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Integrating IT and Business Paul Jackson References • Textbook: Chapter 16 • Ward J. and Daniel E. (2006). Benefits Management: Delivering Value from IS & IT Investments New York: John Wiley & Sons. • ITGI (2008) “Enterprise Value: Governance of IT Investments: Getting Started with Value Management”. • KPMG (2014), Next Generation IT Operating Models Overview • Developing an IT portfolio • Management and funding of IT programmes • Portfolio management activities • Value management activities • Developing an integrated operating model to DELIVER VALUE Projects -> Program • Lectures so far have focused on discrete IT projects – Activities to deliver specific outputs over specified period and within cost, quality and resource constraints • A portfolio of projects make up a program – Co-ordinated and managed as a unit Interdependence of Projects • Benefits of earlier projects can be enablers of later projects (e.g. staff saved transferred to another project) • Some benefits of earlier projects are new/improved capabilities required for later projects (e.g. savings of earlier billing system enabled discounts to be given in later sales project) • A change in one project is required to enable a change in later project (e.g. modify to capture more customer data to support better customer service) • IS/IT in an earlier project is a pre-requisite for later projects (e.g. investment in web) Business Value • Business value is the entire value of the business – Tangible: monetary, assets, fixtures, utility – Intangible: good will, brand recognition, trademarks • Scope of value can be long, medium or short term • Value realisation begins with strategic planning: – Mission, vision, values Managing towards value … • Portfolio management: – Aligns projects, programs and operations to the strategy and reflects overall strategic goals • Program management: – Aligns multiple projects for optimised or integraed costs, effort and benefits • Project management: – applies knowledge, skills, tools, processes and techniques to deliver service, products or results Programme sponsor Programme steering committee Programme office Programme manager Project A Project B Project C Management of IT Programs ValIT • Portfolio: a grouping of programmes, projects, services or assets selected, managed and monitored to optimise business return • Portfolio management: to ensure that an organisation’s overall portfolio of IT-enabled investments is aligned with and contributing optimal value to the organisation’s strategic objectives KEY OPERATIONAL SUPPORT STRATEGIC HIGH POTENTIAL CRM programme Mobile salesforce Activity costing Analytics Purchasing Sales forecasts Service centres Italics = current projects others = planned Example of Applications Portfolio (Ward & Daniels, 2006) ValIT – Portfolio Management • Establishes and manages resources profile (e.g. IT, people) • Defines investment thresholds (e.g. ROI, PP) • Evaluates, prioritises, select, defers, rejects new investments (business case) • Manages the overall portfolio (max return, strategic alignment) • Monitors and reports on portfolio performance (e.g. benefit realisation, ex post reviews) Priority investment Potential benefits High Low Degree of change – risk Low High Proceed only if no higher Value options exist Do not invest Commission an R&D evaluation Strategic applications Key operational applications High potential applications Support applications Example of Funding an Applications Portfolio (Ward & Daniels, 2006) ValIT – Domains ValIT – Value Governance Goal to optimise the value of organisation’s IT-enabled investments by – Establishing the governance, monitoring and control framework – Providing strategic direction for the investments – Defining investment portfolio characteristics Value Governance Portfolio Management Investment Management Leadership Roles Structures Directions etc Business case Alternative analysis Costs and benefits etc Resources Planning Evaluate Priorities etc ValIT Developing an Operating Model • Success of integration depends on relationships between IT and business people • Model (Figure 16.1) provides guide on – Fulfilling roles and responsibilities – Meeting business needs – People working together (Table 16.1) STRUCTURING YOUR TECHNOLOGY DEPARTMENT TO DELIVER VALUE University of Twente – ICTS Organisational Structure http://www.utwente.nl/icts/en/about_icts/organization/ PLAN BUILD RUN Classic structure reflecting a PLAN – BUILD – RUN operating model of IT Operating Models of the Future • Technology change is accelerating – Cloud computing – Bring your own device, mobile – Big data – Social media • …along with that, the user profile is also changing – More tech savvy – Up to date with technology change • …leading to changing stakeholder expectations . . . . . . . . . . “ – IT as a strategic asset and as an enabler of growth – Business Relationship Management in focus – Provide knowledgeable guidance – Be agile in knowledge and action – Understand business needs seamlessly – Deliver efficiencies Next Generation IT Operating Models / January 2014, © 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity Operating Models of the Future Next Generation IT Operating Models / January 2014, © 2014 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity Summary • IT projects should not be managed in isolation but as part of a portfolio • There is a strong interdependence between projects • ValIT provides guidance to managing the portfolio as part of value governance • There is a strong need for IT and business people to co-operate

Investing in IT Paul Jackson Dr Paul Jackson Based at Joondalup – Room 2.459 (check consultation times at Mt Lawley campus) Email p.jackson@ecu.edu.au Lecture 1 • Understand unit and expectations • Introduce topic of IT investments and value, and investment evaluation Essentials • Obtain text book and follow readings as per unit plan • There is no examination but there are 3 assignments – Presentation (from week 2 onwards) – Case study data collection – Case study report • Slides will be provided each week via Blackboard on “MyECU” on the Web How to do well • Understand the requirements of each assessment • Obtain feedback from lecturer as you develop the assignment- “talk him through” what you have achieved • Start early and make use of academic support if required • Comply with assignment expectations laid out in unit outline, eg. submit on time • Avoid surprises! (to you and me) Lecture 1 References • Textbook: Chapters 1 & 3 • Taylor R. (2008) “Ripper sunk $250m more into OSS on report by sacked consultants”, The West Australian, 8 January • Gartner’s Research (via ECU e-library) • McKinsey Research • State of CIO 2015 at CIO.com Overview • Size and nature of IT investments • The Role of the CIO • Business – IT integration • Evaluation of IT SIZE AND NATURE OF IT INVESTMENTS Big Numbers • Gartner Research – Worldwide IT expenditure 2014: $US3.7 trillion – IT spending growth 2014: 2.1% – Worldwide IT expenditure 2008: $US3.4 trillion – IT spending growth 2008: 8% – Software expenditure 2007: $US178 billion – Telecom expenditure 2007: $US1.8 trillion Big Numbers IT Investments in Australia 2010 • $31 billion • As part of operating expenditure – Finance sector: 15% – Materials and industrials: 4% – Government: 11% • Types of IT – Cloud computing: to slash capital expenditure – Smartphones and tablets as business tools – Desktop virtualisation – Social computing to interact with consumers Trends – university Environment Innovation leaders and strategic planners need to maintain a proactive hunt for external drivers and opportunities that will impact their markets and organizations. For some organizations, this trend scan (also referred to as an “environmental scan”) takes the form of an annual project by a specially assembled team. For others, it is performed by a full-time innovation, strategic planning, emerging technology or enterprise architecture group. In either case, the aim is to arm key executives with a broad perspective of the environment in which they will be operating and the opportunities that will drive investment decisions. A trend scan answers the following questions for executives: • CEOs: Which trends and technologies will change the rules of competition and open new markets? • CIOs: How will we satisfy the next priorities and the behaviors of customers and the industry? • Board members: Which trends, technologies and risks will affect our approach to competitive advantage? • Strategists: How can we take advantage of disruptive trends for our strategic goals? Environmental Scanning (Gartner Research) We have categorized the trends into three main areas: • Societal and Economic — These include demographics, lifestyle and education, and incorporate some political, economic and environmental trends. (e.g. Aging Population) • Technology — These include primarily IT, with some consideration of energy, biotech and medical technologies. (e.g. Cloud Computing) • Business and Management — These include organizational and management trends and business models, and incorporate some legal trends. (e.g. Business Model Innovation) Broad Trends (Gartner Research) • The advancement of cloud, mobile and social computing are changing the ways business managers, users and customers demand, source and consume IT-enabled products and services. • CIOs face the challenge of an increasingly complex and dynamic IT landscape, struggling to maintain control over what technologies and services get delivered by the IT organization, and how. • To stay competitive in this fast-changing environment, CIOs must now reimagine the IT organization and the IT workforce to maintain and “amplify” IT’s contribution to enterprise strategies and operations through integrated technologies, processes and information management capabilities. Key Findings 1 (Gartner Research) • A new and “lighter” IT is emerging as IT service delivery becomes increasingly commoditized, moved out of the IT organization, and into the cloud and other service providers. As a result, some traditional IT roles (such as infrastructure and operations [I&O] support) are starting to converge and require more generalist skills, while others become more prominent and require deeper specialist skills (for example, security management). • In contrast, the demand for IT skills in the design and building of new and innovative business solutions is rising. There is also an increasing need for roles that coordinate, integrate and manage a wide scope of IT resources and activities across geographies; business units; internal IT; and external partners, suppliers and customers. Key Findings 2 (Gartner Research) IT Investments in Australia 2010 • $31 billion • As part of operating expenditure – Finance sector: 15% – Materials and industrials: 4% – Government: 11% • Types of IT – Cloud computing: to slash capital expenditure – Smartphones and tablets as business tools – Desktop virtualisation – Social computing to interact with consumers THE ROLE OF THE CIO State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html State of CIO 2015 http://www.cio.com/article/2862760/cio-role/2015-state-of-the-cio.html Insights into the CIO Function https://www.youtube.com/watch?v=zrcnQwvXNFw Insights into the CIO Function https://www.youtube.com/watch?v=3oMLN6A-uPc Insights into the CIO Function https://www.youtube.com/watch?v=oX8VCNuyzd8 BUSINESS – IT INTEGRATION Business – IT (Traditionally IT is seen as a separate unit in the business and there is no connection with the outside world, i.e. customers, suppliers, etc) Business – IT (IT is now an integrated into the business and there are connections with the outside world, i.e. customers, suppliers, etc.) Run / Grow / Transform EVALUATION OF IT IT Success in Real Life • The West Australian 8-1-2008 (Taylor) – Implementing the Office of Shared Services in WA Government – Cost overrun: $82m -> $250m – Predicted savings: $64m/year – Issues • Estimation of costs and benefits • Types of benefits (staff reductions doubtful, standardised IT systems difficult) • Role of consultants and management (inflated benefits) • Timeframe for the investment (too ambitious) Rate of Project Failure over time http://www.infoq.com/articles/standish-chaos-2015 Rate of Project Failure by Size http://www.infoq.com/articles/standish-chaos-2015 Rate of Project Failure by Methodology http://www.infoq.com/articles/standish-chaos-2015 Project Success Factors http://www.infoq.com/articles/standish-chaos-2015 Purpose of Evaluation • For specific purpose – sustain or question status quo – to design/plan future activities • Evaluate a situation – understand problem domain – weigh up alternatives against objectives – measure contributions – Understand why things work or don’t work Organisational Evaluation • Establish guiding principles • Engage the clients • Engage IT providers • Establish goals • Evaluate skills • Select org
anisation design • Assess organisation design What is Evaluation? “Evaluation is a central issue in society” • It is the weighing up process to assess the value of an object or the merit of a situation • Objective of maximising the benefits potentially available Evaluation = Understanding + Measurement Assessment Issues • Multidimensional perspectives of IT business value – Economic ($), behavioural (morale) – Process (efficiency), bottom line (profit) – individual, organisational – internal, external • Comparative economics of different IT • Measurement approaches and metrics COBIT / ITIL / CMMI) Assessment Implications • Traditional evaluations ignore strategic, externally focused IT/IS • Confusion when IT generations cross over • Evaluations practices need to be more informed • Continuous learning and revision of evaluation practices Problems with Evaluations • IT goal posts change as business changes (cannot stop world from changing) • System developers produce static specifications (requires mind-set change) • Not all stakeholders participate (us vs them) • Management must accept overall responsibility for benefits Problems with Evaluations (cont) • Benefits are becoming more intangible • Emphasis on price and quality (should be speed and flexibility) • Complex interaction between IT and users (from system outputs to business outcomes) • Inadequate evaluations and benefits tracking methods Decision Making Process • Complex information processing exercise to consider substance, qualities, context, methods, etc • Multiple decision making planes – individual stakeholders should arrive at ‘definite opinion’ Decision Making Process(cont) • Minimise personal biases/differences – understanding and preferences will differ – discourse mediated by formal techniques and procedures (use objective methods and data) – reconciling differences leads to creativity – appeal to higher authority as last resort Limitations of Human IP • Anchoring: incremental rather than lateral • Recency: forget older events • Estimation: poor in statistics • Capacity: retrieve through short-term memory which can hold 7+/- 2 pieces of information Summary • IT investments are significant and trends change rapidly. • The CIO needs to respond to these trends. However, IT investments need to be justified. • Therefore IT professionals need to become experts at identifying IT value and managing the realisation of IT benefits. • They should always remember the human element. 1. How will IT change the basis of competition in our industry? 2. What will it take to exceed our customers’ expectations in a digital world? 3. Do our business plans reflect the full potential of technology to improve our performance? 4. Is our portfolio of technology investments aligned with opportunities and threats? 5. How will IT improve our operational and strategic agility? 6. Do we have the capabilities required to deliver value from IT? 7. Who is accountable for IT and how do we hold them to account? 8. Are we comfortable with our level of IT risk? 9. Are we making the most of our technology story? • Electronic Health Records for a large General Practice: – What is the key question to be answered in the case study assignment and what is its setting? (Case Study). – What are the risks of doing and not doing this project? Class Discussion

IT VALUE CREATION Paul Jackson Classic References • Textbook: Chapter 4 • Feeney D. (2001) “Making Business Sense of the E-Opportunity”, Sloan Management Review, Winter, 41-51. • Dempsey J., Dvorak R.E., Holen E., Mark D., and Meehan W.F. (1998) “A Hard and Soft Look at IT Investments”, The McKinsey Quarterly, 1, 126- 137. • Venkatraman N. (1997) “Beyond Outsourcing : Managing IT Resources as a Value Center”, Sloan Management Review, 38(3), 51-65. Contemporary References • Dörner, K., & Meffert, J. (October 2015). Nine questions to help you get your digital transformation right: McKinsey Digital. • Hirt, M., & Willmott, P. (May 2014). Strategic principles for competing in the digital age McKinsey Quarterly: McKinsey Digital. • Catlin, T., Scanlan, J., & Willmott, P. (2015). Raising your Digital Quotient. McKinsey Quarterly, October 30-43. Overview • IT can be viewed as a cost (budget) item or innovation (opportunity) item • Types of IT budgets • Identifying E-Opportunities • Types of Values/Benefits • IT Value Centres Containing Costs vs Innovation • Cost focus – Defining budget for IT – IT as percentage of revenue – IT as percentage of total operating expenses (OPEX) • Strategic focus – IT as business partner – IT as creator of business opportunity Budget Items • Personnel (CIO, manager, analyst, etc) • Professional services (contractors, consultants) • Software (application, system) • Hardware (processors, printers, screens, etc) • Travel and expenses (training, seminars, etc) • Communication, supplies and other (leasing, stationary, etc) (Skunk works- group given high degree of autonomy, not burdened by bureaucracy) Maintenance: Risk Effort Each department has invisible costs: • Home grown apps • Servers off the shelf • Own consultants • Private databases A complete picture is needed to understand where costs appear and where the demand is. HIDDEN COSTS OF IT Budget as % of Revenue How much should you be spending? Paul Jackson Paul Jackson (Why could “retail” have changed by now?) IT as Business Enabler • IT should provide – Full visibility: seen to be delivering business strategy – Provide foundations for growth: create business opportunities E-Opportunities • Enhanced selling process – customer input (Ford online design) – customer targeting (Amazon notifies customers) – customer aggregation (eHobbies reaches model train enthusiasts) – benefit selling (Timex allows download of simulated watch-setting system – achievement selling (Grainger tracks and documents customer maintenance savings) E-Opportunities (cont) – product-specifier (Lands’ End allows customer to test personal model of swimwear) – tailored-product (Chipshot.com allows golfers to tailor clubs) • Enhanced customer usage experience – added service (Lonely Planet provides online travel information) – tailored support (Dell allows agreed level of support) E-Opportunities (cont) • Enhanced customer buying experience – solution-specifier (Home Depot helps customers with do-it-yourself projects) – one-stop shopping (Office Depot links sites to cover overall customer needs) – system-design (Miller’s ‘room planner’ enables office layout design) – fastest-source (Amazon.com provides books quickly) High Frequency of Purchase High Perceived Product Differen tiation Low Perceived Product Differen tiation Low Frequency of Purchase E-Opportunity Model Fastest source Tailored supply Added service One-stop shopping Product specifier Tailored product System design Solution specifier Achievement selling Benefit selling Customer aggregation Customer targeting Customer input Hard and Soft Benefits • “It’s getting tougher and tougher to calculate and estimate benefits” • “No methodology can substitute for judgement” • “A new approach: total value of ownership” (as opposed to total cost of ownership) Hard and Soft Benefits Issues • Cost/benefit categories • Costs: onetime (e.g. computer), ongoing (e.g. maintenance) • Benefits: tangible (e.g. cost saving), intangible (e.g. competitive advantage) • Impact categories • Hard: easily quantifiable (e.g. staff saving) • Soft: difficult (e.g. customer satisfaction) • Unquantifiable: descriptive (e.g. staff morale) Hard and Soft Benefits Issues (cont) • Evaluation approaches: (covered later in this unit) – Business case for the IT investment – Benefit realisation: managing realisation of promised costs and benefits – Measuring performance: determining success of IT • Transition costs – change from old to new IT (e.g. hiring temporary staff) • Technical risks – New technology (not “leading” but “bleeding edge”) Hard and Soft Benefits Issues (cont) • Future flexibility value – Difficult to quantify (e.g. investment in Internet platform as basis for future applications) • Commercial factors – Preferred vendor – Industry standards IT Value Centre Perspective Interdependent sources of value from IT resources – cost centre: operational efficiency – service centre: IT-enabled business capability to support current strategies – investment centre: IT-based business capability for the long-term – profit centre: deliver IT services to external marketplace to create new opportunities Service Centre Cost Centre Profit Centre Investment Centre Business Capability Purpose Operational Efficiency Risk Propensity Four Components of the Value Centre (Venkatraman, 1997) Minimise Risk Maximise Opportunity Realising Value If profile is ‘higher’ than existing then move from cost-centre logic to value-centre perspective through business attitude – current operations -> future business – IT expense -> IT leverage – IT outsourcing threat -> balance in/outsourcing – rigid value criteria -> multiple criteria – captive, internal monopoly -> solutions integration IT AS AN INNOVATION CENTRE Innovation is a key driver of success (Jackson et al, 2016) • Being innovative is increasingly regarded as essential to firm survival, at the same time as accelerating rates of innovation are becoming increasingly disruptive to established firms, especially in areas that involve the Internet (Song et al. 2008; Wirtz et al. 2010). • Barriers to entry are falling in many industries, due to Internet cloud services, utility computing infrastructure and cheap e-commerce software, which allow firms to introduce new products, services and business models quickly, cheaply and with a wide reach. • While incremental improvement and adaptation of products, services and work processes is important, radical or breakthrough innovation that moves these beyond existing models (Christensen and Overdorf 2000; Danneels 2004) is also needed to compete in markets that may be highly disrupted by the Internet, mobile computing, social media and other new technology platforms (Barczak et al. 2009; Markham 2013). IT Departments as catalysts Whilst the business must drive innovation, IT must educate, inform, co-create and implement innovative technology solutions … And must look to and facilitate innovation from the outside in, not just the inside. This is Open Innovation Open Innovation “Open innovation is a paradigm that assumes that firms can and should use external ideas as well as internal ideas, and internal and external paths to market, as the firms look to advance their technology” (Chesbrough, 2003) Chesbrough, Henry William (1 March 2003). Open Innovation: The new imperative for creating and profiting from technology. Boston: Harvard Business School Press. ISBN 978- 1578518371. Startup Accelerators Development paradigms and delivery options have changed radically and are continuing to change: the example here is the use of startup accelerators being used by large companies to come up with radical innovation The German Experience: Startupbootcamp Berlin • Startupbootcamp Berlin 2014, Smart Transportation and Energy • focus on Smart Transportation & Energy – The Connected and Efficient Mobility of People and Goods. • major global brands as partners: Cis
co, HERE, Castrol innoVentures, Bosch, EnBW and Mercedes-Benz • “smart” startups in: Mobility & Connected Vehicles, Energy, Monitoring & Management, Big Data, Location Services, Signaling & Sensing, Logistics & Supply… • selected teams will benefit from access to resources and new and innovative technologies • Video: http://www.startupbootcamp.org/accelerator/berlin.html The German Experience: Axel Springer Plug and Play – Launched 2013, focus digital entrepreneursprovide startups with office space in the heart of Berlin, coaching, workshops, networking, 25.000 euros, events – Axel Springer is aspiring to become the leading digital publisher in Europe, digital media channels already contribute more than 50 percent of total pro-forma revenues today. As a result of consistent internationalization and digitization – company is pursuing a fast-growing and profitable digital portfolio, and for this reason is networking more than ever with the current generation of start-up founders – http://www.axelspringerplugandplay.com/categ ory/video/http://www.axelspringerplugandplay. com/2014/axel-springer-plug-play-startup-talk- emerald/ The German Experience: Hub:raum – (Incubator and) Accelerator helps sharpen business idea and to develop sound business model. – hub that connects team, vision, and expertise with the corporate power of Deutsche Telekom: tailored to needs – Corporation with firm=difficult, hub:raum manages connection to integrated telecommunications companies – Focus areas: Internet of things, Cyber security, Health, Cloud based business solutions, Customer analytics and big data, mobile payment and commerce, TV, Video and Multi Screen, Telecommunication and connectivy – Demo Day: https://www.hubraum.com/programs/accelerator-berlin Mechanism 1: Strategic Positioning Lean Startup in Accelerator Mode 1/28/2016 MENTOR, GUIDE, CLIENT FEEDBACK, TEST Announcement Competition Kick Off Build, Measure, Learn 2 3 4 5 6 Demo Day 1 Planning & preparation …… IT Departments should look to add value from anywhere, running hackathons, overseeing and accelerating tech startups … Lean Startup Methodology http://theleanstartup.com/principles 1/28/2016 Dr P. Jackson, Braestone http://leanstartup.pbworks.com/w/page/15765221/Fro ntPage Paul Jackson Alternative methods for achieving value: diagrammatic synopsis of Lean Startup 1/28/2016 Start with a clear vision for your business Develop a strategy Build a minimum viable product Learn Measure Sell to early adopters improve Be surprised Prove value assumptions Prove growth assumptions Identify cohorts Be prepared to “pivot” Minimise TOTAL time through the loop Get out of the building … see for yourself Summary • The cost versus innovation perspective should be carefully weighted • IT budgets are often expressed as a percentage and used to benchmark • To create innovation, e-opportunities have to be identified • IT benefits can be classified as hard and soft • Acceleration in time, shortened life cycles, drive for innovation means other means of value creation need to be explored Have a conversation with a partner: One take the role of CIO, the other as CEO • ECU’s revenue was $375 million last year. I, the CEO, am giving you, the CIO, $18 million to spend on Information Technology? – Prove to me I am getting value for money

IT VALUE MODELS Paul Jackson References • Textbook: Chapter 2 • Demopoulos P. (2008) “Best Practices and Processes for Improving the Business Value of IT”, Alinean, Inc. Business Case Structure. Overview • Investment justification issues • Investment justification techniques: – financial – non-financial • Achieving business value Why are we covering this topic? Answer: to determine which approach suits the case study. Typical Investment Questions • Should we go ahead with the investment project? • How does it compare with other IT projects and non-IT projects? • Does it exceed the organisation’s minimum return requirement (hurdle rate)? But beauty is in the eye of the beholder …. Justification Problems • IT investments are large and critical to the organisation • They deliver new, largely intangible benefits • Strategic IS are new to the organisation • How to match IT investment with a suitable evaluation technique (case study) INVESTMENT JUSTIFICATION TECHNIQUES: FINANCIAL Total Cost of Ownership • TCO is a formula for calculating the cost of owning/operating IT • The cost includes hardware, technical support, maintenance, software upgrades, and help-desk and peer support • By identifying such costs, organizations get more accurate cost-benefit analyses and also reduce the TCO • Then compare costs to best practice for similar IT in the industry (Demopoulos et al, 2008, Alinean Research) Limitations of TCO • TCO focus is on Cost (vs. benefit/value) • IT architecture used as primary determinant of TCO • The potential savings realized vary by enterprise as no IT infrastructure is the same leaving management disenchanted when they don’t see the returns. Limitations of TCO (cont.) • TCO models do not take into account the IT interaction and dependencies between organizations. • Cannot distinguish between evolutionary (incremental) and revolutionary (new) change. • Identify best IT practices, but they don’t provide a roadmap for getting there. • TCO requires strong commitment from all levels of the enterprise to achieve savings. Doing Financial Analysis • Preference for discounted cash flow (DCF) to establish net present value (NPV) • Positive NPV means benefits > costs • Supporting ratios: Rate of return on investment (ROI) and payback period (PP) which should exceed hurdle rate • Only incremental costs and benefits should be used, i.e. those applicable to the new system Discounted Cash Flow (DCF) where, NPV = Net Present Value C = Investment at the start of the project At = Cash flow at t T = Project life r = Risk-based discount rate for the project ∑= + = − + T t t t r A NPV C 1 (1 ) DCF Example One period C = 10,000 (investment) A1 = 6,000 (cash flow) r = 10% (discount rate) = -10,000 + 6,000/1.1 = -4545.4 ∑= + = − + T t t t r A NPV C 1 (1 ) (This is done for each discounted item in the Cost Benefit Analysis – there are many and their total is the NPV for the investment proposal ) Contribution of NPV • Objective • Congruence with value maximization • Better than undiscounted cash flow, simple payback, ROI because of decreasing value of money over time • Discount rate = inflation rate Rate of Return on Investment • ROI = Annual benefit/Investment amount • Measures a simple rate of return • Widely used in business, particularly for new projects since can compare competing project proposals • However, needs to be monitored to make sure it is achieved A low level cost benefit model Initial investment costs 1350 Hardware 500 Software 450 Data Comms. 150 Commisioning 250 Ongoing costs 130 Staff 50 Maint. 45 Accomodation 25 General Expenses 10 Benefits 275 Reduction in admin. Costs 20 Better utilisation of inventory 75 Better utilisation of transport 30 Additional income 150 Net Benefit (monthly) 145 Annualised benefit 1740 Return on Investment (ROI) 129 % Payback Payback (# of years) = Investments Cost / Average annual net benefit (inflows) • Not justified by theory • Ignores returns after payback (e.g. profit) • Doesn’t consider time value of money • Useful for small projects to demonstrate obvious value, i.e. very short payoff equivalent to high ROI • Often serves as hurdle rate (i.e. set by organisation) Limitations • Estimates of revenues and costs – Can be manipulated to justify projects already selected • Estimations of project risk • Estimating second stage projects – projects that build on the foundations of the proposed project Different Returns on Investment • Return on Assets • Measures benefits for a specific IT asset • Return on Infrastructure • Focuses on IT services (e.g. outsourcing vendor) rather than IT assets • Economic Value Added • Measures opportunity cost for shareholders, i.e. can money be used more profitably by leaving it in the bank INVESTMENT JUSTIFICATION TECHNIQUES: NON-FINANCIAL Non-Financial Value Measures • To provide measures in context of business strategic goals • Multidimensional Value – Multi-criteria scores from different dimensions (e.g. technical – to support innovation, commercial – to seize opportunity) – Strategy framework: key parameters for measuring success (e.g. achieve strategic gaols via Balanced Score Card) – Portfolio: groups of IT investments with same objectives (e.g. achieve outcome a single investment cannot) • Different metrics are used to measure categories of IT investments IT Value Management: Creating a Balanced Program McShea, Michael. IT Professional Magazine 8.6 (Nov/Dec 2006): 31-37. IT Value Management: Creating a Balanced Program McShea, Michael. IT Professional Magazine 8.6 (Nov/Dec 2006): 31-37. Portfolio – McFarlan Strategic Grid Source: http://visual.placodermi.org/2009/01/14/toolkit-mcfarlans-strategic-grid/ Multicriteria – intangible Benefits • Evaluating Intangible Benefits – Make rough estimates of monetary values for all intangible benefits, and then conduct a NPV or similar financial analysis. – Scoring Matrix or Scorecard Chapter 13 27 Multicriteria – intangible Benefits Chapter 13 28 Strategic Systems generally increase revenue Tactical Systems generally increase yield on assets Operational Systems generally reduce costs Strategic Value • Deliver value by linking value measures to strategic focus • Done by (see Figure 2.1) – Develop measures of business value at highest level possible – Look for strategic initiatives to improve that value – Identify IT that supports and adds value to those initiatives – Attach metrics to those specific IT investments Dashboards • On-screen presentation of trend carts showing most important measurements for executives (Critical Success Factors) • Drill-down to greater level if needed • Hierarchy of dashboards (Figure 2.2): system performance, IT support performance, partnership ratio, service levels, new project index (on time), total cost ratio (as % of revenue and expense) Visualisation • To be effective, value must be visible to the organisation • Figure 2.3 shows a holistic view of the organisation and encourages adoption of best practice Demopoulos (2008) Demopoulos (2008) Demopoulos (2008) Quick Revision Question answered Method What will the system cost? What will the total cost be? What will it earn me as a percentage of the capital I invest? What new possibilities will the system open up for me? What will the system make for me? What is the mix tangible and intangible benefits? How well does this support our strategic objectives? How well does this system fit into my range of other applications? How quickly will it pay for itself How much value will this generate? Quick Revision – Answers Question answered Method What will the system cost? Acquisition cost What will the total cost be? TCO What will it earn me as a percentage of the capital I invest? ROI What new possibilities will the system open up for me? Real options / TVO What will the system make for me? Discounted cash flow analysis (NPV) What is the mix tangible and intangible benefits? Information economics . multicriteria How well does this support our strategic objectives? Balanced
Scorecard How well does this system fit into my range of other applications? Portfolio analysis How quickly will it pay for itself Payback How much value will this generate? TVO, Minimum Marketeable Feature (units of value creation) Summary • To overcome investment justification issues, a number of techniques have been developed • They can be basic (e.g. ROI) or sophisticated (e.g. multi-criteria) • Each has advantages and disadvantages- therefore need to fit the context (e.g. case study) • In the end it is the contribution that IT makes to business that is most important

IT Performance Dr Paul Jackson Summary • The components of the IT’s Function to business • Measuring and Reporting the Value of IT • Factors and constructs which indicate information systems success IT FUNCTION – PERFORMANCE MANAGEMENT Why measure value? • IT is a resource that must be funded by the business, so it competes with other priorities • IT has two major contributions: – It reduces business costs – It gives a competitive advantage • IT functions broadly to: – Run the business (email, internet, MS-office) • Infrastructure, helpdesk, security management, systems engineers – Change the business (CRM, analytics, e-commerce) • Projects, architects, IT strategy • Therefore it is a key part of most business value chains and models Value for Money • The IT Budget comes from the business, so business looks for answers: – How efficiently and effectively does IT deliver against the priorities of the business? – How well does IT perform compared to other IT departments in other organisations? – Where is IT performing poorly? – How can IT improve? What models are appropriate • Most models are based on ROI, NPV etc • These do not represent “VALUE” – They are not linked to how the organisations acts within its business domain, how it competes, how it delivers – It does not distinguish strategic and operational value – It does not quantify the value of OPPORTUNITY Solution – Performance Management System • Implement metrics-based performance management • Ensure the metrics cover the key services and projects that IT is responsible for • The metrics should give a clear indication of the health and performance of the IT function and contribution to the business Key Performance Indicators • KPIs are the set of measures which measure the performance of the IT “Body” (heartrate, blood pressure, sugar, body mass index…) – Simple – Measurable – Actionable – Reasonable – Comparable OR SMART: Specific – target a specific area for improvement. Measurable – quantify or at least suggest an indicator of progress. Assignable – specify who will do it. Realistic – state what results can realistically be achieved, given available resources. Time-related – specify when the result(s) can be achieved Define KPIs Define objectives Design Reporting Designing your measurement system Develop KPI’s Establish IT Processes 1. Set strategic direction 2. Manage human resources 3. Implement projects 4. Support operations 5. Source services and products 6. Manage budget 1. Set strategic direction 1. Align with business strategy 2. Align with architecture 1. Align with business strategy 1. Realised value after 1,2,3 years 2. ROI of investmen ts Look at example The Measurement Process • Ensure alignment with business strategy and architecture roadmap • Ensure skills, training, employee contractor mi, employee satisfaction • Project performance • Portfolio performance • Resource effectiveness • Ensure reliable IT services • Helpdesk • ISO etc compliance • Ensure vendor management • Ensure outsourcing well managed • Benchmarking • Budget fidelity Set strategic direction Manage human resources Implement projects Support operations Source services and products Manage budget Performance Measurement Scorecard Performance Evaluation / Corrective Actions Performance Scorecard for IT HPT World Conference, 2004, P. Sharma, McKinsey. Or use a qualitative scoring approach… Rules of Thumb • Focus on a few, important KPIs • Balance the numbers reported: – KPIs across processes – long-term versus short term KPIs – value versus efficiency • Use sensible precision Target Setting – what is the right target for the various IT processes? • Use external benchmarks / industry averages for SOME metrics (% of revenue on IT, IT staff / employees, spend / employee etc) • Set internal benchmarks which are reasonable • Set stretch targets when dissatisfied with performance or where value is low (use automation, outsourcing to improve) • Do trend analysis to ensure “progress” and work against stagnation / complacency IT Performance Management Process SET TARGETS TAKE ACTION REVIEW PERFORMANCE • Be aspirational • Involve business stakeholders • Set realistic goals • Make measurement part of culture • Commit managers • Find causes of performance gaps • Allocate responsibilities to fix, be responsible • Link to rewards • Publicise success measures • Produce reports • Communicate results • Review against targets • Determine actions BUSINESS VALUE – MEASUREMENT Examples of Business Value Measures for IT Standards for IT Service Management http://www.itil.org.uk/ ITIL Service Approach For larger organisations, the ITIL (IT Infrastructure Library) standard is increasing in popularity (about 15% of large organisations) for management of the INFRASTRUCTURE SERVICE LEVEL. Mandated by the British Government http://www.itil.org/ ITIL Stages and Processes E-METRICS FOR APPLICATIONS Performance Management (Fink, 2006) • Moving from traditional accounting metrics (e.g. ROI) to market driven metrics (e.g. customer satisfaction) • Moving towards e-metrics – Collect performance data in real-time – Enable aggregation- Corporate Performance Management (CPM) – Example of Gartner’s Business Performance Framework Decomposition of Values (Fink, 2006) • Problem: broad values – not useful for performance measurement • Stepwise refinement – until succinct statement can be made about value – stops at primitive level: value measured by formulae or algorithm Decomposition Splicing Value construct Value variable Value variable Value metric Value metric (Control interfaces) (Functional primitives) Decomposition of Values (Fink, 2006) Performance Management (Fink, 2006) (What are examples of metrics for the above variables?) Value construct Value variable Stickiness effectiveness of the web page to hold visitor’s attention Slipperiness extent to which a visitor clicks though a banner/link or web page Focus Pages looked at as a proportion of total number of pages Velocity how quickly a visitor moves from purchase awareness to purchase decision Freshness Frequency in which web site is refreshed before the visitor revisits the site Seducible moments Junctures where a visitor is susceptible to an offer of purchase Abandonment Visitor commences purchase process but does not complete it Excitement Visitor having a satisfying experience when visiting the web site Counter Number of visitors that have made contact with the web site Table 1: Values of VRM Performance Management (Fink, 2006) Value construct Value variable New customers the number and value of new customers acquired through the web site Existing customer the number and value of existing customers doing business through the web site Order delivery cycle time Reduction in delivery time to meet customer demands due to the use of a web site Service requests the number and value of service requests met and resolved on a web site Order fulfillment the extent to which orders are fulfilled to the satisfaction of customers through the use of a web site Table 2: Values of B2C Performance Management (Fink, 2006) Value construct Value variable Costs Reduction in costs due to automation of high volume transactions and data accuracy Productivity Improved internal business efficiency through automation of B2B transactions Information exchange Improved information leading to better market intelligence Sources for new products access to new products by being a link in a trading community Time-to-market Collaborative product design and supply chain integration gets products to the market quicker Table 3: Values of B2B Performance Management (Fink, 2006) Value construct Value variable Personalisaton profile information of customers Life time valu: the value obtained during the period of custom Loyalty value the time they remain a customer Attrition reflects those who depart as customers and never to return Churn number of customers lost over total number of customers Feedback good and bad feedback obtained
from customers Performance Management (Fink, 2006) Value construct Value variable MRO reduction in maintenance, repair and operating (MRO) costs by avoiding wasteful and ad hoc practices such as maverick buying Interface cost savings through the use of a web interface for operational purchasing activities such as ordering, expediting and administration Sourcing cost savings in tactical purchasing activities such as setting specifications, selecting suppliers, negotiations and contracting Tendering as for sourcing, cost savings for tendering activities Informing cost savings in strategic purchasing activities such as compiling expenditure analysis and developing purchasing policies Table 5: Values of EP Performance Management (Fink, 2006) Value construct Value variable Internal efficiency streamlined inner workings of a business through commonality and standardisation Business benefits various benefits such as inventory reduction, customer responsiveness, manufacturing flexibility Interface with e-commerce automatic updating of purchases, sales etc. without the need for human involvement Creating an extended enterprise integration of core applications with those of suppliers and customers Application integration integration of business activities to better leverage information within the organisation Integration of front/back office linking external with internal activities through a single coherent IT infrastructure and systems environment Table 6: Values of ERP Performance Management (Fink, 2006) Gartner’s Corporate Performance Management Value construct Value variable Demand management consisting of market responsiveness, sales effectiveness and product development effectiveness Supply management Consisting of customer responsiveness, supplier effectiveness, operational effectiveness Support services consisting of human resource responsiveness, IT responsiveness and finance & regulatory responsiveness Table 7: Values of CPM Summary • Disciplined, structured approach to measuring IT performance is critical to business acceptance, ongoing investment • Ex post evaluation of projects is critical because it shows what actually happened and compares what was promised (ex ante) against what was delivered (ex post) • However, performance should be measured through use of metrics: these will vary for projects, infrastructure and services • There are many approaches to this Class Exercise • You are the newly installed CIO of a small citybased private hospital. • How would you like to be measured by the Board? – What value do you add? – What metrics reflect the value that you add? – How will you collect the data? IS SUCCESS – WHAT ARE THE DIMENSIONS OF A GOOD SYSTEM? Taxonomy of IS Success (DeLone & McLean, 1992) • System quality • Information quality • Use • User satisfaction • Individual impact • Organisational impact – Technical – Semantic/product ^ | Effectiveness/ | influence v Measures of System Quality • Convenience of access • Flexibility of systems • Integration of systems • Resource utilisation & response times • System reliability • Ease of use & learning Measures of Information Quality • Accuracy • Precision • Currency • Timeliness • Reliability • Completeness • Relevance Measures of Use • Use/non-use • Frequency of use • Use to support …. • Acceptance • Motivation Measures of User Satisfaction • Overall satisfaction • Satisfaction (on a scale) • Software/hardware/project satisfaction • User complaints • Decision-making satisfaction • Satisfaction at different levels Measures of Individual Impact • Improving user or the departments performance • Decision effectiveness – quality/accuracy • Time to do a task • Improved personal productivity • Task performance Measures of Organisational Impact • Profit performance • Cost reduction – staff reduction, costs, etc. • Production productivity – increased volumes • Financial returns -ROI, NPV, etc. • Market – penetration • Less quantifiable – increased switching costs, barriers to entry, differentiation, etc. (We have covered many of these benefits in previous lectures)

STRATEGIC CONTEXT Paul Jackson References • Textbook: Chapter 13 • Demopoulos P. (2008) “Best Practices and Processes for Improving the Business Value of IT”, Alinean, Inc. Business Case Structure. • Ward J. and Daniel E. (2006). Benefits Management: Delivering Value from IS & IT Investments New York: John Wiley & Sons. • Elpez I. and Fink D (2006) “Information System Success in the Public Sector: Stakeholders’ Perspectives and Emerging Alignment Model”, Issues in Informing Science and Information Technology, 3, 219-231. • Fink D and Disterer G (2006) “International case studies: to what extent is ICT infused into the operations of SMEs?”, Journal of Enterprise Information Management, 19(6), 608-624. Overview • Revisit strategic thinking • Problems with evaluations • Some history: from automate to transformate • Applications: operational versus strategic • Industry sectors – Public sector – Small business • Managing Change STRATEGIC PLANNING AND ALIGNMENT Figure 13.1 The relationship among business, IS, and IT-strategies. (Source: Ward and Peppard, 2002.) Value Add by IT • Direct – by reducing cost through efficiencies. • Indirect – increased revenue through improved productivity and/or reduction in employees. • Enabling temporary or sustained competitive advantage. Copyright 2010 John Wiley & Sons, Inc. 13-6 With regards to the case study, what is an example of each area of business improvement? Chapter 12 8 Information Systems Strategy in one slide Strategic Analysis Strategic Business Responses Competitive Facts of Life Information requiremen ts Resource allocation Project Planning IT priorities, portfolio Data needs and architectu res Budgets, projects identified Detailed plans, resources for projects Decisions: niche, cost, differentiatio n, systems Strategic IT Plan reveals Which require Determine the can be Results in Results in Results in Results in Are input to Are input to Are input to Porter, SWOT, Value Chain, Creative thinking, experience, scenarios Applications portfolio planning, IT alignment, steering committee, CSF’s Systems analysis, data modelling Estimation, prioritisation, costbenefits, ROI Gantt, PERT Chapter 12 9  Critical success factors (CSFs) are those few things that must go right in order to ensure the organization’s survival and success. Critical success factors vary by industry categories—manufacturing, service, or government—and by specific industries within these categories. Sample questions asked in the CSF approach are:  What objectives are central to your organization?  What are the critical factors that are essential to meeting these objectives?  What decisions or actions are key to these critical factors?  What variables underlie these decisions, and how are they measured?  What information systems can supply these measures?  Scenario planning is a methodology in which planners first create several scenarios, then a team compiles as many as possible future events that may influence the outcome of each scenario. Strategic Information Technology Planning – Critical Success Factors • What objectives are central to organization? – Critical factors to meeting objectives? • What decisions or actions are key? – What variables underlie decisions & how are they measured? • What information systems can supply measures? Copyright 2010 John Wiley & Sons, Inc. 13-10 Critical success factors-basic processes. IT EVALUATION PRACTICE IT Evaluation Practice ►Difficulty in performing evaluations  business strategy/goals not articulated  poor working relationship business/IT ►Business-related measures are fast evolving but difficulties remain in  lack of understanding of possible methods  identifying what/how to measure  lack of data and quantifying soft data  Also depends on strategic context IT Evaluation Practice ►Sectoral differences in getting value from IT  finance (good), manufacturing, distribution (not so good) ►Performance mostly expressed in technical/project efficiency rather than business contribution ►Business benefits were mostly internal (user) rather than external (customer) E-Commerce Decomposition (Fink, 2006) E-commerce Corporate Performance Management IS Evolution ►Automate – Electronic Data Processing (EDP) – efficiency benefits (e.g. less input for more output) ►Informate – Management Information Systems (MIS) – effectiveness benefits (e.g. asset management) ►Re-engineer – Business Process Re- engeneering (BPR) – competitiveness benefits (e.g. quicker to market) ►Transformate – strategic benefits (e.g. new business model) IS Evolution ► Companies that use IT to automate human labour generally invest in IT in order to improve the efficiency of existing business processes. ► Informate initiatives typically provide short-term improvements in firms’ performance, given the speed with which competitors are able to implement imitable applications. ► Transformational IT, because of the complexities and difficulties involved in introducing and maintaining radical transformations of a firm’s decision structure and culture, such IT-enabled initiatives are more sustainable, either at industry or subset of industry level Hierarchy of IT Investment Management (Demopoulos et al, 2008) Minimise Costs, Maximise Revenue (Demopoulos et al, 2008) ►Organise IT spending according to hierarchy of needs ►Tactical – infrastructure – reduce costs ►Strategic – transformation – provides competitive advantages (increase revenue) (Which one was the case study?) Different Applications (Ward & Daniel, 2006) STRATEGIC HIGH POTENTIAL Proven opportunities for achieving advantage R&D of new ideas and new technologies Increased effectiveness of current operations Cost savings and increased efficiency of current operations KEY OPERATIONAL SUPPORT Gain advantage – innovation based Avoid disadvantage – problem based IT enablers Business enablers Business changes Benefits Objectives Avoid disadvantage 1 – define performance targets 2 – identify combination of IT/business enablers/changes to achieve benefits 3 – decide on most cost effective/ low risk combination to achieve benefits 4 – finalise business case Ends-driven Problem-based Approach (Ward & Daniel, 2006) IT enablers Business enablers Business changes Benefits Objectives Gain advantage Ways-driven Innovative-based Approach (Ward & Daniel, 2006) 1 – describe advantage 2 – describe benefits and changes needed 3 – how IT can achieve changes? 4 – how can IT be deployed? 5 – assess feasibility of each change/benefit 6 – agree investment objectives/ benefits 7 – include IT project in business plan INDUSTRY SECTORS Public Sector • Changes brought about by government policies • Driven by specific targets and given deadlines (rather than financial feasibility) • However, still should follow IT realisation principles, such as – What changes are needed – What role does IT play as an enabler – Stakeholder involvement • Politics: Priorities may be refocused: for instance as a result of changes in government policy. Impositions of external deadlines: primarily for political reasons • Decision making: Highly bureaucratic decision-making processes. High level of public interests and oversight • Management: Short-term tenures of managers overseeing projects • Lead from: Technology led • Uniqueness: Custom systems rather than packaged preferred • Cost: Low-cost solutions not sought Public Sector IS Constraints (Elpez & Fink, 2006) Small Business (Fink & Disterer, 2006) • SB have limited resources- financial, skill, people • Dominated by manager and/or owner • Processes normally simpler • Rely largely on outside IT help • Therefore – Most staff get involved – Packaged solutions are attractive MANAGING CHANGE Change • New technologies, new applications, new business processes, new roles and responsibilities – these are significant changes to people’s behaviour, habits, beliefs and power • Change management is an approa
ch to transitioning individuals, teams, and organizations to a desired future state. http://www.forbes.com/sites/johnkotter/2011/07/12/change-managementvs-change-leadership-whats-the-difference/ Managing Change • Changes are often in IT for various reasons – Process improvements – Implementation of new systems – Etc • However, IT failure has been a criticism • A major cause is lack of managing change Principles of Managing Change • Engaging senior management (commitment) as well as middle management (acceptance) • Proper funding for IT: adequate resources • Preparing a Business Case: vision, costbenefit, implementation, risk, etc • Setting and managing expectations: under promise and over deliver and not overpromise/under deliver Principles of Managing Change • It’s about people: getting support & buy-in, manage resistance, training, champions, change agent, etc • Communicate, communicate, communicate: express views and concerns • Measurement is key: what you can’t measure, you can’t manage Summary • Measurement of IS is dependent on strategic context • Orientation to IS has evolved over time, from automation to transformation • More emphasis placed on including IS into strategic thinking • IS strategic context varies, e.g. public sector, small business • At same time change should be managed effectively Class discussion …. CSFs • What are the key political, economic, social and technology factors emerging in Australia currently, e.g. budget deficits, user-pays…? – How will these affect doctors’ practices? – What are the critical success factors for a doctor’s practice to prosper in the next 5 – 10 years?

The Business Case Paul Jackson References • ITGI (2006), “Enterprise Value: Governance of IT Investments: The Business Case”. • Keen J.M. and Digrius B. (2003) Making Technology Investments Profitable, John Wiley & Sons, Appendix A – ABC Corporation Business Case. • Symons C (2006) “Measuring the Business Value of IT”, Forrester Research. • Remenyi D. & Remenyi B. (2009). How to Prepare Business Cases. CIMA Publishing, New York. • Demopoulos P. (2008) “Best Practices and Processes for Improving the Business Value of IT”, Alinean, Inc. Business Case Structure. Overview • Conventional Business Case – The business case within VALIT – Corporate, weighty – Typical structures and examples • Contemporary Business Case – Business Model Canvas – Lighter, faster, easier CONVENTIONAL BUSINESS CASE DEVELOPMENT ValIT • Produced by the IT Governance Institute (ITGI) at www.itgi.org • Meets “the need for organisations to optimise the realisation of value from IT investments.” • The Business Case is part of the ValIT framework ValIT Processes • Value governance – Framework to monitor, control, strategise • Portfolio management – Align with organisation’s objectives • Investment management – Deliver optimal value – Includes business case ValIT – the Four “Ares” • Are we doing the right things? (the strategic questions) • Are we doing them the right way? (the architecture and methodology and project management questions) • Are we getting them done well? (the delivery and execution questions) • Are we getting the benefits? (the benefit realisation questions) ValIT- Four Are’s Business Case • Must address questions in “four are’s” covered earlier – Do right things – Do right way – Well done – Get benefits • Include expectations of future events; therefore continually updated • Developed and owned by business sponsor and key stakeholders BC Structure Stakeholder value Resources needed Technology/IT to support Operational capability Business capability BC Components • Outcomes – Measurable results: financial or non-financial – Immediate, intermediate, ultimate • Initiatives – Business, processes, people, technology, organisation, actions/projects • Contributions – Measurable contributions to other initiatives or outcomes • Assumptions – Necessary conditions over which organisation has little or no control: risk, constraints, costs, benefits BC Development Building the Fact Sheet • Is the place where data is collected for the development of the business case • Consists of best-case/worst-case scenarios • Covers many issues – strategic alignment, benefits, risks, implementation, operation, etc • Data needs to be collected (empirical) and validated (plausibility checks) BUT • Can be overly complex and detailed (for the assignment you can leave out what you consider unnecessary detail, but the idea of the fact sheet is still important) (See forms in ValIT Readings) VAL IT Fact Sheet Alignment Analysis • Assuring efficient and effective use of scarce resources • For IT to support strategic business objectives – Contribute to current objectives and priorities, those of parent company or larger context, or future state or business vision • For IT to fit target enterprise architecture – Ensure processes, people and technology work together to create services and/or products Comparing Benefits to Costs • Capital investments – Major investments in equipment, personnel, and other assets • Key part of creating a business case includes: – Identifying potential benefits – Identifying costs required to generate benefits – Evaluating whether benefits exceed costs Doing Financial Analysis • Financial Analysis: – Preference for discounted cash flow (DCF) to establish net present value (NPV) – Positive NPV means benefits > costs – Supporting ratios: internal rate of return (IRR), payback period (PP) which should exceed hurdle rate – Only incremental costs and benefits should be used, i.e. those applicable to the new system • BUT – Financial Analysis should NOT end the discussion. Optimally, systems should at least “pay their way” Example of Financial Analysis • See references: – Symons C (2006) “Measuring the Business Value of IT”, Forrester. (this provides a comprehensive discussion of IT business value and role of value managers such as ValIT) – Keen et al (2003) “ABC Corporation Business Case” (provides examples of calculations in a business case) – Remenyi D. & Remenyi B. (2009). How to Prepare Business Cases. CIMA Publishing, New York (book on how to do a business case). VALIT Considers project phases Performs various analyses Example of ABC Corporation (see readings) • Provides example of a documented business – Introduction: business drivers – Executive summary: recommendation, summary of value results • Financial results – IRR, NPV, ROI for 5 years – Total costs, payoff, net cash flow for each year and over for 5 years Argumentation for benefits: Visual, progressive …. Unequivocal, punchy recommendation ABC Case Study Internal Rate of Return: 0 = P0 + P1/(1+IRR) + P2/(1+IRR)2 + P3/(1+IRR)3 + . . . +Pn/(1+IRR)n Net Present Value Return on Investment = Annual benefit/Investment amount NPV C At t t T r = − + + ∑=1 (1 ) Example of ABC Corporation (cont) • Tangible worksheet for the IT investment – Costs, payoffs, summary • Worksheet for each tangible payoff (benefit) – Benefit, rationale, role of IT Risk Analysis • Risk is dealing with uncertainties • Aim to minimise potential negative events and maximise potential opportunities • Two main types –Delivery risk – Benefits risk • Solutions to eliminate, mitigate, transfer, share or accept risks Information Tips (Val IT) Information Tips (Val IT) Documentation • Overall structure and content of a business case suggested by Val IT – Cover sheet – Executive summary – Are we doing the right things (why?) – Are we doing the things the right way (what and which?) – Are we doing things well (how?) – Are we getting the benefits – Appendices • Example of business case structure from Demopoulos (2008) – see next slide Maintenance • The business case is a “living” document • It is an operational tool that should be continually updated throughout the life cycle of the project • It is used to support implementation and benefit realisation CONTEMPORARY BUSINESS CASE – THE BUSINESS MODEL CANVAS http://en.wikipedia.org/wiki/Business_Model_Canvas Business Model Canvas Explained https://www.youtube.com/watch?v=QoAOzMTLP5s Summary • Conventional Business Case – Val IT provides a holistic framework for IT investment management and is developed through a number of steps – Producing a financial and non-financial analysis is particularly important for the decision makers – The ABC Corp business case shows how tangible costs and benefits are processed – Other readings give more information • Contemporary Business Case – The business model canvas seeks to give a rapid, marketfocussed view of the benefits of a system – Is very suitable for disrupted / challenged business environments Class Exercise • In a group, develop a business model canvas for Electronic Health at your doctors’ practice. • After completion, discuss how well it worked for you and how you might use it in reality • We will present some of these to the class for review • Use the canvas as a starting point for your assignment

Val IT Paul Jackson References • ITGI (2008) “Enterprise Value: Governance of IT Investments: Getting Started with Value Management”. • ITGI (2007) “ValIT Case Study: Value Governance – Police Case Study”. • Symons C (2006) “Measuring the Business Value of IT”, Forrester Research. Overview • The ITGI and ValIT • ValIT’s focus, principles and processes • The Police Case Study • Other IT Value Methodologies – see Symons (2006) ValIT • Produced by the IT Governance Institute (ITGI) at www.itgi.org • Meets “the need for organisations to optimise the realisation of value from IT investments.” • This is part of IT governance IT Governance Institute  IT governance has two core responsibilities – Use IT to deliver value and enable the business – Mitigate IT-related risks  IT professionals should operate, measure performance, understand risk and obtain assurance  IT governance is part of enterprise governance Principles, Processes & Practices ENTERPRISE VALUE: GOVERNANCE OF IT INVESTMENTS B A S E D O N C O B I T® An Executive Primer Based on the Val IT Framework 2.0 Very few enterprises actively manage for value. Research carried out by the Cranfield School of Management suggests that less than 30 percent of the largest UK companies actually have a formal benefits management process.7 Anecdotal evidence suggests that similar figures are to be found among European and US companies as well. IT Governance Institute  IT governance has received too little board of directors attention – IT requires more technical insight – IT is traditionally a separate entity – IT is complex in a networked economy – IT knowledge at board level is limited ValIT- Four Are’s  Are we doing the right things? (the strategic questions)  Are we doing them the right way? (the architecture questions)  Are we getting them done well? (the delivery questions)  Are we getting the benefits? (the value questions) ValIT Principles  IT-enabled investments are managed as a portfolio of investments ( highest business potential)  IT-enabled investments include full scope of activities required to achieve business value (including business change)  IT-enabled investments are managed through full economic life cycle  Different categories of investments are evaluated and managed differently (strategic, day to day, regulatory)  Practices define and monitor key metrics (  Practices engage all stakeholders and assign accountability  Practices are continually monitored, evaluated and improved ValIT Domains  Value governance (IT governance) – Framework to monitor, control, strategise  Portfolio management – Align with organisation’s objectives  Investment management – Deliver optimal value – Includes business case Key Components of Value Governance • Establishes the overall governance framework, including defining the portfolios required to manage investments and resulting IT services, assets and resources • Monitors the effectiveness of the overall governance framework and supporting processes, and recommends improvements as appropriate Key Components of Portfolio Management • Establishes the strategic direction for investments, the desired characteristics of the investment portfolio, and the resources and funding constraints within which portfolio decisions must be made • Evaluates and prioritises programmes within resource and funding constraints, based on their alignment with strategic objectives, business worth (both financial and non-financial), and risk (both delivery risk and benefits risk), and moves selected programmes into the active portfolio for execution. • Portfolio management monitors the performance of the overall portfolio, adjusting the portfolio as necessary in response to programme performance or changing business priorities. Key Components of Investment Management • Defines potential programmes based on business requirements, determines whether they are worthy of further consideration, and develops and passes business cases for candidate investment programmes to portfolio management for evaluation • Launches and manages the execution of active programmes, and reports on performance to portfolio management. • Moves resulting IT services, assets and resources to the appropriate operational IT portfolio(s) and continues to monitor their contribution to business value. • Retires programmes when there is agreement that desired business value has been realised, or when retirement is deemed appropriate for any other reason. Key Components of Investment Management 1. Business case development – Developing (fact gathering) and documenting (business case format) – Analysis (financial) and decision making (risk) – Monitoring (realisation) and control (outcomes) ValIT Processes (cont) 2. Programme management – IT implemented in conjunction with changes in business, processes, people, etc. 3. Benefit realisation – Benefits emerge throughout economic life cycle of an IT project (See also IT Benefit Realisation processes in different lecture) VAL IT Domains and Processes Management Guidelines CASE STUDY VAL IT – Results Chain Technique Results ChainTM Components A Results Chain™ is composed of only four types of components: outcomes, initiatives, contributions and assumptions. 1. Outcomes—The results sought, including either intermediate outcomes in the chain (outcomes or intermediate benefits that are necessary but not sufficient to achieve the business benefits) or ultimate outcomes (the business benefits to be harvested). An outcome is represented by a circle. 2. Initiatives—The actions that contribute to one or more outcomes. An initiative is a project—where money is spent. An initiative is represented by a square. 3. Contributions—The roles played by elements of the Results ChainTM, either initiatives or intermediate outcomes, in contributing to other initiatives or outcomes. A contribution is represented by an arrow between initiatives and outcomes. 4. Assumptions—An indication of uncertainty about a component in a Results ChainTM. An assumption is represented by a hexagon. Assumptions represent risks that must be managed or mitigated, e.g., by undertaking another initiative. Police Case Study  Medium Sized Police Service  This is a public service agency, not a business  IT is NOT about financial return (ROI) but about – Contribution to strategic outcomes (e.g. reduced crime, community safety) – Streamlining business processes (e.g. getting police to front line) – Systems not failing in critical situations (e.g. aging infrastructure) Police Case Study (continued)  Measurement of value – Contribution to strategic plan outcomes (Figure 1) – Shows causal contribution of one lower level to higher level – E.g. “better Intelligence” contributes to improved investigative quality, more apprehensions, better quality briefs Police Case Study (continued)  IT projects linked to associated business outcomes (Figure 2) and measured by – Immediate outcomes: 1 = none, 5 = major – Overall ranking – Process efficiencies – Savings: time, staff (these are forms of metrics) Police Case Study (continued)  Value governance life cycle (Figure 3) – Pre-project (ex ante) – Project (realisation) – Post-project (ex post)  Value governance life cycle gates – Opportunity qualification – Business case approval – Project scope approval – Project go-alive approval – Benefits realised Police Case Study (continued)  Some results so far (Figure 9): major reduction in property crime because of – DNA analysis capability – Crime management system – Linked crime unit (Symons, 2006) Forrester TEI (Symons, 2006) (Symons, 2006) Summary • IT investment are attracting attention at the governance level • The ITGI provides a suitable framework to manage effective IT benefits management through ValIT • ValIT has comprehensive guidelines to ensure the successful outcome of an IT investment • The Police case study illustrates a real life (non- financial) example of a Val IT approach •
There are other IT value methodologies

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