business management of it
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Business Management oInormation TechnologyA practical guide or senior nance executives and business managers
INFORMATION TECHNOLOGY & MANAGEMENT
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CPA Australia Ltd (CPA Australia) is the sixth largest proessional accounting body in the world with more than 117,000
members o the nancial, accounting and business proession in 98 countries, including Australia.For inormation about CPA Australia, visit our website: cpaaustralia.com.au
First published 2008
CPA Australia Ltd
ABN 64 008 392 452
385 Bourke Street
Melbourne Vic 3000
Australia
ISBN 9281 876874 28 5
Legal notice
Copyright CPA Australia Ltd (ABN 64 008 392 452) (CPA Australia), 2008. All rights reserved.
Save and except or third party content, all content in these materials is owned by or licensed to CPA Australia. All trademarks, service marks and trade names are proprietory to CPA Australia. For permission to reproduce any material, a request in
writing is to be made to the Legal Business Unit, CPA Australia Ltd, 385 Bourke Street, Melbourne, Victoria 3000.
CPA Australia has used reasonable care and skill in compiling the content o this material. However, CPA Australia and
the editors make no warranty as to the accuracy or completeness o any inormation in these materials. No par t o these
materials are intended to be advice, whether legal or proessional. Further, as laws change requently, you are advised to
undertake your own research or to seek proessional advice to keep abreast o any reorms and developments in the law.
To the extent permitted by applicable law, CPA Australia, its employees, agents and consultants exclude all liability or
any loss or damage claims and expenses including but not limited to legal costs, indirect special or consequential loss or
damage (including but not limited to, negligence) arising out o the inormation in the materials. Where any law prohibits
the exclusion o such liability, CPA Australia limits its liability to the re-supply o the inormation.
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Chris Gillies is an independent non-executive director serving on a number o boards, associations and charities
and advises boards on establishing IT governance leadership in the boardroom. Boards include Oakton, CorporateExpress, Asgard Wealth Solutions, Emergency Telecommunications Statutory Authority Victoria, UCMS,
Commsecure and the MS Society o Australia. She has established and chairs three board IT committees, as well
as advising a number o others. Prior to her board career, Chris was Group Executive, Group Services at St George
Bank (where her role included managing the integration with Advance), Chie Inormation Oicer or the Bank o
Melbourne, and Victorian Director o the DMR Group, an international IT consulting company, where she
specialised in mergers and acquisitions and in designing and implementing major IT change programs. Chris has
over 10 years experience as a company director and more than 35 years experience in business management and
inormation technology.
Advisory committee
JanBarned - Policy adviser, inormation technology and management, CPA Australia.
Jan has held a number o directorships and has over twenty years experience working or both listed and unlisted
domestic and international companies. Her current role at CPA Australia includes identiying current and
emerging issues on inormation technology and management and advocacy to government, industry membershipand the wider public.
Mark Toomey - Managing Director, Inonomics Pty Ltd.
Mark Toomey has more than thirty years experience in planning and delivering inormation communication technology
solutions that enable business perormance. Since 2000, he has specialised in providing governance, management and
strategic advice to business and IT executives, and company directors. Mark is a Fellow o the Australian Institute o
Company Directors and is the Institutes representative on Standards Australias committee controlling the Australian
Standards or Corporate Governance o Inormation and Communications Technology.
Vicky Kelly
Vicky Kelly has over 35 years experience in the IT industry and has worked or Bendigo Bank or the last 13 years. Vicky
is a member o the Banks Executive, has assisted in the establishment o the Board o IT Governance Committee and is
an attendee o that committee.
Diana HolmbergA seasoned IT proessional, Diana Holmberg has more than 16 years experience in the industry as a CIO, business IT
integration consultant, business IT strategist, program director, project manager and technology practitioner. She has
extensive experience in identiying and implementing organisational and procedural change to ensure the alignment o
IT delivery to business strategy and to improve IT delivery capabilities. Diana is also a non-executive director on the
Board o Australian Home Care, ocusing on the implementation o eective IT governance.
Peter Harrison, Principal, Fujitsu Consulting, Australia and New Zealand
Peter is a FCPA and currently leads Fujitsu Consultings Australian and New Zealand Enterprise Value Management
consulting practice that includes value governance, portolio management and benets realisation. He was a
contributor to Fujitsu Consultings best-selling book authored by John Thorp, The Inormation Paradox Realising the
Business Benets o Inormation Technology. Peter is a member o the ISACAs IT Governance Institutes Val IT Steering
Committee that launched the Val IT Enterprise Value Governance Framework.
JudyMcKay - Associate Proessor, Swinburne University o Technology
Judy McKay is currently academic leader o the inormation systems group in the aculty o inormation andcommunication technologies at Swinburne University o Technology. She joined the sta at Swinburne in 2004 ater
academic appointments in inormation systems at Monash University, Edith Cowan University and Curtin University o
Technology. She has a Bachelor o Arts (majoring in linguistics) and postgraduate qualications in education, business
and inormation systems.
Gavan Ord, Business Policy Adviser, Policy and Research CPA Australia
Gavan Ord is CPA Australias business policy adviser. Gavan has responsibility or the development o policy and
research on issues related to small medium enterprises (SMEs), business management and climate change. During the
course o his career, Gavan has established himsel as a technical expert particularly in the area o taxation. Beore
joining CPA Australia, he held a senior role in technical policy and international development and was a member o
various Australian government consultation committees, including the National Small Business Forum, the ATOs National
Taxation Liaison Group, ATO Tax Practitioner Forum and Treasury Tax Design. Gavan holds a Master o Taxation Law.
About the author
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Special thanks to:
Kate Behan: Managing Director Kerandan Pty LtdNeil Wilson: CEO Oakton Limited
John Wadeson: CIO Centrelink
Brett Armstrong: Financial Controller Symex Holdings Ltd
Mike Tamblyn: CFO Westco Jeans Pty Ltd
Alastair Stott: CEO Schmick Solutions
Andrew Watts: CIO Bendigo Bank
Marianne Rose: ERS Service Line Finance Controller Deloitte Touche Tohmatsu
John Etherington: Principal Non Executive Management Pty Ltd
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Most business managers would agree that Inormation Technology (IT) is now an integral part o commercial business.
When used eciently and eectively, it can provide organisations with competitive advantage, prot growth andultimately optimal return to stakeholders. However, business managers oten are unsure i they are getting optimal
value rom their IT-enabled assets. Are these assets aordable? Do they come with an acceptable level o risk?
In many organisations, IT is perceived to have ailed when:
projects are late
business needs are not met
IT is over budget
benets are not delivered
Business managers can eel powerless over the technology upon which they are dependent. This isnt a problem
common to the other asset classes in a business such as property, plant, equipment, people, and product development.
Why dont we manage our technology assets as we manage any other asset class?
Organisations that clearly communicate governance and management processes or planning, delivering and assessing
the value o IT across their business, increase the value o their investment in IT.
This guide introduces proven practices that have evolved within these organisations. It ocuses on the business side o
managing IT and is written or senior nance exectives and business managers who have signicant dependence on IT
and who want to know what action they can take to have:
IT processes that provide cost-eective support / services to the business
projects delivered on time and on budget
IT service levels that t the budget and risk prole o the company
a good understanding o IT costs and cost drivers
evidence o the business benets delivered by IT-enabled initiatives
You will also nd a ramework or the Business Management o IT (BMIT) that looks at ways you can modiy your
business planning and management cycle to incorporate ve key processes to ensure the business has a clear
understanding o the role it must play in:
IT alignment with business strategy and objectives
estimation and prioritisation o business programs
setting the IT budget and balancing the supply / demand equation
program and project delivery
benets realisation
planning and delivery o IT services to agreed business requirements
This guide builds on the CPA publication IT Governance:A Practical Guide or Company Directors and Business
Executives which helps directors:
understand what IT governance is and why it is important
assess the level o attention directors should be paying to IT-related issues in the board room
understand the business issues in planning, building, running, and managing IT
ensure good IT governance is implemented across the enterprise
Executive summary
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1 What is BMIT and why is it so important?
1.1 What is BMIT? 3
1.2 Why is BMIT so important? 4
1.3 Assessing the level o BMIT in your organisation 5
2 The BMIT ramework and processes 8
3 Foundations o successul BMIT 12
3.1 Implement clear decision-making and accountability rameworks 12
3.2 Promote common language between business and IT 13
3.3 Build business IT relationships 14
3.4 Improve transparency o IT costs 15
3.5 Introduce business measurement o IT value 16
3.6 Recognise that business programs, not IT projects, deliver business value 17
4 Long term strategic planning 19
4.1 Strategic IT demand management and long term strategic alignment 20
4.2 The business o IT strategic plan 22
5 Annual planning and budgeting 25
5.1 Annual project and service level demand management and budget alignment 26
5.2 Business program prioritisation and budget alignment 28
5.3 Business prioritisation orum 28
5.4 Service level planning and budget alignment 29
6 Ongoing management 31
6.1 Ongoing IT work prioritisation 31
6.2 Business program or project gating 34
6.3 Benets realisation and monitoring and asset decommissioning 36
6.4 Asset lie monitoring, evaluation and decommissioning 41
Appendix: useul reerence material 44
Table of contents
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Annual plan and budget Sets out the nancial year objectives and the action plans and budgets designed
to achieve these objectives.
Architecture Architecture is the continuous planning and management regime used to
organise and control the structure o business systems and IT inrastructure or
sustained eective, ecient and acceptable support o enterprise business.
BMIT Business Management o Inormation Technology (BMIT) is a ramework o
business accountabilities and processes designed to enable business managers to
better articulate their technology requirements and proactively plan, prioritise
and monitor short and long term technology programs, ongoing service levels
and benets realisation.
Business case Documentation o the rationale or making a business investment. The business case
is used to support the decision on whether or not to proceed with the investment.
Business program A structured group o interdependent projects that are managed together todeliver a business outcome. IT is just one o these projects. Others may include
business process redesign, customer communications and property t out.
Governance Governance ensures that management has the accountabilities, processes, and
auditable and measurable controls in place to ensure a company is on track to
achieve its objectives. Governance is the responsibility o the board o directors
and the executive management.
IT Inormation Technology (IT) is the term applied to the combination o technology,
processes and people that allow organisations to cost-eectively capture, store,
process, communicate and analyse data and inormation fows internally or
management and sta and externally or stakeholders including suppliers,
customers, shareholders, and regulatory groups.
IT demand pipeline Comprehensive list o the business requests requiring IT eort including large
projects and small change requests covering all aspect o IT delivery (e.g. desktop
change, new applications and changes to existing systems).
Management Management is the process o controlling the activities required to achieve the
strategic objectives set by the organisations governing body. Management is
subject to the policy guidance and monitoring set through corporate governance.
Pipeline / portolio management Tracking program selection, prioritisation and delivery against the required
portolio and monitoring progress.
Portolio The collection o planned business programs across all asset classes designed to
deliver the business strategy and objectives.
Project An organised eort to complete a specic dened deliverable or set odeliverables usually satisying one business case. A project has a specic start and end
date, specic objectives, specic resources assigned to perorm the work and a
specic budget.
Strategy An organisations overall plan o development describing the eective use o
resources in support o the organisation in its uture activities. It involves setting
objectives and proposing initiatives or action.
Glossary
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1.2 Why is BMIT so important?
Despite the alling unit cost o technology, business statistics generally show that the proportion o expenditure on
inormation technology continues to rise. In many organisations, the IT capital spend is well over 50 per cent o the
average annual total capital investment. As IT becomes more important and pervasive, business managers are
increasingly challenged to get more value out o their IT investment. Unortunately, ailure o IT-enabled change is
still a common problem and increasingly associated with lost revenue, lost opportunity, lost customers and, in some
cases, lost companies.
There are three key root causes that continually arise when assessing why IT-enabled business programs ail or why IT is
not delivering to business service levels:
lack o business planning or IT
lack o accountability and clarity as to who makes decisions about what
ocus is on IT projects rather than business change programs
Lack o business planning or IT means that any planning around the development and use o the companys
technology assets is done by IT and relies entirely on the planning capability and experience o the IT management and
its view o what the business requires. Small companies with limited resources may rely on technologists with little
business planning experience or capability. Or they may rely on business proessionals such as accountants who are
being expected to take responsibility with little expertise or knowledge o how to make sound plans and decisions with
respect to IT.
Additional implications o a lack o business planning:
Long term plans are not connected to business strategies and objectives and the dollar investment over time
is not understood.
What IT does is being determined by the annual budget process and the dollars the business is prepared to
spend, rather than being the result o dened business plans and requirements.
IT ends up setting priorities across competing business divisions.
The ocus is on the technology solution and estimates ail to include the associated business costs such as
process change.
IT goes into react mode leading to complex and dicult-to-support IT environments delivering inconsistent service.
IT plans must be a subset o business plans and ormed collaboratively as a result o business strategy and plans.
Lack o accountability and clarity as to who makes decisions about what has three ar reaching consequences:
Large investments result in ailure because business users are not clear about what they want.
Systems ail because business managers dont make the decision on the level o risk it is prepared to carry.
Business programs go over time and over budget due to continual change o scope as no one business
person has accountability or the nal decision on scope.
Benets are not delivered because accountability or realisation is not clear.
When accountabilities and decision-making responsibilities are clear, there are important outcomes:
the right people make decisions
decisions get made because the need or the decisions is clear
more oten than not, the right decisions are made
Successul delivery o IT-enabled change, value delivery and sustainable service can only be achieved through a well-
dened relationship between business and IT, both understanding who makes decisions about what and the
interdependencies involved in the decision-making process.
What is BMIT and why is it so important?
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Focus on IT projects rather than business programs can result in:
IT delivering an IT solution that business is not prepared or or IT delivering a solution that ails to address
the business objectives
Business management not being involved in developing the solution and underestimating (or not
recognising) the resources relating to people, process and organisational change.
The good news is that the solutions required to deal with these undamental causes o ailed IT-enabled business
programs lie with business management taking accountability or the decisions that must be made by business (not IT)
to aect successul planning, building / acquiring and management o IT assets.
With very little eort, business management can take an active and inormed role in managing the IT assets o their
company. Introducing BMIT processes into the standard business planning and management cycle helps to demystiy IT,
highlights the risks the business may be acing without knowledge, and gives business managers a basis or inormed
decisions. Adopting these processes inorms business managers and enables them to be active participants rather than
powerless onlookers.
1.3 Assessing the level o BMIT in your organisation
Most business managers agree that they are keenly aware o ITs importance to the business. However, most eel they
have very little say in what is delivered by IT and have little idea o the business benets delivered. As a quick test, ll in
these questionnaires to assess the importance o IT in your organisation and your current BMIT capability.
1.3.1 Do you have a clear understanding o the business use o IT?
The ollowing table can help you reocus your expectations o IT in your organisation. Are you sure that your use o IT
is aligned with business expectation? For example, you may expect IT to increase revenue but in act all IT investment is
aimed at lowering cost.
Why are we using IT? Now Future
To increase revenues
To lower costs
To increase productivity
To open up new lines o business and new markets, and extend geographic reach
To keep up with the competition
To add value to existing products and services
To get ahead o the competition
For nance and administration systems
For innovative purposes e.g. research and development
Table 1.3.1.1 Business use o IT
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1.3.2 Do you know how much you spend?
Make sure that the IT spend rom all business unit cost centres is included, not just the IT department. You may besurprised at how much you are spending. Use the ollowing table as a guide.
This yearPrevious
year 1
Previous
year 2
A Total company revenue
B Total company expenditure
C Total IT spend (expensed)
D Total IT spend (capitalised)
Total IT spend (C+D) as a % o revenue (A)
Total IT spend (C+D) as a % o expenditure (B)
E IT spend on keeping current systems running (KIR)
F IT spend on projects (including capitalised $)
G Total IT spend (C+D)
IT KIR spend (E) as a % o total company revenue (A)
IT KIR spend (E) as a % o total company expenditure (B)
IT KIR spend (C+D) as a % o total IT spend (G)
% o IT spend sourced internally
% o IT spend sourced rom external suppliers
Total IT spend within the IT department budget
Total IT spend across all other cost centres
Table 1.3.2.1 Total IT spend
1.3.3 How dependent are you on IT?
How long would you be able to do business when aced with severe disruption to your business? Enter your estimate
in the boxes below and make your own assessment.
Hours Days Weeks Months
Finance, MIS, HR, Email
Product Service
Customer Facing
Supplier Facing
Table 1.3.3.1 Dependence on IT
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1.3.4 How well do you plan and manage the use o technology?
How well do you plan and manage the use o IT in your business? Complete the table below. I you answer no to
more than our o these questions, then your attention to IT is inadequate and it is highly likely IT will not be delivering
to your requirements.
Assessment No Yes
Does business management make the IT investment decisions?
Does business management consider the business use o IT when preparing business strategy?
Does the board and executive team determine the level o IT risk the company is prepared to take (e.g.
disaster recovery capability)?
Does business management know where the company will be investing in IT in the next 12 months?
Are long term IT capital spend requirements known and understood?
Are the implications o under-investment in IT known and understood?
Is the IT budget based on long term business plans and short term business demand?
Is there a business orum or prioritising the IT department projects and work?
Is a clear, compelling business case always developed beore an IT investment decision is made?
Are business IT program risks ully understood beore program commencement?
Are IT projects managed as part o the business programs comprising all aspects o the change?
Are there control points in your business programs where you reconrm that the programs are still
viable?
Is business management held accountable or the delivery o business benets rom IT investments?
Does business management decide whether to buy a package or build rom scratch?
Are IT running costs clearly related to business services level requirements, recognising the cost, risk,
perormance trade-os?
Does business management have measures on unit cost o IT ongoing operations?
Does business management understand what is driving ongoing IT running costs?
Does business management have measures to assess IT success?
Does business management have measures to assess IT risk?
Is there a process in place to help business management make decisions on IT application asset
replacement?
Table 1.3.4.1 Assessment o IT
Good BMIT creates a collaborative relationship between the business and IT where both have processes, controls
and accountabilities. It ensures that:
the business knows what to ask or, how to ask or it and how to monitor and assess success
IT knows how to build / acquire solutions, advise and deliver to business expectations
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2. The BMIT ramework and processes
Figure 2.0 BMIT ramework
BUSINESSPLANNING
ANDMANAGEMENTCYC
LE
BUSINESS MANAGEMENT OF IT IT MANAGEMENT OF IT
BusinessProcess
BusinessDecisions
ITDecisions
BusinessFramework
Long term
strategic planning
Strategic IT demand
management and
long term strategicalignment process
sstrategic use of IT
s levels of investmentvalue expected
sPRiority
sRisk
What we aim toachieve
s3Olutions
sArchitectures
sCosts and risks
s Technology
opportunities
Annual planning
and budgeting
Annual project and
service level
demand
management and
IT budget
alignment process
sProjectssservicesPERFORMANcesMEAsuressFUNDssPRiority
How we willachieve
sCost estimates
s Performancecapability
s2isks
Business IT strategic plan
Pipeline / portfolio of strategic initiatives
Business and IT business plans and budgets
Prioritised pipelines / portfolio of business programs and projects
Agreed business service level agreements
Ongoing
management
Ongoing IT workprioritisation process
Business program orproject gatingprocess
Benefits realisationand monitoringand asset
decommissioningprocess
Building oracquiring new
capability
s Deliver toestimates
sAdvise on risk
Completed business programs
Expected benefits and measures
s Deliver theservice
sAdvise on risk
Delivering theresults
sUse the servicesrealise the value
sMEAsure the result
sProcess
schange
svalue
sBENEFits
The BMIT ramework (Figure 2.0) is built into the standard business planning and management cycle, incorporating long
term strategic planning through to ongoing operations. The ramework clearly dierentiates between theaccountabilities associated with Business Management o IT and the IT management o IT. It illustrates the interaction
that needs to take place between business and technology to deliver the companys objectives.
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The ve BMIT processes (Figure 2.1) in the ramework support business management in making the right decisions or
eective use o IT. They help business managers understand and measure the delivery o value rom IT assets and canbe tailored to suit company requirements.
The processes must be supported by oundation behaviours and practices that oster collaboration and constructive
interaction between business managers and IT managers.
In section 3, the oundations that will enable this change are examined, with a ocus on why the ollowing are so
important:
implementing clear accountability and decision making rameworks
promoting common language between business and IT
building business IT relationships
ensuring transparency o IT costs
introducing business measurement o IT value
recognising that business programs deliver business value not IT projects.
In section 4, the criticality o including IT in longer term business strategic planning is discussed. The decision making
accountabilities and interactions between business and IT are set out under the longer term planning ramework and
the BMIT Process 1 Strategic IT demand management and long term strategic alignment.
The BMIT process or annual planning and budgeting is reviewed in section 5. BMIT Process 2 Annual project and
service level demand management and IT budget alignment - shows how the longer term strategic portolio o
business programs is translated into annual plans and the decision making accountabilities and interactions, which
must occur between business and IT when developing annual business and IT plans and budgets.
Section 6 looks at the last three BMIT processes. Topics discussed are: the ongoing operations ramework; the common
issues around building and/or acquiring new systems; delivering results and service level monitoring; and asset lie
monitoring, evaluation and decommissioning. Each is captured under the BMIT Process 3 Ongoing IT workprioritization, BMIT Process 4 Business program or project gating and BMIT Process 5 Benets monitoring and
realisation.
The BMIT framework and processes
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The BMIT framework and processes
Business Framework The Business Question Five BMIT Processes Business management will know:
Long term
strategic planning
How is the businessgoing to use IT inattaining its goals?
1. Strategic IT demandmanagement andlong term strategicalignment process
the long term capital spendrequired to deliver the companysstrategythat IT action is aligned withbusiness strategythe connection between achievinglong term strategic objectives andIT eortthe long term priorities anddependenciesthe risk associated with reducingcapital spend
Annual planning
and budgeting
What is the businessgoing to spend on ITthis year to keep itrunning and todeliver or theuture?
2. Annual projectand service leveldemandmanagement andIT budgetalignment process
that the IT build / acquire budgetis aligned with business demandwhich projects are unded thisnancial year along withguesstimates o the operationaland capital spendthat the Keep IT Running (KIR)budget is aligned with businessservice expectationthe risks associated with cuttingthe KIR budgetthe annual priorities anddependencies
Ongoing
management
Are we working onthe right things orthe right reasons andproducing theintended results?
Are we on track tomeet ourperormance goals?
3. Ongoing IT workprioritisationprocess
4. Building /acquiringcapability andbusiness programor project gating
process
5. Benets realisationand monitoring andassetdecommissioningprocess
that IT eort is ocused on whatthe business requires
that conficting business demands are resolved in line with thecompanys overall intereststhat immediate businessimperatives are delivered with theleast impact on long term plans
that projects which are no longerviable or appropriate areterminated promptlyi dollars and eort spent anddollars to complete are in line withbudgethow scope change decisions havebeen made and what impacts thiswill have on costs and time
the delivery and implementationrisk prole
the service level delivery metricsand ongoing service risk prolewhen to make application andinrastructure asset replacementdecisionsi the planned benets are beingdelivered in line with the businesscasethe IT investment spent onreducing IT operating costs versusnew capability
Figure 2.1 The ve BMIT processes
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Figure 2.2 The BMIT process fow
Managing IT costs and investment through the IT budget alone can drive the wrong behaviours
SELLCO recognised that technology could prove to be a key enabler in setting them apart rom competitors.
Business management was very clear about strategy and how it would use technology. The problem was that the
IT department didnt have the time nor the resources to do what the business asked or. Business managements
rustration increased until the situation came to a head when the company lost a large contract to the
competition because it couldnt deliver on a promised e-retailing capability. The IT managers job was on the line.
The IT manager had no idea what to do. His job depended on him keeping to the set budget. He and his team
had worked day and night to try and deliver the project at the same time as keeping the current systems
running. Business kept changing requirements but didnt expect the cost to change so getting the right skills
on the project was a real issue. In addition, day-to-day running kept him awake at night because part o the
inrastructure was obsolete and unsupported and only one person knew how to x it when it ell over. He hadattempted to explain the issues to his boss, the CFO, and ailed. I only his business colleagues understood the
problems he aced. They didnt and he lost his job.
A newly appointed IT manager was told o his predecessors ailure and the warning bells went o. He suggested
that beore settling into the job he assess just how the place had gotten into such a mess. At the end o his
ourth week he presented his ndings to the business management team, the key ones being:
Although the business had a clear view o how it wanted to use technology, it had no ormal plans and
hadnt communicated to IT management.
The IT budget was set by the CEO without any regard or the cost o building and delivering to business
demand.
The previous IT manager had assumed that it was his job to just do what he could within the set budget.
He never raised his hand to advise the business o the risk it was carrying with obsolete equipment and noeective disaster recovery capability.
He recommended that the ollowing practices be adopted immediately:
Even though the role reported to the CFO, IT management must be at the business planning table and part
o the business planning process.
The IT budget should be developed as part o the annual planning process, refecting the true cost o
business demand or IT-enabled change, levels o service and risk.
Business management should conduct a process to better articulate, prioritise, und and approve
requirements beore coming to IT.
The BMIT framework and processes
1 2
34
5
Strategic IT demand
management and long termIT alignment process
Business Managementof IT Processes
Ongoing IT work planningand prioritisation process
Business program orproject gating process
Benefits monitoring andrealisation and assetdecommissioning process
Annual projectand service
level demandmanagement and
IT budget alignmentprocess
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A successul BMIT ramework is built on strong collaboration between IT and business. There are a number o
oundation activities that you can adopt to help change the behaviour, practice and language that promote we rather
than them and us.
Foundation activities include:
implementing clear decision-making and accountability rameworks
promoting common language between business and IT
building business IT relationships
ensuring transparency o IT costs
introducing business measurement o IT value
recognising business programs, not IT projects, deliver business value
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Businessmeasurementof IT value
Businessprograms,not IT projects
Figure 3.1 The ve BMIT processes
3.1 Implement clear decision-making and accountability rameworks
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Businessmeasurementof IT value
Businessprograms,not IT projects
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Businessmeasurementof IT value
Businessprograms,not IT projects
IT management oten makes decisions by deault because it is not clear who in the business should be making the
decisions. Without this clarity, neither the business nor IT are likely to achieve their objectives.
Good BMIT ensures that:
business managers understand their responsibility or
planning the use o IT as part o setting business objectives
and perormance parameters, as well as their responsibility
or delivering the intended business outcomes o theirinvestments.
ITs responsibilities are within their capability to achieve
and that IT is not responsible or things it cannot control
or deliver.
I you are held accountable, youwill be held accountable - so put
in place the tools necessary tohelp meet that accountability.
James CrownCEO Knowledge Group
A simple tool to help establish who is accountable or what throughout the business planning and management cycle
is the decision-making matrix (Figure 3.1.1). It can be tailored to your organisation and should cause a great deal o
healthy debate when lling it in. This will lead to better understanding o the IT issues acing your organisation.
3. Foundations of a successful BMIT
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Board Business management CFO Head o IT
Business strategy, objectives and plans A I I I
Business IT strategy I A I I
IT dollar investment over time A I I I
Business benets case (ROI) I A I C
Delivering business benets (ROI) I A I C
Measuring delivered benets (ROI) C I A C
Setting business program priorities I A I I
Program delivery on time and budget C A C I
Dening service level requirements C A I C
Delivering service level requirements C I C A
Risk prole or appetite or risk A I I I
A - Makes the nal decision I - Must have input to the decision C - Must be told o the decision
Figure 3.1.1 Decision-making matrix
Once you have agreed who makes the decisions and who is accountable or implementing them, build the results into
recognition and reward structures. Think about designing accountabilities and reward structures in a way that will drive
collaborative behaviour between IT and the business rather than creating a divide.
3.2 Promote common language between business and IT
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Businessmeasurementof IT value
Businessprograms,not IT projects
Collaborativebusiness ITrelationships
Transparencyof IT costs
Businessmeasurementof IT value
Businessprograms,not IT projects
Cleardecisionmakingframeworks
Mistakes oten occur simply because the business does not understand what IT is talking about and vice versa. IT
speaks its own acronyms and jargon orgetting that the business doesnt necessarily understand and the business
speaks a language that is oreign to the average technologist. In some cases, the problem is exacerbated when
business people use IT jargon incorrectly, or when IT people attempt business speak without ully understanding.
The solution to this issue primarily lies in recognising that the languages are dierent and translation mechanisms
are required. Simple admission that one does not understand and clarication is required is a good start. In addition:
Channeling communications through translators such as business analysts and relationship managers is
another way o ensuring eective communication.
The introduction o a shared pipeline list o business requirements which outlines business priorities, IT
estimates and resource availability along with agreed business / IT measures will orm the basis o a common
language that will enable business and IT management to have actual debate around how best to balance
the supply / demand equation.
As in the building industry, architectural drawings and plans serve as the translation between the client,
architect and builder. They orm the basis o a common language. In IT, architectural models help to
translate the expectations and requirements o IT into terms the business can understand. There is a
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tendency to think that you must be big and sophisticated to have architectures. This is not the case. IT
should be able to show business management conceptual diagrams o the current and uture ITenvironment and be able to describe the solutions and the logic behind the design in terms business
management can understand.
3.3 Build business IT relationships
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Businessmeasurementof IT value
Businessprograms,not IT projects
Transparencyof IT costs
Businessmeasurementof IT value
Businessprograms,not IT projects
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Complex chargeback and buyer supplier arrangements between IT and the business can lead to poor relationships and
lack o trust in IT estimates.
There are a number o ways to enhance the business IT relationship:
Filter work requests through a business prioritisation and approval
process beore asking IT to estimate.
Understand that IT cant estimate accurately what the business
cant dene precisely. Its not possible to do xed price estimates
until all requirements have been specied and detailed design is
complete. First cut guesstimates can be out by 100%. The
introduction o phased estimating can clear up a lot o
misunderstandings between business and IT. The ollowing
diagram sets out the estimating tolerances relating to each phaseo the program liecycle.
IT cant estimateaccurately whatbusiness cannotdeine precisely.
Invest in business analysts to work with business managers and IT architects to identiy the solution
approach. This role can sit in either the business or IT. Unortunately, the relationship role can be seen as an
overhead and it goes rst with budget cuts. This is alse economy, as without this capability, IT can end up
working on the wrong thing or has to do rework which ends up costing more.
When doing business plans, include IT in the same way that you would your other business colleagues. Ask
questions like:
Are our current IT systems adequate or our ongoing business?o
Are there technologies out in the market that we should be employing?o
What can we do to reduce our ongoing running costs?o
Have you any ideas on how we can bring down the cost o business process?o
BusinessStrategyandObjectives
Estimation Tolerance
Build & ImplementDetailed DesignHigh Level DesignProgram FeasibilityProgram Concept
+100%
-100%
0%
Worst Case
Best Case
Most Likely
Figure 3.3.1 Phased estimating: target o estimating is to provide most likelyprediction
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3.4 Improve transparency o IT costs
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Businessmeasurementof IT value
Businessprograms,not IT projects
Businessmeasurementof IT value
Businessprograms,not IT projects
Collaborativebusiness ITrelationships
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
One o the core issues is that companies oten ail to ully understand the true cost o IT and what drives these costs.
In many companies the IT budget does not refect the total IT spend. For various reasons, oten to make them look
more palatable, IT costs get spread, in various guises, throughout business divisions.
While companies see IT as a cost rather than an
investment, they will continue to ocus on short termcost reduction without understanding the impact on the
long term viability o IT systems and the business risk
and impact o ailure.
In order to make proper investment decisions in line with the risk
prole o the company, business needs to understand the link
between the IT-enabled business process and volumes and the
cost o the IT services and resources it consumes to deliver these
processes. Business needs to know what it is getting or
its money and what levers it can pull to change what it is
spending now and in the uture.
IT costs are very otenunderstated. Anywhere up to 30%in additional costs can be oundwhen IT costs rom business costscentres are analysed. This can be areal issue when benchmarkingagainst other organisations orwhen understated igures are usedin the metrics to assess thebusiness value o IT.
In many organisations, chart o account design and project accounting methods do not easily enable IT costs and
measurements to be clearly linked to business outcomes, or example, cost o ongoing operations directly related tothe level o service delivered. (See Figure 6.4.1 Cost o Service Agreements.)
The rst step in improving the transparency o IT costs is to separate them into two baskets:
Keep IT Running (KIR) and1.
Discretionary spend (capital and operational)2.
KIR is dened as the cost o supporting, maintaining and growing the current business. It includes the cost o
maintenance and regulatory and compliance changes but does not include the cost o business change. This is
committed spend to keep the current business running and is determined by:
business volumes
service level agreements with the business
level o risk the business is prepared to live with e.g. disaster recovery capability
additional ongoing maintenance costs o new applications or inrastructure implementations and upgrades
asset replacement schedule
KIR spend should be determined interactively between the business and IT. The process to arrive at this spend is set out
in section 5.1. To vary KIR costs, the business can use the ollowing cost levers:
agree to a longer time or recovery in case o a disaster which would decrease the outlay on disaster
recovery inrastructure
accept a higher level o risk by running on obsolete assets which would deer the cost o replacement
accept slower response times which would deer the cost o communication line upgrades
reduce the length o time history les are kept which will result in a lower cost o storage
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Discretionary spend is dened as the cost o the IT investment in IT-enabled business programs to introduce new
business or to enable the existing business to be conducted in a better way.Long term investment programs (3-5 years) are scoped and costed at a conceptual level as set out in section 4.2. The
process or determining annual discretionary spend is set out in section 5.1.
Justication or discretionary spend is usually associated with a business benets case outlining the nancial and non-
nancial benets that will be delivered when the program is implemented. Oten the problem with benets delivery
stems rom the quality o the up-ront planning and scoping work resulting in costs being understated and benets
being overstated to get the program across the line. Finance must play a key role in ensuring that:
all costs, business and IT, have been taken into account
phased estimating is a reality and that contingency calculations are in line with the level denition available
or estimating
the stated benets are reasonable and achievable
there is a clear dierentiation between nancial and non-nancial benets
the metrics that will be used to measure benets delivery are determined up ront in the business case
costs are monitored throughout the program and the benets case is reassessed i costs blow out
The introduction o the program gating process (Section 6.2) will assist in getting this right.
3.5 Introduce business measurement o IT value
Collaborativebusiness IT
relationships
Transparencyof IT costs
Commonlanguage
betweenbusiness and IT
Cleardecision
makingframeworks
Businessmeasurement
of IT value
Businessprograms,
not IT projects
Businessprograms,
not IT projects
Collaborativebusiness IT
relationships
Transparencyof IT costs
Commonlanguage
betweenbusiness and IT
Cleardecision
makingframeworks
I you cant measure it, you cant manage it. Credible business measures o IT eectiveness are essential to all levels o
business planning and prioritising the use o IT. However, in many companies, much o the measurement o IT success
is carried out and communicated by IT in IT terms that are not understood by business managers and are o little use in
the assessment o IT eectiveness to the business.
The ollowing table sets out examples o measures typically used by IT along with measures business management can
introduce to assess IT eectiveness rom a business perspective.
Business measures IT measures
Business time lost Up time percentage
Unit cost per transactionNetwork costs, hardware costs, total MIPS
used
Customer complaints Number o severity 1 problems
Cost o business process Mean time to x problems
Cost per delivery channel Application maintenance costs
Business risk IT personnel turnover
ROI Within budget
Table 3.5.1 Measures to assess IT eectiveness
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Fundamental to successul BMIT is management ully understanding and articulating why it is using IT in the rst place
and what value means or their area o the business and the company. (See Table 1.3.1.1 Business use o IT.)
Business management oten has diculty establishing measures due to a lack o understanding o the behaviour o
their costs and the associated cost and revenue drivers. Finance is a critical player in supporting business managers in
gaining this understanding and in establishing business metrics or measuring both the eectiveness o the current
operations and the value delivered by additional investment in IT-enabled business programs.
Metrics or the eectiveness o the current operations are ideally derived rom the business measures set out in the
service levels agreed between business and IT management. (See section 6.3.1)
Metrics or value delivery rom IT-enabled change programs are ideally based in the companys strategic decisions, or
example:
increase revenue e.g. improved sales capability, new products and services
decrease costs e.g. urther automation o business process
increase productivity, improving existing process improvement
improve customer satisaction
3.6 Recognise that business programs, not IT projects, deliver business value
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Businessmeasurementof IT value
Businessprograms,not IT projects
Collaborativebusiness ITrelationships
Transparencyof IT costs
Commonlanguagebetweenbusiness and IT
Cleardecisionmakingframeworks
Businessmeasurementof IT value
Many companies have issues in running combined business / IT programs where both business and IT resources report
into a single program manager. This problem seems to be a legacy issue stemming rom the times when anything to do
with IT was let to the IT department and they were accountable or the lot, including benets. Times have changed.
Today we need to recognise that there is really no such thing as an IT project. Most programs o change comprise
change to several asset classes in concert including IT, business process, people and organisation. IT cannot be justied
in isolation rom the business program it supports. (See Figure 3.6.1.)
BusinessStrategy
BusinessPrograms
PROPERTY
PEOPLE
TECHNOLOGY
PLANT & EQUIPMENT
FINANCIAL
INFORMATION
Enterprise assets
Interdependen
cies
Building or acquiring IT assets is
rarely stand alone. The best
results occur when the entire
business program o change is
planned, costed and managedas one program and the
benets case is based on the
delivery o the ull program.
Trying to manage change in any
one o these areas in isolation is
destined to ail.
Figure 3.6.1 Business programs composition
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Divided we ailREPLACECO IT costs had increased over time due to increased maintenance costs on ageing and ragmented
sotware. The decision was made to replace existing applications with a highly congurable industry standard
package chosen by the business. The business had been convinced by the supplier that the package would be
easily congured and implemented to meet REPLACECOs business needs. IT was not involved in the decision.
The package was purchased. Business handed over responsibility or implementation to IT.
An IT project manager and project team were appointed to work with the supplier to implement the package.
The list o variations rom the out o the box conguration continued to grow. A heavily modied package was
nally implemented 18 months late and 50% over budget.
A post-implementation review by an external party ound a trail o poor decision-making and unclear
accountabilities. Root causes o the problems were:
no-one owned the business solution
the solution approach was not tested or estimated beore buying
the business benets case was not revisited
business management expected IT to implement with little involvement rom themselves
IT was not involved in the decision to purchase the package
appropriate IT due diligence o the claims o the supplier and the appropriateness o the package were
not carried out by IT
The REPLACECO Board learned o the project ailure. When the ull picture emerged, they had little condence in
either the business or IT. REPLACECO had more large IT projects coming up on the product ront. The board was
skeptical that the company had the capability to deliver and asked to be convinced by business and IT
management that it was up to delivering uture demand. The changes presented to the board included:
an IT / business decision matrix be implemented to ensure clarity around who makes decisions about
what
rom now on all IT developments would be part o business programs under business ownership
all programs o change must go through a rigorous process upront to thoroughly test the solution
approach and benets beore investing signicant dollars
a program gating process be implemented with clear GO / NO GO check points to identiy problems,
revalidate benets and costs to complete
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4. Long term strategic planning
Most companies depend on IT or day-to-day activities. What many ail to realise is that strategic growth also depends
heavily on IT. They also depend on the IT o their business partners and customers. Moreover, many businesses mustalso take into account how IT is or will be used in their markets by competitors, regulators and so on. For these
reasons, it has become imperative that organisations give specic attention to IT as they prepare their long term plans.
The danger in leaving IT out o the long term strategic planning process,
or with short term direction only, means that IT cannot ormulate long
term uture architectures and may end up building IT applications and
inrastructure piecemeal. Lack o eective uture planning has led to
problems in many companies in that unnecessary complexity has been
built into the business and consequently, into IT. This complexity can act
like reinorced concrete - its a barrier to change.
Plan to grow into your ITassets not out o them.
Neil Wilson - CEO Oakton
I you dont know where youare going, any road will takeyou there.
Building the IT environment piecemeal leads to duplication, complexity,
infexibility and higher running costs. It also delays business innovation
and competitive advantage, and it may mean that business is overrun by
competitors that are more eective in planning their IT use.
IT long term planning is an integral part o the business strategic
planning processes. As with a manuacturing plant or property, many IT
assets have long asset liecycles and oten take years to implement,
making IT dependent on eective long term business planning.
Long term strategic planning ramework (Figure 4.0) highlights the business and IT decision areas along with the
interactions and outcomes o long term business planning. This process occurs annually reviewing the relevance o the
long term business strategic directions and the alignment o IT and other asset class plans with these directions. This is
a two way process that cannot be done by either party in isolation. The process can be led by either IT or business but
should be owned by business management.
BusinessProcess BusinessDecisions BusinessIT Interaction ITDecisions
Long term businesssstrategies and targets
Business use of ITs
Competitive positionings
Business benefitss
Prioritiess
Fundings
IT architectures andsarchitectural principlesCurrent and target ITsarchitecturesIT migration plans andsinitiativesTechnology infrastructuress
Business strategies, priorities,funding, strategic businessbenefits
IT trends and opportunities,future architectures, costs
estimates, risks
3-5 year Business IT Strategic Plan:
Target IT architecturess
Key IT initiatives to achieve targetss
Estimates of IT capital investments
Estimated ongoing operational costsdependencies
Business IT strategic plan
Pipeline / portfolio of strategic initiatives
Alignment
3-5 year business strategic plan:
Business targetssKey initiatives to achieve targetss
across all asset classes
Estimates of capital investments
Prioritiess
Benefitss
Strategic ITdemandmanagementand long termstrategicalignmentprocess
Figure 4.0 Long term strategic planning ramework
Long termstrategic planning
Annual planningand budgeting
Ongoingmanagement
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Implementation o the strategic IT demand management and long term strategic alignment process (Figure 4.1.1) will
ensure that when business management has completed its long term strategic plan it will have:an updated business IT strategic plan that will ensure uture IT architectures are still valid and aligned with
the business strategies and priorities, and dependencies are understood (see Figure 4.3)
a qualied portolio o the strategic initiatives or business programs that the organisation will be
undertaking over the next 3-5 years(Figure 4.2.2)
The strategic initiatives or business programs identied by the plan become the basis or Business Management IT
decision making and the setting o IT priorities.
4.1 BMIT process 1: strategic IT demand management and long termalignment process
This process outlines the business and IT actions and accountabilities which will:
align IT architectures and plans with long term business strategy
create and maintain the two way link between IT-enabled business initiatives and IT spend
validate long term priorities
align interdependencies between all long term strategic initiatives such as people, property and IT
orm the ramework or ongoing business program prioritisation and portolio management
consider the long term demand supply equation and the overall capability to absorb change
The business IT strategic plan (Figure 4.1.1) should be owned by the business and developed jointly by the business
and IT. This is not a technical plan although IT may do a lot o technical work behind the scenes. It is a plan that
outlines the IT implications o business strategic intent and translates these implications into the key IT initiatives that
will be required to deliver the strategy.
Long term strategic planning
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Action Who Description
Business strategy review Board, business
managers and IT
manager
Review o the companys strategic direction and objectives to
determine i the company is on track to achieve the
objectives and to make changes in strategy as required. IT
brings to the planning table advances / opportunities which
may be considered by business to better enable strategy
achievement.
Strategy to business action Business managers Workshops o business management aimed at translating
business strategy into business action. What is the business
going to do to deliver the strategy?
IT implications o business
action
IT manager, IT
architects andbusiness analysts
Analyse the business and IT impact o the proposed business
actions and group impacts around application amilies, i.e.customer, nance, workfow, and warehouse.
Gap analysis IT manager, IT
architects and
business analysts
Analyse how well the existing IT architecture can deliver on
the proposed business action and what will have to be done
rom an IT perspective to bridge the gap.
Develop transition plan IT manager, IT
architects, business
analysts and business
managers
High level design o the business programs that will need to
take place to transition rom the present to the uture
including dependencies and guesstimated timerames.
Initiatives, costs and times
to bridge the gap
IT manager, IT
architects, business
analysts and business
managers
Cost estimates, benets and risks (important that the total
cost, not just IT cost is understood)
Feasibility assessment Business managers
and board
Analysis o the proposed transition plan, costs and change
impacts. Can the company aord it? Can it absorb the
change?
Prioritisation and culling o
business action
Business managers
and board
I in the easibility assessment, the long term spend is
determined to be too high, the board and business go back
to square one and look at what actions they will not do or
deer, then resubmit to the IT architects to reassess costs.
Business IT strategic plan3-5 year pipeline / portolio o strategic initiatives
business measures
Figure 4.1.1 strategic IT demand management and long term alignment process
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4.2 The business IT strategic plan
The business IT strategic plan sets out:
the current baseline and evolution plan or uture ramework architectures
the technology gap between now and the uture
the principles and policies to guide IT decisions and architectures in building the uture
the prioritised sequence and cost estimates o the initiatives required to migrate the organisation towards its
target along with estimated impact on ongoing running costs
capital expenditure and depreciation schedules
a high level implementation plan, highlighting implementation dependencies with other asset classes
The business IT strategic plan isthe vehicle that:
clearly interlinks business strategy with IT architectures
balances long term demand against long term IT spend and long term benets
establishes a clear link between business strategy and IT initiatives so that the impact o change in business
strategy on IT plans is understood and appropriate action is taken
sets a two-way link between business strategy and IT spend i.e. i IT spend is cut, the impact on strategy is
clearly understood by business management and strategy can be adjusted accordingly
manages long term strategic demand including long term capital requirements, change impacts and inorms
business management o the levers it can pull to vary the dollars over time
orms the basis or business programs that deliver capability and value, rather than IT projects that just
deliver the potential
Long term strategic planning
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Figure 4.2.1 sets out a simple example o how the IT implications o high level statements o strategic direction can be
translated into IT initiatives and costs. There is a signicant amount o architectural work required behind the scenes toachieve this level o connection but it is worth the one o investment to ully understand the investment required over
time to deliver business strategy.
Businessstrategy
Business actionrequired todeliver thestrategy
IT implication othe businessaction
Can thecurrentenvironmentdeliver thecapability?
Gap betweenthe currentand uture
Impact onotherassetclasses
Cost oinitiativesto fll thegap
Doubling
business
in 5 years
Acquire
complimentary
business
Extend into ACT
and Qld
Increase the
capacity o the core
product system to
deal with additional
volumes
No Core product
system upgrade
to latest version
o the package
Property
acquisition
in ACT and
QLD
$1.5m
Extend warehousecapacity
Extend network andinrastructure to
include ACT and
QLD
No Link betweencustomer
inormation
systems
ACT andQLD Oce
set up
$.5m
Introduce internet
catalogue sales
Catalogue sales and
payment capability
on the website
No Financial
systems link to
BPAY
HR $3.5m
Cross sell acquired
product business
to existing
customer and
vice versa
Upgrade
website
Marketing
and product
design
$.7
Figure 4.2.1 Alignment - establishing a two way link between business strategy and action with IT costs
The long term strategic planning process will deliver an integrated picture o the initiatives and costs required to ll the
gap and take the organisation rom the present to the uture. This big picture serves as the base or business and IT
annual planning and or the ongoing prioritisation o work.
Major Initiatives Year 1 Year 2 Year 3 Year 4 Year 5
IT-enabled business program 1
IT-enabled business program 2
Property initiative
New product initiative
Interstate expansion
IT inrastructure program
IT-enabled business program 2
Total Asset Capital Spend $ XXX $ XXX $ XXX $ XXX $ XXX
Total IT Asset Capital Spend $ XXX $ XXX $ XXX $ XXX $ XXX
Total IT Operational Spend $ XXX $ XXX $ XXX $ XXX $ XXX
IT Asset Replacement $ XXX $ XXX $ XXX $ XXX $ XXX
Figure 4.2.2 The big picture
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Complete the ollowing table. I you score no to more than three questions, it is highly likely that the strategic use o
technology is not being considered or planned appropriately in your company.
How eective is your BMIT in the long term strategic planning process? Yes No
Does the business management have a clear understanding as to why it is using technology and what
it expects rom technology?
Does business management understand what the competition is doing with technology?
Has business management established a consistent way o determining long term IT investment and benets?
Is IT management considered to be an essential participant in, and contributor to, the long term
business strategic planning process?
Does IT management keep business up-to-date on an ongoing basis with technology advances and the
latest application packages in the market?
Does IT management bring new technologies to the planning table as potential enablers o new or
existing business strategies?
Does the strategic planning process take into account the short, medium and long term viability o its current IT?
Does the business management consider the risk implications o under investing in the longer term
Do investment decisions take into account long term statutory and regulatory requirements?
Are ongoing operational costs, service levels and asset replacement schedules considered in the long
term strategic planning process and in assessing long term investment dollars?
Does the business have a process to prioritise longer term spend against business strategy and objectives?
Does the business have a roadmap o the business programs and IT initiatives and costs required to
deliver business strategy and plans (the cost and eort o getting rom the present to the uture)?
Table 4.2.3 Eectiveness o BMIT
IT long term planning is an integral part of the business strategic planning processes.
SALESCOs expansion plans were well on the way and business appeared to be going really well. Revenues were
increasing at 20% per annum however bottom line perormance was being impacted as margins were being eroded
by lower cost competition. A company-wide program was put in place to cut costs right across the board, including
IT. Margins improved and everyone was happy, except the IT manager. He had tried to get the business executive to
understand the implications o urther IT cuts but he couldnt get the message across.
SALESCO systems had been purchased 10 years ago and were designed or companies running around hal o
SALESCOs volumes. The system just couldnt keep up, errors increased, response times died and the diminished
business and IT workorce became quite demoralised. Sta turnover increased with some key IT skill sets walkingout the door.
Margins had improved but SALESCO started to lose key customers as a result o poor service and increasing IT
errors. Revenues started to all. The company had started on a downwards spiral.
SALESCO executive had taken IT or granted and ailed to really quantiy the contribution IT systems were making to
business process eciency and eectiveness. They hadnt really thought about why they were using IT and that lack
o investment meant that IT systems could not longer support the very processes it was designed to automate.
SALESCO executive learned its lesson and started to invest heavily in IT. Unortunately it was too late. The
replacement program took three years. It took SALESCO ve years to recover.
The investment should have commenced ve years earlier when SALESCO started the planned expansion. The
investment costs and benets should have been built into the long term business plans, not ater the expansion had
taken place.
Long term strategic planning
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Once the businesss long term strategic direction, objectives and priorities have been conrmed, nancial targets are set or
the coming nancial year and business management then develops divisional plans and budgets to deliver these targets.There are two common scenarios which severely impact IT in this process:
IT is not involved with the business in developing its annual plans and as a result the IT resource and1.
budget impacts o the plans are not catered or.
The budget process oten overtakes the planning process and the IT budget is developed in isolation o2.
the business plans and budgets.
Both scenarios end with the same result - the IT budget and plans (supply) are not ormulated on planned business
requirements (demand) potentially leading to inerior service and lack o resources to deliver business programs,
projects and services.
The cost o IT is a direct result o the business demand (long and short term) or the delivery o service levels and the IT
component o business programs (IT projects). For business management to understand its IT costs and the levers it can
pull to vary these costs, IT budgets are best ormulated interactively with the business over the ollowing three key
areas using the annual planning and budgeting ramework (Figure 5.0):
KIR largely the commodity inrastructure determined by service level required by the business
enhancing current capability - cost o resources to make the changes or enhancements that arise during the
year as a result o short term business imperatives
building / acquiring new capability mostly treated as a capital cost that should have been identied the
long term strategic plan
Adhering to the ramework will ensure that:
the IT budget is not developed in isolation rom the business budget and the costs o proposed IT initiatives
is allocated in the business or IT budgets
the business cost o IT initiatives (e.g. training, process re-engineering) is included in either the IT or business
budget
the gap between the business demand on the IT budgeted supply is addressed in the business planning
process and realistic expectations are set o IT delivery capability
5. Annual planning and budgeting
Long termstrategic planning
Annual planningand budgeting
Ongoingmanagement
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Business and IT business plans and budgets
Prioritised pipeline / portfolio of business programs and projects
Agreed business service level agreements
Business IT strategic plan
Pipeline / portfolio of strategic initiatives
BusinessProcess
BusinessDecisions
BusinessIT Interaction
ITDecisions
Annual projectand servicelevel demand
managementand IT budgetalignmentprocess
s-ARKETSCUSTOMERS
s2EVENUESCOSTS
s6OLUMESGEOGRAPHIESresponse times
s0ROPOSEDENHANCEMENTto existing systems
s0ROPOSEDSTRATEGIC
projects and benefits
s0RIORITIES
6OLUMESTRANSACTIONSUSERSCUSTOMERSETCRESPONSETIMESGROWTHESTIMATESGEOGRAPHERS
s#APABILITYCAPACITY
s3KILLS
s3OLUTIONOPTIONSANDARCHITETURALIMPACTS
s3OURCINGARRANGEMENTS
s3ERVICEDELIVERYALTERNATIVES
+EEP)4RUNNING+)2budget
0ROJECTANDENHANCEMENTbudget
3ERVICELEVELCOSTSRISKSAND
PERFORMANCE0ROJECTESTIMATESand resource capacity
s!NNUALBUSINESSPLANS
s/BJECTIVES
s-EASURES
s"ENEFITS
s"USINESSBUDGETS
s/PERATIONALSPEND
s#APITALBUDGETS
Figure 5.0 Annual planning and budgeting ramework
5.1 BMIT process 2: Annual project and service level demandmanagement and IT budget alignment
A number o issues arise in the ongoing delivery o service that could be avoided i the time is taken in the annual
planning and budget process by business and IT management to agree on the levels o service required and the costs
and risks involved. BMIT process 2 annual project and service level demand management and budget alignment
process will:
link business plans and budgeted benets to the IT project resource (discretionary) budget
ensure that IT supply is unded and capable o delivering to annual business plans
align annual IT program o work with long term business strategy
link IT KIR budget with business service expectations
balance the annual demand supply equation
deliver the rst cut annual work plan, dependencies and priorities
On completion o the annual planning and budgeting, business and IT management should know:
the IT contribution to strategic business programs (capital spend and resourcing) and the annual list o
prioritised IT work required to deliver the annual business results
the overview o the non strategic projects and enhancements (discretionary operational spend)
the service levels IT will be required to deliver to the business and a clear understanding o the cost, risk and
perormance issues relating to the agreed budget (KIR spend)
Annual planning and budgeting
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BMIT process 2: annual project and service level demand management and IT budget
alignment processAction Who Description
Set annual
objectives
Board and
business
executive
Annual objectives (nancial and other) are set or the company in line with the
long term strategy and a decision is made on strategic program investment
(capital spend).
Business divisions translate these objectives in specic divisional objectives and plans.
Actions to
achieve
objectives
Business
managers
Develop operational plans to deliver the objectives e.g.
change initiatives (new unction, products, processes)
increase in volumes, geographies etc
productivity improvements
Business
budgetdevelopment
CFO, business
managers andIT manager
IT works with business management to identiy the IT implications o the
proposed operational plans. This encompasses:a) KIR and service level implications
b) strategic programs or changes to existing systems to be initiated this nancial
year (subset o the long term strategic plan and roadmap)
IT project cost
and benets o
guesstimates
IT manager, IT
architects,
business
analysts and
business
managers
Interactive process between business managers and IT analysts and estimators
to establish order o magnitude costs that will enable business to validate the
IT costs and benet assumptions in their operational plans and budgets.
Business managers agree preliminary cost and eort estimates and set priorities
or each requirement to assist in the elimination process when the IT budget is
being nalised.
IT service level
costs
IT manager, IT
operations
and business
managers
Interactive process between business and IT managers to work out the ongoing
cost implications o increased volumes, changed geography etc. IT estimates
and advises on costs, perormance and risk and business managers decide how
much they can aord, the risk they are prepared to carry and the perormance
they can live with.
IT budget
development
IT manager Develops IT budget based on the business division requirements or projects and
service levels.
Assessing total
IT demand
IT manager
and business
executives
IT will have analysed and guesstimated the requirements rom all business areas
and come up with the total budget or KIR, a budget or operational projects
and a capital budget or strategic projects. The CEO and executive will decide i
the company can spend this amount on IT. The answer is usually no.
Prioritisation
and IT budget
alignment
Business
managers and
the CEO
Business divisions get together and decide what will be cut rom the business
requirements list using the priorities set by each o the business units. The
business and IT executives work together to balance the supply / demand
equation.
Finalise
budgets
CFO, business
managers and
IT manager
Business unit operational plans and budgets are consolidated into group
operational plans and budgets.
Business and IT business plans and budgetsPrioritised pipeline/portoio o business programs and projects
Agreed business service level agreementsBusiness measures o IT
Figure 5.1.1 BMIT process 2: Annual project and service level demand management and IT budget alignment process
Annual planning and budgeting
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5.2 Business program prioritisation and budget alignment
There can be many reasons why business priorities change, or example, the competition doesnt always do as
expected. When priorities change, it is essential that the change is quickly refected in plans so that wasted eort is
avoided in all asset classes.
Prioritising long term investment requirements and short term business imperatives is an ongoing process, not an
event. The long term strategic plan sets out the overall priorities or the company, however it is critical that these
priorities are revisited in the annual planning process and during ongoing management to ensure that resources, skills
and unding are in place and budgeted, in all asset classes including IT. Priorities need to be reassessed through all phases o
the planning liecycle to ensure that IT is best positioned to respond to changes in business demand (Figure 5.2.1).
Long term
strategic planning
Annual planning and
budgeting
Ongoing
management
Sets strategic priorities
the 3 5 year prioritised roadmap to achieve thecompanys objectives
Sets Financial Year priorities
prioritised plan o work and budgets which willdeliver this years objectives and keep the companyon course to deliver long term objectives
Sets the IT work plan
re-prioritisation o the annual program o work todeal with unplanned events as they arise
Pip
elineofplannedwork
Figure 5.2.1 Business prioritisation o business demand
5.3 Business prioritisation orum
Eective prioritisation relies on well-conducted long term and annual planning processes and a well organised business
team assigned with the authority to make prioritisation decisions on behal o business management.
Establishing a business orum to support the ongoing IT work prioritisation process and charged with the ollowing
tasks will ensure that IT resources are put to best use and are not losing time on non essential work:
prioritising long term strategic demand along with short term business imperatives against IT supply
limitations
ensuring that work on existing applications has benet and that IT eort is ocused on adding value through
new projects and programs (see Figure 5.3.1)
dealing with the strategic alignment and risk issues that may arise rom having to juggle competing
demands or a limited budget
continually assessing the impact o work rescheduling on proposed business case outcomes
supporting the annual planning and budgeting process and advising business management on IT investment
priorities taking into account the companys long term and annual business objectives and making
recommendations on which programs should go ahead and which could be deerred or cancelled
advising business management on investment ratios (dollar spend on KIR versus new capability and
innovation) and the risks associated with under or over investing in particular areas
Annual planning and budgeting
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Evaluate Assess individual applications
Rationalise Streamline spending
Govern Use IT governance to control diversity
20/80 ratio 40/60 ratio
Newprojects
ExistingApplications
Newprojects
ExistingApplications+ =
Figure 5.3.1 Eective prioritisation o IT eort
In some companies, the prioritisation orum charter extends beyond IT and covers the prioritisation o all business changeacross the company.
A word o warning: when establishing a business orum, ensure that this is not a representational group with each
member ghting or their own divisional interests. The group needs executive leadership, the skills and experience to
set priorities and delegated authority to make decisions on behal o the company. IT management is a critical member
to articulate supply constraints which will eect prioritisation. In smaller companies the orum may be a subset o the
management team chaired by the CFO.
To support the ongoing work prioritisation process (Section 6.1), the business orum requires a comprehensive pipeline
list o the total demand and work in progress, including:
strategic initiatives (rom the strategic planning process)
additional business requirements (rom the annual planning process)
adhoc requests or change resulting rom day-to-day business imperatives
The pipeline list provides the vehicle with which the orum can prioritise business demand and IT management, and
develop and resource the work plan o programs, projects and minor work requests.
The level o sophistication o the pipeline list will vary depending on company size, dollars and complexity o demand.
An excel spreadsheet can work quite well. There are also a number o packages on the market that support the
recording, categorising and analysis o business demand and produce inormation that enables business to prioritise its
discretionary spend in line with the business strategy, plans and objectives (portolio management).
A number o organisations have established a program oce to manage and oversee discretionary spend or all assets
classes including IT. This oce is oten located in nance and supports all programs o work across the organisation,
not just IT.
5.4 Service level planning and budget alignment
Many organisations cannot operate i their IT systems are not unction