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PMBA6009 PMBA6009
Strategic Information Systems Strategic Information Systems
January January February 20 February 2010 10
School of Business
The University of Hong Kong
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IT Investment and Governance (90 minutes)
Break (15 minutes)
Case Discussion - Volkswagen of America: Managing IT
Priorities (45 minutes)
Break (15 minutes)
Guest Talk on IT Governance and Investment
Management at the Hong Kong J ockey Club (75 minutes)
Mr. Sunny Lee, Executive Director, Information Technology,
The Hong Kong J ockey Club and President, Hong Kong
Computer Society
Session 5 Session 5
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Key Issues in IT Investment/Governance Key Issues in IT Investment/Governance
What to invest What to invest
Who pays for that Who pays for that
How to decide How to decide
Who to decide Who to decide
How to govern How to govern
A local example A local example
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The First Question The First Question
What to invest? What to invest?
Hardware Hardware
Software Software
Systems Systems
Network Network
Data Data
And People! And People!
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Total Cost of Ownership (TCO) Total Cost of Ownership (TCO)
Introduced by Gartner in the late 1980s when Introduced by Gartner in the late 1980s when
PC PC- -based IT infrastructures began gaining based IT infrastructures began gaining
popularity. popularity.
Looks beyond initial capital investments to Looks beyond initial capital investments to
include costs associated with technical support, include costs associated with technical support,
administration and training, i.e., those soft costs. administration and training, i.e., those soft costs.
Not only the cost of purchase (Total Cost of Not only the cost of purchase (Total Cost of
Acquisition, TCA) but all aspects in the further Acquisition, TCA) but all aspects in the further
use and maintenance of the system considered use and maintenance of the system considered
A better/more accurate measure for evaluating A better/more accurate measure for evaluating
IS/IT investments. IS/IT investments.
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The Second Question The Second Question
Wh Who pays for the investment o pays for the investment? ?
Who pays for that? Who pays for that?
Users, IT department, corporate level Users, IT department, corporate level
Funding models/methods? Funding models/methods?
Charge Charge- -back back
Allocation Allocation
Corporate budget (especially for new projects) Corporate budget (especially for new projects)
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Funding Models/Methods Funding Models/Methods
Charge Charge- -back back
IT costs are recovered by charging users (could be IT costs are recovered by charging users (could be
individuals, departments or business units) based on individuals, departments or business units) based on
actual usage and cost (plus certain percentage?) actual usage and cost (plus certain percentage?)
Allocation Allocation
Recovered based on something other than usage, such Recovered based on something other than usage, such
as revenues, login accounts, number of users, etc. as revenues, login accounts, number of users, etc.
Corporate Corporate
An annual budget is given to the IT department An annual budget is given to the IT department
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IT Portfolio Management/Approach IT Portfolio Management/Approach
Move the decision from a technical to a business/ Move the decision from a technical to a business/
strategic one strategic one
Match investment to strategic objectives Match investment to strategic objectives
Four types of systems in IT investments Four types of systems in IT investments
The Third Question The Third Question
How to decide? How to decide?
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Transformation Transformation Renewal Renewal
Experiments Experiments Process Process
Improvement Improvement
Short-term
Profitability
Long-term
Growth
Shared
Infrastructure
Business
Solutions
STRATEGIC OBJ ECTIVE STRATEGIC OBJ ECTIVE
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A Framework for IT Investment A Framework for IT Investment
Enhancement Enhancement
Big Change/ Big Change/
Shift Shift
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A Framework for IT Investment A Framework for IT Investment
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Strategic Strategic
gain competitive advantage in the marketplace gain competitive advantage in the marketplace
Informational Informational
provide information used to control, manage, provide information used to control, manage,
communicate, analyze, collaborate, etc. communicate, analyze, collaborate, etc.
Transactional Transactional
streamline or cut costs on the way business is done streamline or cut costs on the way business is done
Infrastructure Infrastructure
build the foundation for shared IT services used for build the foundation for shared IT services used for
multiple applications multiple applications
Another Framework for IT Investment Another Framework for IT Investment
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Comparing the Two Frameworks Comparing the Two Frameworks
Transformation
Renewal
Experiments
Process
Improvement
Strategic
Informational
Transactional
Infrastructure
Ross and Beath on "Beyond the
Business Case: New Approaches to
IT Investment", SMR, 43(2), 2002
Weill and Aral on "Generating
Premium Returns on Your IT
Investments", SMR, 47(2), 2006
IT Portfolio IT Portfolio
Management and Management and
Governance Governance
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Corporate (Board), Business Unit, Functional Level or Corporate (Board), Business Unit, Functional Level or
some combination of the three some combination of the three
Six approaches Six approaches
Business monarchy (most centralized) Business monarchy (most centralized)
IT monarchy IT monarchy
Federal Federal
IT duopoly IT duopoly
Feudal system Feudal system
Anarchy (most decentralized) Anarchy (most decentralized)
The Fourth Question The Fourth Question
Who to decide? Who to decide?
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C C - - Level Business Level Business
Executi ves (CEO, Executi ves (CEO,
CFO, COO, CIO) CFO, COO, CIO)
Heads of Business Heads of Business
Departments/Units Departments/Units
C C - - Level IT Level IT
Executi ves Executi ves
(CIO, CTO) (CIO, CTO)
Heads of IT Heads of IT
Departments/Units Departments/Units
Individual Users/ Individual Users/
Small groups Small groups
Business Business
Monarchy Monarchy
IT IT
Monarchy Monarchy
Federal Federal
System System
IT IT
Duopoly Duopoly
Feudal System Feudal System
Anarchy Anarchy
The Fourth Question The Fourth Question
Who to decide? Who to decide?
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IT Governance
The Fifth Question The Fifth Question
How to govern? How to govern?
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What is IT Governance? What is IT Governance?
IT Governance is an IT Governance is an integral part of corporate integral part of corporate
governance governance
It consists of the It consists of the leadership leadership and organizational and organizational
structures and processes structures and processes that ensure the that ensure the
organization's IT sustains and extends the organization's IT sustains and extends the
organization's strategies and objectives organization's strategies and objectives. .
This is This is ABOVE and BEYOND ABOVE and BEYOND the IT the IT
department! department!
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Purposes of IT Governance Purposes of IT Governance
In management terms: In management terms:
Deliver Deliver quality IT solutions on time and within quality IT solutions on time and within
budget budget
Harness and exploit IT to Harness and exploit IT to return business return business
value value
Leverage IT to Leverage IT to increase efficiency and increase efficiency and
productivity while managing IT risks productivity while managing IT risks
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Purposes of IT Governance Purposes of IT Governance
To To direct IT endeavors direct IT endeavors and to ensure that and to ensure that IT IT s s
performance meets the following objectives: performance meets the following objectives:
For IT to For IT to be aligned be aligned with the with the corporate strategies corporate strategies
For IT to For IT to enable enable the company by the company by exploiting exploiting
opportunities and maximizing benefits opportunities and maximizing benefits
For IT For IT- -related related risks to be managed appropriately risks to be managed appropriately
For IT For IT resources resources to be to be used responsibly used responsibly
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Governance and Performance Governance and Performance
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Another Perspective to Look at IT Another Perspective to Look at IT
Governance Governance
Depends on for what the organization Depends on for what the organization
uses IT uses IT > >
The IT Strategic Impact Grid The IT Strategic Impact Grid
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IT Strategic Impact Grid IT Strategic Impact Grid
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IT Strategic Impact Grid IT Strategic Impact Grid
For Defensive (Support and Factory) modes For Defensive (Support and Factory) modes
No need No need for an independent IT Governance Committee but for an independent IT Governance Committee but
the top management and the board need to be aware of the top management and the board need to be aware of
leading leading- -edge practice and monitor the competitive edge practice and monitor the competitive
landscape for any change that would require a more landscape for any change that would require a more
aggressive use of IT aggressive use of IT
For Offensive (Strategic and Turnaround) For Offensive (Strategic and Turnaround)
modes modes
Critical to have Critical to have an independent IT Governance Committee an independent IT Governance Committee
as the organization requires a fully informed IT committee as the organization requires a fully informed IT committee
with at least one IT expert as a member with at least one IT expert as a member
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IT Governance Processes IT Governance Processes
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IT Strategic Alignment IT Strategic Alignment
Ascertain that IT strategy Ascertain that IT strategy
is is aligned with corporate aligned with corporate
strategy strategy
Ascertain that IT delivers Ascertain that IT delivers
through through clear expectations clear expectations
and measurement and measurement
Direct IT strategy to Direct IT strategy to
balance IT investments balance IT investments
Make decisions about Make decisions about
where IT resources should where IT resources should
be focused be focused
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IT Value IT Value
Deliver Deliver on time on time and and within within
budget budget
Provide customer Provide customer trust trust and and
competitive competitive time time- -to to- -market market
Enhance Enhance reputation reputation, , product product
leadership leadership and and cost cost
efficiency efficiency
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IT Risk Management IT Risk Management
Transparent Transparent about the about the
significant risks significant risks
Beware that the Beware that the final final
responsibility responsibility is with the is with the
board board
Adopt a Adopt a proactive proactive risk risk
management approach management approach
Insist risk management be Insist risk management be
embedded in the operation embedded in the operation
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IT Performance Measurement IT Performance Measurement
Define and monitor Define and monitor
measures measures together with together with
management management
Leverage a system of Leverage a system of
balanced business balanced business
scorecards scorecards maintained maintained
by management by management
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The Balanced Scorecard The Balanced Scorecard
By Kaplan and Norton in 1992 By Kaplan and Norton in 1992
Four perspectives Four perspectives
How do customers see us? (customer perspective) How do customers see us? (customer perspective)
At what must we excel? (internal business perspective) At what must we excel? (internal business perspective)
Can we continue to improve and create value? Can we continue to improve and create value?
(innovation and learning perspective) (innovation and learning perspective)
How do we look to shareholders? (financial perspective) How do we look to shareholders? (financial perspective)
IT Balanced Scorecard IT Balanced Scorecard
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IT Balanced Scorecard IT Balanced Scorecard
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COBIT and Val IT COBIT and Val IT
Control Objectives for Information and Related Technologies
(from IT Governance Institute)
Value Management of IT (based on COBIT)
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The delivery question.
Do we have:
Effective and disciplined
management, delivery
and change management processes
Competent and available technical
and business
resources to deliver:
The required capabilities
The organisational changes
required to
leverage the capabilities
The strategic question.
Is the investment:
In line with our vision
Consistent with our business
principles
Contributing to our strategic
objectives
Providing optimal value, at
affordable cost, at an
acceptable level of risk
The architecture
question.
Is the investment:
In line with our
architecture
Consistent with our
architectural principles
Contributing to the
population of our
architecture
In line with other
initiatives
The value question.
Do we have:
A clear and shared
understanding of the
expected benefits
Clear accountability for
realising the benefits
Relevant metrics
An effective benefits
realisation process over
the full economic life cycle of
the investment
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Val IT Framework 2.0 Val IT Framework 2.0
http://www.itgi.org/Template_ITGI.cfm
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IT Governance and IT Governance and
Portfolio Management Portfolio Management
Daniel Lai, BBS, JP
Head of Information Technology
A Local Example A Local Example
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Roles & Responsibilities/structure Roles & Responsibilities/structure
Appropriate committees and groups established Appropriate committees and groups established
to provide directions and plans, deliver solutions to provide directions and plans, deliver solutions
and execute changes and execute changes
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
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Roles & Responsibilities/structure Roles & Responsibilities/structure
IT Executive Management IT Executive Management
Committee (ITEMC) Committee (ITEMC)
IT Planning Group (ITPG) IT Planning Group (ITPG)
Program Management Program Management
Group (PMG) Group (PMG)
Project Steering Committee Project Steering Committee
(PSC) (PSC)
Business Systems Business Systems
Management Group (BSMG) Management Group (BSMG)
System Delivery Group System Delivery Group
(SDG) (SDG)
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
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IS/IT Organisation Framework IS/IT Organisation Framework
ITEMC
Financial Director (Chairman)
Operations Director
RSM
...
Head of FC&T
Head of IT
ITSD Senior Systems Manager
(Secretary)
ITEMC
Financial Director (Chairman)
Operations Director
RSM
...
Head of FC&T
Head of IT
ITSD Senior Systems Manager
(Secretary)
Program Management Group
Head of IT (Chairman)
ITSD Systems Manager
Program Management Group
Head of IT (Chairman)
ITSD Systems Manager
IT Planning Group
Head of IT (Chairman)
Divisional representatives
ITSD Senior Systems Manager
(Secretary)
IT Planning Group
Head of IT (Chairman)
Divisional representatives
ITSD Senior Systems Manager
(Secretary)
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
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To provide Information Technology (IT)
direction, policy, and strategy for the
Corporation
To ensure IT products and services are
delivered effectively to meet the
Corporations business needs
To ensure IT investments provide
optimum values and benefits to the
Corporation
To ensure priorities and financial and
other resources are allocated
appropriately
Information Technology Executive Information Technology Executive
Management Committee Management Committee
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
ITEMC
Financial Director (Chairman)
Operations Director
RSM
...
Head of FC&T
Head of IT
ITSD Senior Systems Manager
(Secretary)
ITEMC
Financial Director (Chairman)
Operations Director
RSM
...
Head of FC&T
Head of IT
ITSD Senior Systems Manager
(Secretary)
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To review, analyse, assess and
group IS/IT project initiatives and
business cases, with a view to
ensure that:
IS/IT investments align with and add
values to the business, and that
proposed project initiatives are
considered at an enterprise level
IS/IT projects are well justified and
prioritised in supporting Corporate
business objectives, strategic plans,
performance goals and targets
IS/IT applications are effective and
efficient, and conform to Corporate IS/IT
directions and system architecture
Information Technology Planning Group Information Technology Planning Group
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
ITEMC
Financial Director (Chairman)
Operations Director
RSM
...
Head of FC&T
Head of IT
ITSD Senior Systems Manager
(Secretary)
ITEMC
Financial Director (Chairman)
Operations Director
RSM
...
Head of FC&T
Head of IT
ITSD Senior Systems Manager
(Secretary)
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To perform central allocation and
smoothing function for IS/IT projects
against approved ITSD and computer
budget
To alert and monitor inter-project
dependency, and to resolve conflicts
among IS/IT projects
To monitor changes in project scope,
schedule, resources, and the overall
impacts to all IS/IT projects
To review technical, functional and
integration design for all IS/IT projects
to ensure alignment to IS/IT blue-print
and application/technology architecture
To provide a forum for effective
communication between IS/IT projects
Programme Management Group Programme Management Group
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
Program Management Group
Head of IT (Chairman)
ITSD Systems Manager
Program Management Group
Head of IT (Chairman)
ITSD Systems Manager
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To direct and control a specific To direct and control a specific
IT project dictating funding, IT project dictating funding,
resources, objectives, scope resources, objectives, scope
and any changes and any changes
Project Steering Committee Project Steering Committee
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
Project Steering Group
Project Sponsor (Chairman)
Business Project Manager
Head of IT
ITSD Information Systems Manager
ITSD Systems Manager
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To be responsible to define the
business requirements,
manage the deployment,
transformation and business
processes of a specific IT
project
Business Systems Management Group Business Systems Management Group
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
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To be responsible to develop/
source/implement a specific
IT solution
System Delivery Group System Delivery Group
ITEMC ITEMC ITEMC
PMG PMG PMG
ITPG ITPG ITPG
PSC PSC PSC
PSC PSC PSC
PSC PSC PSC
SDG SDG SDG
BSMG BSMG BSMG
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Useful Resources Useful Resources
The IT Governance Institute The IT Governance Institute
www.ITgovernance.org www.ITgovernance.org
CoBIT CoBIT (Control Objectives for Information and Related Technology) (Control Objectives for Information and Related Technology)
Information Systems Audit and Control Information Systems Audit and Control
Association (ISACA) Association (ISACA)
www.isaca.org www.isaca.org
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For 15 minutes
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Session 5 Session 5
IT Investment and Governance (90 minutes)
Break (15 minutes)
Case Discussion - Volkswagen of America: Managing IT
Priorities (45 minutes)
Break (15 minutes)
Guest Talk on IT Governance and Investment
Management at the Hong Kong J ockey Club (75 minutes)
Mr. Sunny Lee, Executive Director, Information Technology,
The Hong Kong J ockey Club and President, Hong Kong
Computer Society
24
47
Volkswagen of America: Volkswagen of America:
Managing IT Priorities Managing IT Priorities
What was the pressing issue?
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Volkswagen of America: Volkswagen of America:
Managing IT Priorities Managing IT Priorities
Why was there an excess demand for IT funding?
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Volkswagen of America: Volkswagen of America:
Managing IT Priorities Managing IT Priorities
What was the new funding allocation process?
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Volkswagen of America: Volkswagen of America:
Managing IT Priorities Managing IT Priorities
What is your assessment of the funding allocation
process? its pros and cons?
Pros Cons
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Volkswagen of America: Volkswagen of America:
Managing IT Priorities Managing IT Priorities
What lessons can be learned from the case about
governance of IT investment?
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For 15 minutes
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53
IT Investment and Governance (90 minutes)
Break (15 minutes)
Case Discussion - Volkswagen of America: Managing IT
Priorities (45 minutes)
Break (15 minutes)
Guest Talk on IT Governance and Investment
Management at the Hong Kong J ockey Club (75 minutes)
Mr. Sunny Lee, Executive Director, Information Technology,
The Hong Kong J ockey Club and President, Hong Kong
Computer Society
Session 5 Session 5