Valuation of IT Initiatives – Business Case

This brief paper is based on concepts presented by www.isaca.org in their discussion of Val IT under the COBIT^© framework.  Val IT is a governance framework that consists of a set of guiding principles, and a number of processes conforming to those principles that help guide where IT spends money. If implemented correctly it will help answer the following questions.

Are we spending money in IT that matches what the business wants?

Does the business stakeholder feel they have influence on spending levels?

Are we managing risk and getting the right return on IT investment (ROI)?

Does the business “own” the risks?

Does our spending investment prove itself over the course of time and can we look back and ensure that the ROI was really met? 

A business case is not a one-time, static document.  It is an operational tool that must be continually updated to reflect the current reality and to support the portfolio management process.The framework provides guidance to: 

• Define the relationship between IT and the business with governance responsibilities,
• Manage an organization’s  portfolio of IT-enabled business investments, and
• Maximize the quality of business cases with emphasis on the definition of key financial indicators, the quantification of “soft” benefits and the comprehensive appraisal of the downside risk.

Definition of Guiding Principles

Guiding Principles are foundational concepts that will guide decision making as the company strives to achieve their future state.  Simply stated, a principle is defined as “a statement of organizational position that can be argued by rational people”.  The value of a “Principle based” Organization:

• Ensures that an organization’s position is determined by conscious decision making at the highest level.
• Aids in gaining alignment from all affected organizations and enables common goals to be achieved.
• Unproductive discussions based on unknown positions are drastically reduced.
• Projects are based on true alignment, not a set of unilateral non-validated assumptions. Several key points about principles:
  • Principles do not state what the current situation is; they state the desired positions to which an organization aspires.
  • There are clear reasons why the principle is valid for an organization

  Representative Guiding Principles

  • Investments will include the full scope of activities that are required to achieve business value.

  • Investments will include the full scope of activities that are required to achieve business value.

  • Investments will be managed through their full economic life cycle.

  • There are different categories of investments that will be evaluated and managed differently.

  • Delivery practices will define and monitor key metrics and will respond quickly to any changes or deviations.

  • Delivery practices will engage all stakeholders and assign appropriate accountability for the delivery of capabilities and the realization of business benefits.

Representative Processes

To obtain return on investment, the principles should be applied by the stakeholders of the IT-enabled investments in the following processes:

• Value governance

• Portfolio management

• Investment management

Value Governance

The goal of value governance is to optimize the value of investments by:

• Establishing the governance, monitoring and control framework

• Providing strategic direction for the investments

• Defining the investment portfolio characteristics

Portfolio Management

The goal of portfolio management is to ensure that the overall portfolio of IT-enabled investments is aligned with and contributing optimal value to the organisation’s strategic objectives by:

• Establishing and managing resources (e.g., IT, third-party, business)

• Defining investment thresholds

• Evaluating, prioritizing and selecting, deferring, or rejecting investments

• Managing through monitoring and reporting on portfolio performance

Investment Management

The goal of investment management is to ensure that a individual IT-enabled investments deliver optimal value at an affordable cost with a known and acceptable level of risk by:

• Identifying business requirements

• Developing a clear understanding of candidate investments

• Analyzing the alternatives

• Defining the components of the portfolio and documenting a detailed business case, including the benefit details 

• Assigning clear accountability and ownership

• Managing the through the full economic life cycle

• Monitoring and reporting on performance
  
  

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IT Framework Relationships

There are numerous processes designed to enhance the overall effectiveness of IT and often times what gets overlooked is how they might fit together.  Described below are the various frameworks and their relationship to one another and when you might adopt these frameworks over time.  Each of the frameworks has their set of implementation issues and problem areas for adoption.

• ITIL maps service delivery to process execution and technical aspects of process control.
• PMBOK primarily focuses on project management.
• CMM primarily focuses on software delivery, but can be used to assess maturity of process execution.
• ISO 20000 is a process to measure the effectiveness and points towards improvements for ITIL.
• ISO 17799 primarily deals with an overall security process, awareness, standards and measures of control
• COBIT focuses on process control as well as strategic control in an enterprise
  • Strongly focused on control and less on execution.
    • Helps optimize IT-enabled investments,
    • Ensures service delivery
    • Provides a measure against which to judge when things do go wrong.
• Six Sigma methodology is the implementation of a measurement-based strategy that focuses on process improvement and variation reduction through the application of Six Sigma improvement

 IT Framework Relationships

 

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What is ITIL?

The IT Infrastructure Library (ITIL) is a series of eight books and is referred to as the only consistent and comprehensive best practice for IT service management to deliver high-quality IT services. Although produced and published by a single governmental body, ITIL is not a standard and is generally referred to as a framework.  There is a lot of work involved in tailoring an implementation to any organization. The published books (subject to change my mid-2007) are:

• Software Asset Management
• Service Support
• Service Delivery
• Planning to Implement Service Management
• ICT Infrastructure Management
• Application Management
• Security Management
• Business Perspective, Volume II

There are two main operational components or logical groupings within ITIL, with Security Management completing the underpinning for both groups are:

• Service Support (activities that are more or less performed daily)
• Service Delivery (activities that tend to take place monthly or quarterly, but at a minimum annually)

ITIL Process Overview

 

BUSINESS DRIVERS FOR IMPLEMENTING

ITIL is usually implemented subject to one or more of the following business cases:

• Defining of service processes within the IT organization
• Defining and improving the quality of services
• Need to focus on the customer of the IT
• Implementation of a central help desk function

There are several methods in approaching an implementation of ITIL and having done several operations assessments, I can attest that the two main building blocks that have to be solid are Configuration Management and Change Management.  Both gear their activities off a Configuration Management Data Base (CMDB).  If the CMDB does not exist or if Change Management is a haphazard process, then the other processes within ITIL tend to fail on a regular basis.  Recently more and more vendors are creating products geared specifically towards CMDB (e.g., HP, CA, BMC, etc.) that address a method to collect all of the configuration specifics of your environment.  If you don’t know what you have, it will be problematic when implementing any change, but you can never been certain of the effect of the change.Two principal concepts characterize the basic thinking of ITIL:

• Service management—IT service managers:
  • Assure the consideration of requirements for operations and maintenance
  • Develop test plans
  • Identify the effects on existing infrastructure caused by new or modified systems
  • Define future requirements
• Customer orientation—IT services are to be provided at a level of quality that allows permanent reliance on them. To assure this quality, responsibility is assigned to individuals who:
  • Consult the users and help them use the services in an optimal approach
  • Collect and forward opinions and recommendations of users
  • Track complaints
  • Monitor the users’ appraisals of the services delivered
  • Support internal user groups

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Communication Etiquette

E-mail seems to be the preferred method of communication for teams regardless of how widely dispersed they might be to one another.  Although distance sometimes has nothing to do with the preference of using e-mail versus just talking.  I have worked with staff that were separated by short (<five feet high) work space partitions and insisted on sending a constant stream of e-mails to one another versus just standing up or going to get a cup of coffee together!  E-mail is a poor substitute for the personal interaction of carrying on a conversation, but if you must then at least review the set of guidelines below.  

1. Be clear, concise, and informative.  Use a short descriptive subject line that actually pertains to the body of your e-mail.  Something that would grab the readers’ attention: “QA Testing Identifies show stopper – project in jeopardy of Completion”.  OK, who said subject lines had to be two words.  Mixing uppercase and lowercase letters is perfectly fine in a business setting.  Leaving the subject line blank means either you are too lazy to summarize your thoughts or everyone should just know your e-mails are important because they come from you!

2. What is important?  What is the primary message you want to convey?  That primary message should be within the first couple of lines of the e-mail, as most people tend to skim messages and not read everything thoroughly.  If you have not answered “who, what, when, where, why, or how” within the first couple of lines, you probably have lost the reader.  And then again, if your e-mail does NOT have anything that pertains to the point made above, then why are you sending it in the first place?

3. Proofread.  Automatic spell checkers in e-mail messaging systems are great, but they don’t catch improperly used words or analyze sentence structure or content.  If the e-mail has to be longer than this blog, then do it in a word processing document so you can go back later and re-read and proof.  You will be amazed at how many grammatical goofs you catch when you take the time.  E-mails reflect you.  If they read like they were composed by someone with low intellectual capabilities, you might be leaving an incorrect impression.

4. Cultural difference and time zones.  Teams today are made up of people from the around the world and might actually work in a different time zone than the sender.  This time difference might be as little as 1 hour to as much as 12 hours.  Cultural differences and the inability for the reader to pick up the phone and discuss means you should avoid acronyms, abbreviations, slang and local jargon.  Rely on simple vocabulary and conventional syntax.  If in doubt, err on the side of formality and avoid attempting humor in the beginning.  Time differences can work in your favor.  If you want an action taken by someone hours away, then give them the information they need so they can work on the action at the beginning of their day.

5. Avoid “REPLY ALL”.  Send your e-mail out to people that have a vested interest or that are actually assigned to do something.  Determine who must receive the message and who can survive without it.  E-mail replies might get strung together to the point that you have lost track of the original intention of the e-mail.  At some point, it is a good method to summarize the e-mail as a form of a status or action plan and then send again if necessary.  It is my contention that e-mails that survive for weeks with just a massive string of replies means you should probably hold a conference call, summarize, develop an action plan and move on!

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Virtualization: Management and Implementation

Many organizations are embracing virtualization technologies (VMs) and are actively moving toward large-scale implementations. This trend is still early in its adoption cycle, and analysts predict that the total VMs deployed in the next 2-3 years will be orders of magnitude greater than what was done in 2006. IDC estimates that 500,000 VMs will be shipped this year, but that the number of VMs shipped by 2009 will be a projected 1.9 billion. 

Large-scale corporate adoption is proving to be difficult

Difficulties in carrying forward the initial success of virtualization projects to the enterprise level usually lies in the organizational structure in which they are undertaken. Early projects are often initiated on non-production systems. While this approach demonstrates the technical effectiveness of the virtualization technology, it is not subject to the same challenges and constraints that exist in enterprise-wide undertakings, which typically include: 

• Asset Identification - not knowing what servers you have, their locations, owners, functional roles, applications, etc.
• Inconsistent IT Operations – Service Management and Service Delivery, as defined by ITIL ^© as well as considerations for security and access
• Technical Constraints - network connectivity requirements, storage requirements, controllers, peripherals, UPS requirements, etc.
• Business Constraints - availability targets, maintenance windows, application owners, compliance restrictions, Disaster Recovery relationships, etc.
• Workload Patterns - application loads, resource distributions, overall utilization versus capacity, metrics for chargeback, etc. 

The ultimate goal of any virtualization initiative is to establish the best possible virtualization roadmap, or “transfer function”, that is optimized for corporate goals, virtualization strategies, business constraints and IT infrastructure requirements. To generate an accurate roadmap, in a reliable manner that minimizes risk and maintains reliability, it is critical to: 

• identify all systems and applications within scope in the target environments
• audit these systems to enable scrutiny at a deep level – what really has been installed, patch levels, etc.
• qualify systems based on technical and business constraints
• profile systems to determine utilization patterns – performance and capacity managementoptimize against all of these areas to determine the best transformation 

Analyzing Business Constraints

Business constraint analysis deals with a more subjective but equally important realm of information. Because of this subjectivity the proper analysis of business constraints are often overlooked in initial virtualization implementations. VM vendors do not generally touch upon this more critical aspect of server consolidation. 

Large-scale virtualization initiatives and analysis, must revolve around business constraints. This often stems from the fact that business constraints cannot necessarily be removed by throwing money at them, as opposed to technical constraints, which can often be removed by a system upgrade (the cost of which is modeled in the analysis rules in a “remediation cost” field). If you are prohibited from moving an application between locations, from combining certain applications on the same networks, or combining highly-available applications on the same server as non-critical ones, then no amount of money or effort will make these constraints go away.

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Project Management Office (PMO)…why have one

Attributes associated with building the case for a PMO include:

·         Implementation of a project management methodology (if in doubt use PMBOK ^©)

·         Leading organization changes in promoting project management culture (no more “flying by the seats of your pants”)

·         Institutionalizing organizational processes (COBIT ^© can at least get you started)

·         Improving overall performance (measure, calibrate, pick two things to perform, repeat as necessary)

“Through 2004, IT organizations that establish enterprise stands for project management include a project office with suitable governance, will experience half the major project overruns, delays, and cancellations of those that fail to do so.”  Source:  “The Project Office: Teams, processes, Tools,” August 2000, Gartner Research.  Although dated, not much has changed. 

Consistency is the key.  It takes time to realize a real Return on Investment (ROI) from a PMO.  Just getting one up and running is simply another project, but also entails matching the right organizational structure to meet the evolving needs of the PMO.  By organization I mean that a PMO is composed of two distinct talented groups.  One that adheres to project management methods and spends the majority of their time listening, gaining consensus on requirements, cajoling, nagging, mediating, writing and talking.  The other group is the tool group.  Whatever tool you pick, it is best not to try and force one person to be a tool wizard and a professional project manager.  They end up not doing a good job at either!

PMO Functions:

·         Mentoring / coaching / training

·         Process development and standards

ü  Project development lifecycle

ü  Project management methods

ü  Documentation standards

ü  Project selection (i.e., portfolio)

ü  Risk assessment

ü  Change management

ü  Scheduling

ü  Time reporting

·         PM methodology assessment improvement

·         Organizational and staff certification (OPM3, PMP)

·         Project coordination and administration

·         Resource management

·         Integration and release management

·         Portfolio management

·         Program management

Project Administration:

·         Schedule maintenance

·         Status report distribution

·         Project document distribution

·         Project workbook maintenance

·         Project repository administration/maintenance

·         Software tool

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