In-Depth

Best Practices in IT Governance

Five steps in a unique process that visionary CIOs can use to meet their company’s strategic goals

• 09/02/2008

By Azita Gandjei

Leading companies share common traits, including a CIO who is a visionary portfolio manager. A true business partner to the CEO, the CIO must nimbly balance the seemingly conflicting goals of maintaining costs and enabling innovation. Adopting a portfolio management approach allows the CIO to strategically align IT assets with the business to enhance company revenue and profits.

The secret to how some CIOs succeed at building an innovation engine and simultaneously manage operational processes is a unique governance process that skillfully controls internal assets to maximize their impact, allowing the CIO to transform IT into a streamlined revenue and profit center.

The following five steps describe a unique process that visionary CIOs use to deliver measurable value within the context of their company’s strategic goals.

Step One: Create a Top-Down Governance Plan

A top-down approach involves broad-level IT oversight and assigns decision-making authority and accountability across functional groups in the organization. A top-down approach helps deliver results, simplifies processes, and gives the organization perspective on how to:

• Gain economies of scale
• Increase value from existing applications
• Eliminate redundant or overlapping functions
• Dispense with the culture of application entitlement (i.e. once in place, they must stay forever)
• Develop alternative sourcing strategies
• Make new purchases or initiate new projects with a clear understanding of whether they meet legitimate business needs

Step Two: Define the Assets

To execute on this governance plan, an organization must define its IT assets. What makes them assets and how can their value be measured?

Let’s examine three asset classes.

• Application assets: The value of individual applications should be calculated through the use of key metrics in the context of a company’s strategic goals.
• Intellectual capital assets: CIOs should proactively manage and forecast the demand for the people who implement and maintain the organization’s applications. The goal is to readily forecast resource requirements for the next 18-24 months based on company goals and strategic direction. With this information, the organization will be prepared for projects of any magnitude and complexity.
• Financial capital assets: The goal is to continuously track and manage funding, which is best accomplished by separating the budget into capital and expense funds. Capital funds should be managed using a project portfolio management solution, while expense funds should be managed using an application portfolio management solution.

Step Three: Optimize Asset Management

Optimize how assets are prioritized, selected, and realigned through continuous monitoring and measurement. This is accomplished by using a portfolio management process that employs the following key performance indicators (KPIs):

• Alignment with strategic goals
• Risk
• Value (cost and benefit)
• Health of the asset
• Balance (are we spending the right amount in each area to meet portfolio objectives?)

The specific measurements for each indicator will change from asset class to asset class, but the idea remains the same: employ a systematic process to analyze how IT assets perform against KPIs for the organization to ensure that the correct assets are selected, prioritized, and realigned when necessary.

To optimize asset management, an organization must define the optimal shape of its application portfolio and desired outcomes, including the metrics that will define success in terms of the above KPIs.

Application rationalization is conducted by taking inventory of every application in the enterprise. Depending on the organization, there are a number of ways to create this inventory. You can distribute forms integrated with portfolio management software, coordinate a spreadsheet, conduct interviews. or use tools to parse code, establish relationships and calculate metrics such as Inventory, size, complexity, change frequency and reason. A combination of these tactics can be used, and they can be completed at one time or over a specified time period depending on the urgency of need, time constraints, and the availability of resources.

All applications should be evaluated for alignment with strategic goals, risk, value, and health. Using software that enforces this process ensures its consistency. Factors to evaluate may include the link to the company’s vision, the extent to which the business depends on the application (which, of course, incorporates risk), functional coverage, ease of use, and cost to implement and retain versus the benefits gained. It is also beneficial to gauge the application’s age, the relevance of its platform, as well as its scalability, ease of modification, and supporting documentation.

At this point, decisions about which applications should stay or go become clearer. To pinpoint the best methods to optimize the remaining applications, CIOs should ask these questions:

• Would it be more efficient to outsource an application or its maintenance?
• What is the best way to upgrade an application so it best serves business needs?
• Should an application be extended to units that are not currently using it?
• How can the costs and risks of upgrades be minimized?

Step Four: Balance Assets and Expenses

The application portfolio should be aligned with the expense budget within the portfolio. Often, this balancing process offers a rapid and visible return on investment. Low hanging fruit, such as obviously useless or redundant applications, is quickly exposed, and savings can be redistributed to more strategic applications.

To effectively manage a portfolio of capital funds, a project or initiative must be tracked to gauge where it is in relation to its original budget and also whether or not it still reflects a portfolio fully balanced to meet strategic goals. More specifically, all key financial data should be kept visible, including time and expense information, as well as detailed cost, revenue, and margin information on each current contract. This allows for informed decisions on how to shift finances when necessary and where to appropriately streamline the organization.

Step Five: Manage Resources

Resource management is critical to the concept of an IT governance process which positions people and the intellectual capital they possess as vital corporate assets. Resource assignment should be monitored for the following:

• Alignment with key strategic goals
• Risks associated with their leaving or being shifted to another assignment
• Costs and benefits
• Portfolio balance

The entire workforce should be reviewed with each person clearly delineated within the system by his or her skill sets and levels of expertise. The time, training, and experience required for each phase of each project must be reviewed if the current workforce is to meet demand – and, perhaps, have a sense of how close certain people are to retirement.

Conducting a utilization or capacity analysis against both current and/or future demand will help reveal surpluses and gaps by business unit, manager or location. Additionally, performing what-if scenarios can also help forecast resource availability for the weeks and months ahead. For example, on a specific project the impact of a head-count change could be quickly plotted against budgets and deadlines to prevent unexpected disaster. This scenario could be modeled across the entire IT portfolio to see how head-count change might impact project delivery schedules. The exercise might even include external variables, such as the impact of Sarbanes-Oxley and other regulatory requirements against deadline and budget estimates.

This approach is enhanced by preliminarily allocating people to both existing and future projects in ways visible to all appropriate managers. This allows project managers to proactively negotiate project assignments.

Summary

An overarching concept that runs through all these processes is the ability to nimbly manage and realign assets as circumstances change. In too many cases, assets can be anchors that slow down an organization’s ability to adjust to a rapidly changing business environment. When it’s unclear how assets interact, what their relationship is to key business goals, or where they are in their lifecycle, they become almost impossible to realign as circumstances change. Continuous management and awareness of the asset lifecycle will allow the organization to nimbly take action to modify the portfolio whenever necessary.

By using this unique governance approach, the CIO can visibly demonstrate how integral IT is to meeting business needs. By effectively collaborating with business-side partners, the CIO can skillfully maneuver a portfolio of assets to create innovative competitive differentiators while keeping costs under control. This will ensure that IT continues to be an integral enabler of corporate strategy and a central component of the organization’s success.

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Azita Gandjei is industry market manager for it and financial services at Primavera Systems, Inc., a provider of project and portfolio management software solutions. You can reach the author at [email protected].