. Updateoperational ITportfolios.

Investment Management (IM)

Launchandmanage theprogram. Monitorandreport on theprogram.

Retiretheprogram.

1http://www.isaca.org/knowledgecenter/valititvaluedelivery/Documents/ValITOverview.ppt

16

CGEITEXAMPREP#6

May10,2011

Val IT
o o o o

Benefits1

33

Increased investment ROI Business value generated leading to growth Reduced costs Better decisions on where to investment in business change o Investments managed through full economic lifecycle

1http://www.isaca.org/KnowledgeCenter/ValITITValueDelivery/Documents/ValITBrochure.pdf

33

Val IT at the European Parliament1

o Establish portfolio of planned work requests o Better categorization of requests o Multi-dimensional assessment of requests
Criticality, exp business benefits, business risk, request maturity, costs, risk

Example

34

o Enhanced accountability o One-stop shop: Covers all services offered by IT Directorate o Benefits
Improved prioritization - Identify right projects to implement Follow benefits generated by projects Process transparency creates consensus between IT and Business

1http://www.itgi.org/Template_ITGI5d71.html?Section=ITGI&CONTENTID=57313&TEMPLATE=/ContentManagement/ContentDisplay.cfm

17

CGEITEXAMPREP#6

May10,2011

35

Other Frameworks

SDLC

36

18

CGEITEXAMPREP#6

May10,2011

Service Delivery Practices & Processes ISO 20000

37

Service Delivery Practices & Processes ITIL o The role of the ITIL framework is to describe approaches, functions, roles and processes on which enterprises may base their own practices

38

19

CGEITEXAMPREP#6

May10,2011

39

Enterprise Architecture
o There are a number of EA frameworks
Zachman Framework
o Is one of the original frameworks in use from the early 1990s and has been widely adopted

TOGAF: The Open Group Architecture Framework

o An industry best practice

FEAF: Federal Enterprise Architecture Framework

o Used by US Federal agencies

Enterprise Architecture
o Produces technology-enabled blueprints to transition an enterprise from current state to a desired future state in alignment with business strategy o Key technique: Modeling of various dimensions (called views) of architecture
o Decomposition of architecture into layers: Adds clarity & reduce complexity of doing architecture work

40

20

CGEITEXAMPREP#6

May10,2011

Enterprise Architecture
o Principle areas in each layer of EA:
Business architecture
o Business processes, business strategies

41

Information architecture
o Info flows & relationships, data descriptions & models, security

Solution architecture
o Applications, integration

Technology architecture
o Hardware and networking domains

o Set up of architecture review board (ARB) in the enterprise

Move toward maturing EA practices. High-level governance committee, typically with representation from both business and IT Ensures EA compliance and governance is effective.

42

Conclusions

21

CGEITEXAMPREP#6

May10,2011

Benefits of Value Delivery

43

o Improved and effective IT investment governance: continuous monitoring, evaluation and improvement o Spend more time thinking about right ideas for new investment opportunities that will generate greatest benefits. o Enables IT and business to effectively work together so that IT gains the trust of the business o Clarifies priorities to everyone. o Customer Satisfaction, reference-ability o Helping clients select key projects to realize higher benefits from investments o Better management of programs and projects o Offering for a client as part of IS management proposals o Better able to compete for business in the marketplace against leading edge service providers and competitors

References
Cio.comarticleson:
Governance ValueDelivery PPM PortfolioManagement

JohnThorpesValITrecordinginISACAwebsite ISACA'sValITdocumentation

44

22