Business Management of IT

Business Management of
Information Technology
A practical guide for senior fnance executives and business managers
INFORMATION TECHNOLOGY & MANAGEMENT
CPA Australia Ltd (CPA Australia) is the sixth largest professional accounting body in the world with more than 117,000
members of the fnancial, accounting and business profession in 98 countries, including Australia.
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First published 2008
CPA Australia Ltd
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ISBN 9281 876874 28 5
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i
Chris Gillies is an independent non-executive director serving on a number of boards, associations and charities
and advises boards on establishing IT governance leadership in the boardroom. Boards include Oakton, Corporate
Express, Asgard Wealth Solutions, Emergency Telecommunications Statutory Authority Victoria, UCMS,
Commsecure and the MS Society of Australia. She has established and chairs three board IT committees, as well
as advising a number of 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), Chief Information Officer for the Bank of
Melbourne, and Victorian Director of 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
information technology.
Advisory committee
Jan Barned - Policy adviser, information technology and management, CPA Australia.
Jan has held a number of directorships and has over twenty years experience working for both listed and unlisted
domestic and international companies. Her current role at CPA Australia includes identifying current and
emerging issues on information technology and management and advocacy to government, industry membership
and the wider public.
Mark Toomey - Managing Director, Infonomics Pty Ltd.
Mark Toomey has more than thirty years experience in planning and delivering information communication technology
solutions that enable business performance. Since 2000, he has specialised in providing governance, management and
strategic advice to business and IT executives, and company directors. Mark is a Fellow of the Australian Institute of
Company Directors and is the Institutes representative on Standards Australias committee controlling the Australian
Standards for Corporate Governance of Information and Communications Technology.
Vicky Kelly
Vicky Kelly has over 35 years experience in the IT industry and has worked for Bendigo Bank for the last 13 years. Vicky
is a member of the Banks Executive, has assisted in the establishment of the Board of IT Governance Committee and is
an attendee of that committee.
Diana Holmberg
A seasoned IT professional, 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 identifying and implementing organisational and procedural change to ensure the alignment of
IT delivery to business strategy and to improve IT delivery capabilities. Diana is also a non-executive director on the
Board of Australian Home Care, focusing on the implementation of effective 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, portfolio management and benefts realisation. He was a
contributor to Fujitsu Consultings best-selling book authored by John Thorp, The Information Paradox Realising the
Business Benefts of Information Technology. Peter is a member of the ISACAs IT Governance Institutes Val IT Steering
Committee that launched the Val IT Enterprise Value Governance Framework.
Judy McKay - Associate Professor, Swinburne University of Technology
Judy McKay is currently academic leader of the information systems group in the faculty of information and
communication technologies at Swinburne University of Technology. She joined the staff at Swinburne in 2004 after
academic appointments in information systems at Monash University, Edith Cowan University and Curtin University of
Technology. She has a Bachelor of Arts (majoring in linguistics) and postgraduate qualifcations in education, business
and information systems.
Gavan Ord, Business Policy Adviser, Policy and Research CPA Australia
Gavan Ord is CPA Australias business policy adviser. Gavan has responsibility for the development of policy and
research on issues related to small medium enterprises (SMEs), business management and climate change. During the
course of his career, Gavan has established himself as a technical expert particularly in the area of taxation. Before
joining CPA Australia, he held a senior role in technical policy and international development and was a member of
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 of Taxation Law.
About the author
ii
Special thanks to:
Kate Behan: Managing Director Kerandan Pty Ltd
Neil 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
iii
Most business managers would agree that Information Technology (IT) is now an integral part of commercial business.
When used effciently and effectively, it can provide organisations with competitive advantage, proft growth and
ultimately optimal return to stakeholders. However, business managers often are unsure if they are getting optimal
value from their IT-enabled assets. Are these assets affordable? Do they come with an acceptable level of risk?
In many organisations, IT is perceived to have failed when:
projects are late
business needs are not met
IT is over budget
benefts are not delivered
Business managers can feel 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 for planning, delivering and assessing
the value of IT across their business, increase the value of their investment in IT.
This guide introduces proven practices that have evolved within these organisations. It focuses on the business side of
managing IT and is written for senior fnance exectives and business managers who have signifcant dependence on IT
and who want to know what action they can take to have:
IT processes that provide cost-effective support / services to the business
projects delivered on time and on budget
IT service levels that ft the budget and risk profle of the company
a good understanding of IT costs and cost drivers
evidence of the business benefts delivered by IT-enabled initiatives
You will also fnd a framework for the Business Management of IT (BMIT) that looks at ways you can modify your
business planning and management cycle to incorporate fve key processes to ensure the business has a clear
understanding of the role it must play in:
IT alignment with business strategy and objectives
estimation and prioritisation of business programs
setting the IT budget and balancing the supply / demand equation
program and project delivery
benefts realisation
planning and delivery of IT services to agreed business requirements
This guide builds on the CPA publication IT Governance: A Practical Guide for Company Directors and Business
Executives which helps directors:
understand what IT governance is and why it is important
assess the level of 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
iv
1
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 of BMIT in your organisation 5
2 The BMIT framework and processes 8
3 Foundations of successful BMIT 12
3.1 Implement clear decision-making and accountability frameworks 12
3.2 Promote common language between business and IT 13
3.3 Build business IT relationships 14
3.4 Improve transparency of IT costs 15
3.5 Introduce business measurement of 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 of 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 forum 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 Benefts realisation and monitoring and asset decommissioning 36
6.4 Asset life monitoring, evaluation and decommissioning 41
Appendix: useful reference material 44
Table of contents
2
Annual plan and budget Sets out the fnancial 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 of business systems and IT infrastructure for
sustained effective, effcient and acceptable support of enterprise business.
BMIT Business Management of Information Technology (BMIT) is a framework of
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 benefts realisation.
Business case Documentation of the rationale for 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 of interdependent projects that are managed together to
deliver a business outcome. IT is just one of these projects. Others may include
business process redesign, customer communications and property ft 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 of the board of directors
and the executive management.
IT Information Technology (IT) is the term applied to the combination of technology,
processes and people that allow organisations to cost-effectively capture, store,
process, communicate and analyse data and information fows internally for
management and staff and externally for stakeholders including suppliers,
customers, shareholders, and regulatory groups.
IT demand pipeline Comprehensive list of the business requests requiring IT effort including large
projects and small change requests covering all aspect of IT delivery (e.g. desktop
change, new applications and changes to existing systems).
Management Management is the process of 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 / portfolio management Tracking program selection, prioritisation and delivery against the required
portfolio and monitoring progress.
Portfolio The collection of planned business programs across all asset classes designed to
deliver the business strategy and objectives.
Project An organised effort to complete a specifc defned deliverable or set of
deliverables usually satisfying one business case. A project has a specifc start and end
date, specifc objectives, specifc resources assigned to perform the work and a
specifc budget.
Strategy An organisations overall plan of development describing the effective use of
resources in support of the organisation in its future activities. It involves setting
objectives and proposing initiatives for action.
Glossary
3
The Business Management of IT is an approach to planning and controlling the use of IT from a business point
of view. Figure 1.0 clearly differentiates between the business management of IT and the IT management of IT
and highlights the interdependency in decision-making that is essential to delivering successful outcomes from IT
investments.
Figure 1.0 Who makes decisions about what?
1.1 What is BMIT?
Return on investment is a well-understood concept. Referring to return on IT investment in isolation, however, can
result in IT project mentality that segregates IT expenditure. As a result, we often fnd IT managers trying to justify
return on investment rather than business managers. The reality is that most IT projects comprise change to several
asset classes in concert - process, people and organisation being the most likely. Hence, it is the business that should
take accountability for all areas of return on investment including the IT component.
In many organisations, IT management strives to implement better processes methods and practices to minimise failure
and deliver value, often with low rates of success. Why? Simply, the issues cannot be dealt with by IT alone.
BMIT is about business managers accepting accountability for making decisions about how IT will be used to achieve
business goals. It encourages business managers to take an active role in:
aligning IT with business strategy and objectives
IT can build the bike but business has to
decide what the bike will be used for,
and pedal the bike to deliver the value.
Judy McKay - Professor, IT Swinburne
University of Technology
scoping, estimating and prioritising IT-enabled
business programs
setting IT budget parameters and balancing the
supply / demand equation
program and project delivery
benefts realisation
ongoing operations
1. What is BMIT and why is it so important?
Business Management of IT
Business Decisions
Thewhat-investmentintherightthing
Strategicdirection
Levelofbusinessrisk
Bottomlineperformance
Demandmanagementandprioritisation
Fundingandcapitalmanagement
Balancingthecost,risk,performanceequation
Businessprocessdesignanduse
Identifyinganddeliveringbenefts
IT Management of IT
IT Decisions
Thehow-doingitrightanddeliveringtoestimates
Technologysolutions/architectures
Articulatingtechnicalrisk
Compliancewitharchitecturesandstandards
Supplymanagementandsourcing
Productivityandunitcostofdelivery
Managingriskwithinagreedservicelevels
Businessprocessautomation
Deliveringtoestimates
4
1.2 Why is BMIT so important?
Despite the falling unit cost of technology, business statistics generally show that the proportion of expenditure on
information technology continues to rise. In many organisations, the IT capital spend is well over 50 per cent of the
average annual total capital investment. As IT becomes more important and pervasive, business managers are
increasingly challenged to get more value out of their IT investment. Unfortunately, failure of 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 fail or why IT is
not delivering to business service levels:
lack of business planning for IT
lack of accountability and clarity as to who makes decisions about what
focus is on IT projects rather than business change programs
Lack of business planning for IT means that any planning around the development and use of the companys
technology assets is done by IT and relies entirely on the planning capability and experience of the IT management and
its view of 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 professionals such as accountants who are
being expected to take responsibility with little expertise or knowledge of how to make sound plans and decisions with
respect to IT.
Additional implications of a lack of 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 of defned business plans and requirements.
IT ends up setting priorities across competing business divisions.
The focus is on the technology solution and estimates fail to include the associated business costs such as
process change.
IT goes into react mode leading to complex and diffcult-to-support IT environments delivering inconsistent service.
IT plans must be a subset of business plans and formed collaboratively as a result of business strategy and plans.
Lack of accountability and clarity as to who makes decisions about what has three far reaching consequences:
Large investments result in failure because business users are not clear about what they want.
Systems fail because business managers dont make the decision on the level of risk it is prepared to carry.
Business programs go over time and over budget due to continual change of scope as no one business
person has accountability for the fnal decision on scope.
Benefts are not delivered because accountability for 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 for the decisions is clear
more often than not, the right decisions are made
Successful delivery of IT-enabled change, value delivery and sustainable service can only be achieved through a well-
defned 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?
5
Focus on IT projects rather than business programs can result in:
IT delivering an IT solution that business is not prepared for or IT delivering a solution that fails 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 fundamental causes of failed IT-enabled business
programs lie with business management taking accountability for the decisions that must be made by business (not IT)
to affect successful planning, building / acquiring and management of IT assets.
With very little effort, business management can take an active and informed role in managing the IT assets of their
company. Introducing BMIT processes into the standard business planning and management cycle helps to demystify IT,
highlights the risks the business may be facing without knowledge, and gives business managers a basis for informed
decisions. Adopting these processes informs business managers and enables them to be active participants rather than
powerless onlookers.
1.3 Assessing the level of BMIT in your organisation
Most business managers agree that they are keenly aware of ITs importance to the business. However, most feel they
have very little say in what is delivered by IT and have little idea of the business benefts delivered. As a quick test, fll in
these questionnaires to assess the importance of IT in your organisation and your current BMIT capability.
1.3.1 Do you have a clear understanding of the business use of IT?
The following table can help you refocus your expectations of IT in your organisation. Are you sure that your use of IT
is aligned with business expectation? For example, you may expect IT to increase revenue but in fact 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 of 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 of the competition
For fnance and administration systems
For innovative purposes e.g. research and development
Table 1.3.1.1 Business use of IT
6
1.3.2 Do you know how much you spend?
Make sure that the IT spend from all business unit cost centres is included, not just the IT department. You may be
surprised at how much you are spending. Use the following table as a guide.
This year
Previous
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 % of revenue (A)
Total IT spend (C+D) as a % of 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 % of total company revenue (A)
IT KIR spend (E) as a % of total company expenditure (B)
IT KIR spend (C+D) as a % of total IT spend (G)
% of IT spend sourced internally
% of IT spend sourced from 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 faced 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
7
1.3.4 How well do you plan and manage the use of technology?
How well do you plan and manage the use of IT in your business? Complete the table below. If you answer no to
more than four of 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 of IT when preparing business strategy?
Does the board and executive team determine the level of 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 of 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 forum for prioritising the IT department projects and work?
Is a clear, compelling business case always developed before an IT investment decision is made?
Are business IT program risks fully understood before program commencement?
Are IT projects managed as part of the business programs comprising all aspects of the change?
Are there control points in your business programs where you reconfrm that the programs are still
viable?
Is business management held accountable for the delivery of business benefts from IT investments?
Does business management decide whether to buy a package or build from scratch?
Are IT running costs clearly related to business services level requirements, recognising the cost, risk,
performance trade-offs?
Does business management have measures on unit cost of 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 of 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 for, how to ask for it and how to monitor and assess success
IT knows how to build / acquire solutions, advise and deliver to business expectations
8
2. The BMIT framework and processes
Figure 2.0 BMIT framework
B
U
S
I
N
E
S
S

P
L
A
N
N
I
N
G

A
N
D

M
A
N
A
G
E
M
E
N
T

C
Y
C
L
E
BUSINESS MANAGEMENT OF IT
IT MANAGEMENT OF IT
Business
Process
Business
Decisions
IT
Decisions
Business
Framework
Long term
strategic planning
Strategic IT demand
management and
long term strategic
alignment process
sstrategic use of IT
s levels of investment
value expected
sPRiority
sRisk
What we aim to
achieve
s3Olutions
sArchitectures
sCosts and risks
s Technology
opportunities
Annual planning
and budgeting
Annual project and
service level
demand
management and
IT budget
alignment process
sProjects
sservice
sPERFORMANce
sMEAsures
sFUNDs
sPRiority
How we will
achieve
sCost estimates
s Performance
capability
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 work
prioritisation process
Business program or
project gating
process
Benefits realisation
and monitoring
and asset
decommissioning
process
Building or
acquiring new
capability
s Deliver to
estimates
sAdvise on risk
Completed business programs
Expected benets and measures
s Deliver the
service
sAdvise on risk
Delivering the
results
sUse the service
srealise the value
sMEAsure the result
sProcess
schange
svalue
sBENEFits
The BMIT framework (Figure 2.0) is built into the standard business planning and management cycle, incorporating long
term strategic planning through to ongoing operations. The framework clearly differentiates between the
accountabilities associated with Business Management of IT and the IT management of IT. It illustrates the interaction
that needs to take place between business and technology to deliver the companys objectives.
9
The fve BMIT processes (Figure 2.1) in the framework support business management in making the right decisions for
effective use of IT. They help business managers understand and measure the delivery of value from IT assets and can
be tailored to suit company requirements.
The processes must be supported by foundation behaviours and practices that foster collaboration and constructive
interaction between business managers and IT managers.
In section 3, the foundations that will enable this change are examined, with a focus on why the following are so
important:
implementing clear accountability and decision making frameworks
promoting common language between business and IT
building business IT relationships
ensuring transparency of IT costs
introducing business measurement of IT value
recognising that business programs deliver business value not IT projects.
In section 4, the criticality of 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 framework and
the BMIT Process 1 Strategic IT demand management and long term strategic alignment.
The BMIT process for 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 portfolio of
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 framework; the common
issues around building and/or acquiring new systems; delivering results and service level monitoring; and asset life
monitoring, evaluation and decommissioning. Each is captured under the BMIT Process 3 Ongoing IT work
prioritization, BMIT Process 4 Business program or project gating and BMIT Process 5 Benefts monitoring and
realisation.
The BMIT framework and processes
10

Business Framework The Business Question Five BMIT Processes Business management will know:
Long term
strategic planning
How is the business
going to use IT in
attaining its goals?
1. Strategic IT demand
management and
long term strategic
alignment process
the long term capital spend
required to deliver the companys
strategy
that IT action is aligned with
business strategy
the connection between achieving
long term strategic objectives and
IT effort
the long term priorities and
dependencies
the risk associated with reducing
capital spend
Annual planning
and budgeting
What is the business
going to spend on IT
this year to keep it
running and to
deliver for the
future?
2. Annual project
and service level
demand
management and
IT budget
alignment process
that the IT build / acquire budget
is aligned with business demand
which projects are funded this
fnancial year along with
guesstimates of the operational
and capital spend
that the Keep IT Running (KIR)
budget is aligned with business
service expectation
the risks associated with cutting
the KIR budget
the annual priorities and
dependencies
Ongoing
management
Are we working on
the right things for
the right reasons and
producing the
intended results?
Are we on track to
meet our
performance goals?
3. Ongoing IT work
prioritisation
process
4. Building /
acquiring
capability and
business program
or project gating
process
5. Benefts realisation
and monitoring and
asset
decommissioning
process
that IT effort is focused on what
the business requires
that conficting business demands
are resolved in line with the
companys overall interests
that immediate business
imperatives are delivered with the
least impact on long term plans
that projects which are no longer
viable or appropriate are
terminated promptly
if dollars and effort spent and
dollars to complete are in line with
budget
how scope change decisions have
been made and what impacts this
will have on costs and time
the delivery and implementation
risk profle
the service level delivery metrics
and ongoing service risk profle
when to make application and
infrastructure asset replacement
decisions
if the planned benefts are being
delivered in line with the business
case
the IT investment spent on
reducing IT operating costs versus
new capability
Figure 2.1 The fve BMIT processes
11
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 from 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 for. Business managements
frustration 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 of the
infrastructure was obsolete and unsupported and only one person knew how to fx it when it fell over. He had
attempted to explain the issues to his boss, the CFO, and failed. If only his business colleagues understood the
problems he faced. They didnt and he lost his job.
A newly appointed IT manager was told of his predecessors failure and the warning bells went off. He suggested
that before settling into the job he assess just how the place had gotten into such a mess. At the end of his
fourth week he presented his fndings to the business management team, the key ones being:
Although the business had a clear view of how it wanted to use technology, it had no formal plans and
hadnt communicated to IT management.
The IT budget was set by the CEO without any regard for the cost of 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 of the risk it was carrying with obsolete equipment and no
effective disaster recovery capability.
He recommended that the following practices be adopted immediately:
Even though the role reported to the CFO, IT management must be at the business planning table and part
of the business planning process.
The IT budget should be developed as part of the annual planning process, refecting the true cost of
business demand for IT-enabled change, levels of service and risk.
Business management should conduct a process to better articulate, prioritise, fund and approve
requirements before coming to IT.
1
2
3
4
5
Strategic IT demand
management and long term
IT alignment process
Business Management
of IT Processes
Ongoing IT work planning
and prioritisation process
Business program or
project gating process
Benefits monitoring and
realisation and asset
decommissioning process
Annual project
and service
level demand
management and
IT budget alignment
process
12
A successful BMIT framework is built on strong collaboration between IT and business. There are a number of
foundation 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 frameworks
promoting common language between business and IT
building business IT relationships
ensuring transparency of IT costs
introducing business measurement of IT value
recognising business programs, not IT projects, deliver business value
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of IT value
Business
programs,
not IT projects
Figure 3.1 The fve BMIT processes
3.1 Implement clear decision-making and accountability frameworks
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of IT value
Business
programs,
not IT projects
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Business
measurement
of IT value
Business
programs,
not IT projects
IT management often makes decisions by default 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 for
planning the use of IT as part of setting business objectives
and performance parameters, as well as their responsibility
for delivering the intended business outcomes of their
investments.
ITs responsibilities are within their capability to achieve
and that IT is not responsible for things it cannot control
or deliver.
If you are held accountable, you
will be held accountable - so put
in place the tools necessary to
help meet that accountability.
James Crown
CEO Knowledge Group
A simple tool to help establish who is accountable for 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 of
healthy debate when flling it in. This will lead to better understanding of the IT issues facing your organisation.
3. Foundations of a successful BMIT
13
Board Business management CFO Head of 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 benefts case (ROI) I A I C
Delivering business benefts (ROI) I A I C
Measuring delivered benefts (ROI) C I A C
Setting business program priorities I A I I
Program delivery on time and budget C A C I
Defning service level requirements C A I C
Delivering service level requirements C I C A
Risk profle or appetite for risk A I I I
A - Makes the fnal decision I - Must have input to the decision C - Must be told of the decision
Figure 3.1.1 Decision-making matrix
Once you have agreed who makes the decisions and who is accountable for 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
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of IT value
Business
programs,
not IT projects
Collaborative
business IT
relationships
Transparency
of IT costs
Business
measurement
of IT value
Business
programs,
not IT projects
Clear
decision
making
frameworks
Mistakes often occur simply because the business does not understand what IT is talking about and vice versa. IT
speaks its own acronyms and jargon forgetting that the business doesnt necessarily understand and the business
speaks a language that is foreign 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 fully understanding.
The solution to this issue primarily lies in recognising that the languages are different and translation mechanisms
are required. Simple admission that one does not understand and clarifcation is required is a good start. In addition:
Channeling communications through translators such as business analysts and relationship managers is
another way of ensuring effective communication.
The introduction of a shared pipeline list of business requirements which outlines business priorities, IT
estimates and resource availability along with agreed business / IT measures will form the basis of a common
language that will enable business and IT management to have factual 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 form the basis of a common language. In IT, architectural models help to
translate the expectations and requirements of IT into terms the business can understand. There is a
Foundations of a successful BMIT
14
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 of the current and future IT
environment 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
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of IT value
Business
programs,
not IT projects
Transparency
of IT costs
Business
measurement
of IT value
Business
programs,
not IT projects
Common
language
between
business and IT
Clear
decision
making
frameworks
Complex chargeback and buyer supplier arrangements between IT and the business can lead to poor relationships and
lack of trust in IT estimates.
There are a number of ways to enhance the business IT relationship:
Filter work requests through a business prioritisation and approval
process before asking IT to estimate.
Understand that IT cant estimate accurately what the business
cant defne precisely. Its not possible to do fxed price estimates
until all requirements have been specifed and detailed design is
complete. First cut guesstimates can be out by 100%. The
introduction of phased estimating can clear up a lot of
misunderstandings between business and IT. The following
diagram sets out the estimating tolerances relating to each phase
of the program lifecycle.
IT cant estimate
accurately what
business cannot
define precisely.
Invest in business analysts to work with business managers and IT architects to identify the solution
approach. This role can sit in either the business or IT. Unfortunately, the relationship role can be seen as an
overhead and it goes frst with budget cuts. This is false 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 for 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 of business process? o
Business
Strategy
and
Objectives
Estimation Tolerance
Build & Implement Detailed Design High Level Design Program Feasibility Program Concept
+100%
-100%
0%
Worst Case
Best Case
Most Likely
Figure 3.3.1 Phased estimating: target of estimating is to provide most likely prediction
15
3.4 Improve transparency of IT costs
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of IT value
Business
programs,
not IT projects
Business
measurement
of IT value
Business
programs,
not IT projects
Collaborative
business IT
relationships
Common
language
between
business and IT
Clear
decision
making
frameworks
One of the core issues is that companies often fail to fully understand the true cost of IT and what drives these costs.
In many companies the IT budget does not refect the total IT spend. For various reasons, often 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 focus on short term
cost reduction without understanding the impact on the
long term viability of IT systems and the business risk
and impact of failure.
In order to make proper investment decisions in line with the risk
profle of the company, business needs to understand the link
between the IT-enabled business process and volumes and the
cost of the IT services and resources it consumes to deliver these
processes. Business needs to know what it is getting for
its money and what levers it can pull to change what it is
spending now and in the future.
IT costs are very often
understated. Anywhere up to 30%
in additional costs can be found
when IT costs from business costs
centres are analysed. This can be a
real issue when benchmarking
against other organisations or
when understated figures are used
in the metrics to assess the
business value of IT.
In many organisations, chart of account design and project accounting methods do not easily enable IT costs and
measurements to be clearly linked to business outcomes, for example, cost of ongoing operations directly related to
the level of service delivered. (See Figure 6.4.1 Cost of Service Agreements.)
The frst step in improving the transparency of IT costs is to separate them into two baskets:
Keep IT Running (KIR) and 1.
Discretionary spend (capital and operational) 2.
KIR is defned as the cost of supporting, maintaining and growing the current business. It includes the cost of
maintenance and regulatory and compliance changes but does not include the cost of 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 of risk the business is prepared to live with e.g. disaster recovery capability
additional ongoing maintenance costs of new applications or infrastructure 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 following cost levers:
agree to a longer time for recovery in case of a disaster which would decrease the outlay on disaster
recovery infrastructure
accept a higher level of risk by running on obsolete assets which would defer the cost of replacement
accept slower response times which would defer the cost of communication line upgrades
reduce the length of time history fles are kept which will result in a lower cost of storage
16
Discretionary spend is defned as the cost of 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 for determining annual discretionary spend is set out in section 5.1.
Justifcation for discretionary spend is usually associated with a business benefts case outlining the fnancial and non-
fnancial benefts that will be delivered when the program is implemented. Often the problem with benefts delivery
stems from the quality of the up-front planning and scoping work resulting in costs being understated and benefts
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 defnition available
for estimating
the stated benefts are reasonable and achievable
there is a clear differentiation between fnancial and non-fnancial benefts
the metrics that will be used to measure benefts delivery are determined up front in the business case
costs are monitored throughout the program and the benefts case is reassessed if costs blow out
The introduction of the program gating process (Section 6.2) will assist in getting this right.
3.5 Introduce business measurement of IT value
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of IT value
Business
programs,
not IT projects
Business
programs,
not IT projects
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
If you cant measure it, you cant manage it. Credible business measures of IT effectiveness are essential to all levels of
business planning and prioritising the use of IT. However, in many companies, much of the measurement of IT success
is carried out and communicated by IT in IT terms that are not understood by business managers and are of little use in
the assessment of IT effectiveness to the business.
The following table sets out examples of measures typically used by IT along with measures business management can
introduce to assess IT effectiveness from a business perspective.
Business measures IT measures
Business time lost Up time percentage
Unit cost per transaction
Network costs, hardware costs, total MIPS
used
Customer complaints Number of severity 1 problems
Cost of business process Mean time to fx problems
Cost per delivery channel Application maintenance costs
Business risk IT personnel turnover
ROI Within budget

Table 3.5.1 Measures to assess IT effectiveness
17
Fundamental to successful BMIT is management fully understanding and articulating why it is using IT in the frst place
and what value means for their area of the business and the company. (See Table 1.3.1.1 Business use of IT.)
Business management often has diffculty establishing measures due to a lack of understanding of the behaviour of
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 for measuring both the effectiveness of the current
operations and the value delivered by additional investment in IT-enabled business programs.
Metrics for the effectiveness of the current operations are ideally derived from the business measures set out in the
service levels agreed between business and IT management. (See section 6.3.1)
Metrics for value delivery from IT-enabled change programs are ideally based in the companys strategic decisions, for
example:
increase revenue e.g. improved sales capability, new products and services
decrease costs e.g. further automation of business process
increase productivity, improving existing process improvement
improve customer satisfaction
3.6 Recognise that business programs, not IT projects, deliver business value
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of IT value
Business
programs,
not IT projects
Collaborative
business IT
relationships
Transparency
of IT costs
Common
language
between
business and IT
Clear
decision
making
frameworks
Business
measurement
of 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 from the times when anything to do
with IT was left to the IT department and they were accountable for the lot, including benefts. Times have changed.
Today we need to recognise that there is really no such thing as an IT project. Most programs of change comprise
change to several asset classes in concert including IT, business process, people and organisation. IT cannot be justifed
in isolation from the business program it supports. (See Figure 3.6.1.)
B
u
s
i
n
e
s
s

S
t
r
a
t
e
g
y
B
u
s
i
n
e
s
s

P
r
o
g
r
a
m
s
PROPERTY
PEOPLE
TECHNOLOGY
PLANT & EQUIPMENT
FINANCIAL
INFORMATION
Enterprise assets
I
n
t
e
r
d
e
p
e
n
d
e
n
c
i
e
s
Building or acquiring IT assets is
rarely stand alone. The best
results occur when the entire
business program of change is
planned, costed and managed
as one program and the
benefts case is based on the
delivery of the full program.
Trying to manage change in any
one of these areas in isolation is
destined to fail.
Figure 3.6.1 Business programs composition
18
Divided we fail
REPLACECO IT costs had increased over time due to increased maintenance costs on ageing and fragmented
software. The decision was made to replace existing applications with a highly confgurable industry standard
package chosen by the business. The business had been convinced by the supplier that the package would be
easily confgured and implemented to meet REPLACECOs business needs. IT was not involved in the decision.
The package was purchased. Business handed over responsibility for implementation to IT.
An IT project manager and project team were appointed to work with the supplier to implement the package.
The list of variations from the out of the box confguration continued to grow. A heavily modifed package was
fnally implemented 18 months late and 50% over budget.
A post-implementation review by an external party found a trail of poor decision-making and unclear
accountabilities. Root causes of the problems were:
no-one owned the business solution
the solution approach was not tested or estimated before buying
the business benefts case was not revisited
business management expected IT to implement with little involvement from themselves
IT was not involved in the decision to purchase the package
appropriate IT due diligence of the claims of the supplier and the appropriateness of the package were
not carried out by IT
The REPLACECO Board learned of the project failure. When the full picture emerged, they had little confdence in
either the business or IT. REPLACECO had more large IT projects coming up on the product front. 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 future demand. The changes presented to the board included:
an IT / business decision matrix be implemented to ensure clarity around who makes decisions about
what
from now on all IT developments would be part of business programs under business ownership
all programs of change must go through a rigorous process upfront to thoroughly test the solution
approach and benefts before investing signifcant dollars
a program gating process be implemented with clear GO / NO GO check points to identify problems,
revalidate benefts and costs to complete
19
4. Long term strategic planning
Most companies depend on IT for day-to-day activities. What many fail to realise is that strategic growth also depends
heavily on IT. They also depend on the IT of their business partners and customers. Moreover, many businesses must
also 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 specifc attention to IT as they prepare their long term plans.
The danger in leaving IT out of the long term strategic planning process,
or with short term direction only, means that IT cannot formulate long
term future architectures and may end up building IT applications and
infrastructure piecemeal. Lack of effective future 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 reinforced concrete - its a barrier to change.
Plan to grow into your IT
assets not out of them.
Neil Wilson - CEO Oakton
If you dont know where you
are going, any road will take
you 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 effective in planning their IT use.
IT long term planning is an integral part of the business strategic
planning processes. As with a manufacturing plant or property, many IT
assets have long asset lifecycles and often take years to implement,
making IT dependent on effective long term business planning.
Long term strategic planning framework (Figure 4.0) highlights the business and IT decision areas along with the
interactions and outcomes of long term business planning. This process occurs annually reviewing the relevance of the
long term business strategic directions and the alignment of 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.
Business
Process
Business
Decisions
Business
IT Interaction
IT
Decisions
Long term business s
strategies and targets
Business use of IT s
Competitive positioning s
Business benets s
Priorities s
Funding s
IT architectures and s
architectural principles
Current and target IT s
architectures
IT migration plans and s
initiatives
Technology infrastructures s
Business strategies, priorities,
funding, strategic business
benets
IT trends and opportunities,
future architectures, costs
estimates, risks
3-5 year Business IT Strategic Plan:
Target IT architectures s
Key IT initiatives to achieve targets s
Estimates of IT capital investment s
Estimated ongoing operational cost s
dependencies
Alignment
3-5 year business strategic plan:
Business targets s
Key initiatives to achieve targets s
across all asset classes
Estimates of capital investment s
Priorities s
Benets s
Strategic IT
demand
management
and long term
strategic
alignment
process
Figure 4.0 Long term strategic planning framework
Long term
strategic planning
Annual planning
and budgeting
Ongoing
management
20
Implementation of 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 future IT architectures are still valid and aligned with
the business strategies and priorities, and dependencies are understood (see Figure 4.3)
a qualifed portfolio of 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 identifed by the plan become the basis for Business Management IT
decision making and the setting of IT priorities.
4.1 BMIT process 1: strategic IT demand management and long term
alignment 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
form the framework for ongoing business program prioritisation and portfolio 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 of technical work behind the scenes. It is a plan that
outlines the IT implications of business strategic intent and translates these implications into the key IT initiatives that
will be required to deliver the strategy.
Long term strategic planning
21
Action Who Description
Business strategy review Board, business
managers and IT
manager
Review of the companys strategic direction and objectives to
determine if 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 of business management aimed at translating
business strategy into business action. What is the business
going to do to deliver the strategy?
IT implications of business
action
IT manager, IT
architects and
business analysts
Analyse the business and IT impact of the proposed business
actions and group impacts around application families, i.e.
customer, fnance, 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
from an IT perspective to bridge the gap.
Develop transition plan IT manager, IT
architects, business
analysts and business
managers
High level design of the business programs that will need to
take place to transition from the present to the future
including dependencies and guesstimated timeframes.
Initiatives, costs and times
to bridge the gap
IT manager, IT
architects, business
analysts and business
managers
Cost estimates, benefts and risks (important that the total
cost, not just IT cost is understood)
Feasibility assessment Business managers
and board
Analysis of the proposed transition plan, costs and change
impacts. Can the company afford it? Can it absorb the
change?
Prioritisation and culling of
business action
Business managers
and board
If in the feasibility 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
defer, then resubmit to the IT architects to reassess costs.
3-5 year pipeline / portfolio of strategic initiatives
business measures
Figure 4.1.1 strategic IT demand management and long term alignment process
22
4.2 The business IT strategic plan
The business IT strategic plan sets out:
the current baseline and evolution plan for future framework architectures
the technology gap between now and the future
the principles and policies to guide IT decisions and architectures in building the future
the prioritised sequence and cost estimates of 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 is the vehicle that:
clearly interlinks business strategy with IT architectures
balances long term demand against long term IT spend and long term benefts
establishes a clear link between business strategy and IT initiatives so that the impact of 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. if 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 informs
business management of the levers it can pull to vary the dollars over time
forms the basis for business programs that deliver capability and value, rather than IT projects that just
deliver the potential
23
Figure 4.2.1 sets out a simple example of how the IT implications of high level statements of strategic direction can be
translated into IT initiatives and costs. There is a signifcant amount of architectural work required behind the scenes to
achieve this level of connection but it is worth the one off investment to fully understand the investment required over
time to deliver business strategy.
Business
strategy
Business action
required to
deliver the
strategy
IT implication of
the business
action
Can the
current
environment
deliver the
capability?
Gap between
the current
and future
Impact on
other
asset
classes
Cost of
initiatives
to fll the
gap
Doubling
business
in 5 years
Acquire
complimentary
business
Extend into ACT
and Qld
Increase the
capacity of the core
product system to
deal with additional
volumes
No Core product
system upgrade
to latest version
of the package
Property
acquisition
in ACT and
QLD
$1.5m
Extend warehouse
capacity
Extend network and
infrastructure to
include ACT and
QLD
No Link between
customer
information
systems
ACT and
QLD Offce
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 of the initiatives and costs required to fll the
gap and take the organisation from the present to the future. This big picture serves as the base for business and IT
annual planning and for the ongoing prioritisation of work.
Major Initiatives Year 1 Year 2 Year 3 Year 4 Year 5
IT-enabled business program 1
Property initiative
New product initiative
Interstate expansion
IT infrastructure program
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
24
Complete the following table. If you score no to more than three questions, it is highly likely that the strategic use of
technology is not being considered or planned appropriately in your company.
How effective 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 from technology?
Does business management understand what the competition is doing with technology?
Has business management established a consistent way of determining long term IT investment and benefts?
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 of new or
existing business strategies?
Does the strategic planning process take into account the short, medium and long term viability of its current IT?
Does the business management consider the risk implications of 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 of the business programs and IT initiatives and costs required to
deliver business strategy and plans (the cost and effort of getting from the present to the future)?

Table 4.2.3 Effectiveness of 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 performance 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 of further IT cuts but he couldnt get the message across.
SALESCO systems had been purchased 10 years ago and were designed for companies running around half of
SALESCOs volumes. The system just couldnt keep up, errors increased, response times died and the diminished
business and IT workforce became quite demoralised. Staff turnover increased with some key IT skill sets walking
out the door.
Margins had improved but SALESCO started to lose key customers as a result of poor service and increasing IT
errors. Revenues started to fall. The company had started on a downwards spiral.
SALESCO executive had taken IT for granted and failed to really quantify the contribution IT systems were making to
business process effciency and effectiveness. They hadnt really thought about why they were using IT and that lack
of 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. Unfortunately it was too late. The
replacement program took three years. It took SALESCO fve years to recover.
The investment should have commenced fve years earlier when SALESCO started the planned expansion. The
investment costs and benefts should have been built into the long term business plans, not after the expansion had
taken place.
25
Once the businesss long term strategic direction, objectives and priorities have been confrmed, fnancial targets are set for
the coming fnancial 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 and 1.
budget impacts of the plans are not catered for.
The budget process often overtakes the planning process and the IT budget is developed in isolation of 2.
the business plans and budgets.
Both scenarios end with the same result - the IT budget and plans (supply) are not formulated on planned business
requirements (demand) potentially leading to inferior service and lack of resources to deliver business programs,
projects and services.
The cost of IT is a direct result of the business demand (long and short term) for the delivery of service levels and the IT
component of 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 formulated interactively with the business over the following three key
areas using the annual planning and budgeting framework (Figure 5.0):
KIR largely the commodity infrastructure determined by service level required by the business
enhancing current capability - cost of resources to make the changes or enhancements that arise during the
year as a result of short term business imperatives
building / acquiring new capability mostly treated as a capital cost that should have been identifed the
long term strategic plan
Adhering to the framework will ensure that:
the IT budget is not developed in isolation from the business budget and the costs of proposed IT initiatives
is allocated in the business or IT budgets
the business cost of 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 of IT delivery capability
5. Annual planning and budgeting
Long term
strategic planning
Annual planning
and budgeting
Ongoing
management
26
Prioritised pipeline / portfolio of business programs and projects
Business
Process
Business
Decisions
Business
IT Interaction
IT
Decisions
Annual project
and service
level demand
management
and IT budget
alignment
process
Markels, cuslomers
Pevenues, cosls
Volumes, geographies,
response times
Proposed enhancemenl
to existing systems
Proposed slralegic
projects and benefits
Priorilies
Volumes (lransaclions, users,
cuslomers, elc.) response limes,
growlh eslimales, geographers
Capabilily, capacily
Skills
Solulion oplions and
archilelural impacls
Sourcing arrangemenls
Service delivery allernalives
Keep lT running (KlP)
budget
Projecl and enhancemenl
budget
Service level cosls, risks and
perlormance. Projecl eslimales
and resource capacity
Annual business plans
Objeclives
Measures
8enelils
8usiness budgels
Operalional spend
Capilal budgels
Figure 5.0 Annual planning and budgeting framework
5.1 BMIT process 2: Annual project and service level demand
management and IT budget alignment
A number of issues arise in the ongoing delivery of service that could be avoided if the time is taken in the annual
planning and budget process by business and IT management to agree on the levels of 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 benefts to the IT project resource (discretionary) budget
ensure that IT supply is funded and capable of delivering to annual business plans
align annual IT program of work with long term business strategy
link IT KIR budget with business service expectations
balance the annual demand supply equation
deliver the frst cut annual work plan, dependencies and priorities
On completion of 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 of
prioritised IT work required to deliver the annual business results
the overview of 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 of the cost, risk and
performance issues relating to the agreed budget (KIR spend)
Annual planning and budgeting
27
BMIT process 2: annual project and service level demand management and IT budget
alignment process
Set annual
objectives
Board and
business
executive
Annual objectives (fnancial and other) are set for 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 specifc divisional objectives and plans.
Actions to
achieve
objectives
Business
managers
Develop operational plans to deliver the objectives e.g.
change initiatives (new function, products, processes)
increase in volumes, geographies etc
productivity improvements
Business
budget
development
CFO, business
managers and
IT manager
IT works with business management to identify the IT implications of the
proposed operational plans. This encompasses:
a) KIR and service level implications
b) strategic programs or changes to existing systems to be initiated this fnancial
year (subset of the long term strategic plan and roadmap)
IT project cost
and benefts of
guesstimates
IT manager, IT
architects,
business
analysts and
business
managers
Interactive process between business managers and IT analysts and estimators
to establish order of magnitude costs that will enable business to validate the
IT costs and beneft assumptions in their operational plans and budgets.
Business managers agree preliminary cost and effort estimates and set priorities
for each requirement to assist in the elimination process when the IT budget is
being fnalised.
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 of increased volumes, changed geography etc. IT estimates
and advises on costs, performance and risk and business managers decide how
much they can afford, the risk they are prepared to carry and the performance
they can live with.
IT budget
development
IT manager Develops IT budget based on the business division requirements for projects and
service levels.
Assessing total
IT demand
IT manager
and business
executives
IT will have analysed and guesstimated the requirements from all business areas
and come up with the total budget for KIR, a budget for operational projects
and a capital budget for strategic projects. The CEO and executive will decide if
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 from the business
requirements list using the priorities set by each of 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.
Prioritised pipeline/portfoio of business programs and projects
Business measures of IT
Figure 5.1.1 BMIT process 2: Annual project and service level demand management and IT budget alignment process
28
5.2 Business program prioritisation and budget alignment
There can be many reasons why business priorities change, for 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 effort 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 for 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 funding are in place and budgeted, in all asset classes including IT. Priorities need to be reassessed through all phases of
the planning lifecycle 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 the
companys objectives
Sets Financial Year priorities
prioritised plan of work and budgets which will
deliver this years objectives and keep the company
on course to deliver long term objectives
Sets the IT work plan
re-prioritisation of the annual program of work to
deal with unplanned events as they arise
P
i
p
e
l
i
n
e

o
f

p
l
a
n
n
e
d

w
o
r
k
Figure 5.2.1 Business prioritisation of business demand
5.3 Business prioritisation forum
Effective 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 behalf of business management.
Establishing a business forum to support the ongoing IT work prioritisation process and charged with the following
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 beneft and that IT effort is focused on adding value through
new projects and programs (see Figure 5.3.1)
dealing with the strategic alignment and risk issues that may arise from having to juggle competing
demands for a limited budget
continually assessing the impact of 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 deferred 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
29
Evaluate Assess individual applications
Rationalise Streamline spending
Govern Use IT governance to control diversity
20/80 ratio 40/60 ratio
New
projects
Existing
Applications
New
projects
Existing
Applications
+
=
Figure 5.3.1 Effective prioritisation of IT effort
In some companies, the prioritisation forum charter extends beyond IT and covers the prioritisation of all business change
across the company.
A word of warning: when establishing a business forum, ensure that this is not a representational group with each
member fghting for their own divisional interests. The group needs executive leadership, the skills and experience to
set priorities and delegated authority to make decisions on behalf of the company. IT management is a critical member
to articulate supply constraints which will effect prioritisation. In smaller companies the forum may be a subset of the
management team chaired by the CFO.
To support the ongoing work prioritisation process (Section 6.1), the business forum requires a comprehensive pipeline
list of the total demand and work in progress, including:
strategic initiatives (from the strategic planning process)
additional business requirements (from the annual planning process)
adhoc requests for change resulting from day-to-day business imperatives
The pipeline list provides the vehicle with which the forum can prioritise business demand and IT management, and
develop and resource the work plan of programs, projects and minor work requests.
The level of sophistication of the pipeline list will vary depending on company size, dollars and complexity of demand.
An excel spreadsheet can work quite well. There are also a number of packages on the market that support the
recording, categorising and analysis of business demand and produce information that enables business to prioritise its
discretionary spend in line with the business strategy, plans and objectives (portfolio management).
A number of organisations have established a program offce to manage and oversee discretionary spend for all assets
classes including IT. This offce is often located in fnance and supports all programs of work across the organisation,
not just IT.
5.4 Service level planning and budget alignment
Many organisations cannot operate if their IT systems are not functioning. Service failures can negatively and rapidly
impact large numbers of customers, suppliers and internal staff. Network outages, server failures, email downtime,
broken desktop computers or widespread damage caused by viruses can signifcantly impact the productivity of an
entire company. At best, IT failures cause inconvenience; at worst, they destroy companies.
Reliable IT service is the direct result of a well-planned and organised IT department working proactively with the business to
deliver on agreed service levels. Good planning can result in decreased costs and improved service levels through:
commodity buying
better leasing deals
longer term contracts with suppliers at better prices
30
Without properly articulated service requirements (e.g. volumes, response time etc), IT is forced to make assumptions
which may result in:
over catering of hardware and network capacity
upgrades to later technologies when unnecessary
insuffcient disaster recovery
asset replacement is deferred resulting in dependency on obsolete and unsupported systems
All of the above could lead to higher than necessary operating costs.
Regardless of the size of the company or whether production services are sourced internally or externally, business
driven service level agreements must be in place to give IT management the information it requires to establish the KIR
budget and proactively plan the resources, capacity and capability to deliver services in line with the level of
performance and risk defned.
When setting the KIR budget it is also worthwhile looking at IT costs from a business perspective. The following table
gives some examples.
Business action which drives IT cost IT cost
Number of help desk calls Cost of running the help desk
Number of requests for small changes Maintenance of existing systems
Number of mobile phones and phone plans Telecommunications costs
Diversity of desktop applications Desktop software license costs

Table 5.4.1 Examples of IT costs
When setting the KIR budget it is imperative that business management clearly understands the service consequences
and risks of cutting costs below those recommended by IT management.
Complete the following table. If you answer no to more than three questions, it is highly likely that IT operational and
capital spend budgets will not deliver to business expectations.
How effective is your Business Management of IT in the annual business planning and
budgeting process
Yes No
Is the IT project budget determined as a result of long term business plans and annual business demand?
Are part of or all IT projects linked to business programs?
Is the IT operational budget determined as a result of negotiating service levels (cost, risk,
performance, quality) with the business?
Are IT service level agreements articulated in business terms e.g. response time, service windows, volumes etc?
Does the business management know if it has the resources to cope with the extent of change IT has
been funded to deliver?
Is the IT operational budget determined as a result of negotiating service levels (cost, risk,
performance, quality) with the business?
Does business management have a forum in place to prioritise business demand against IT supply and
to prioritise programs of work against short and long term objectives?
Does business management have a method of estimating the business skill and effort required to
deliver a business program / project?
Do business management allocate business skills full time to a project and cost the backfll in the cost benefts case?
Does business management understand the need for phased estimating and use of contingency calculations?
Does business management keep a pipeline of planned work, i.e. does the business understand the
total demand it has on IT services and resources?
Does business management have a clear view of the IT cost drivers, e.g. transaction volumes, product
complexity, geography?

Table 5.4.2 Effectiveness of BMIT in annual business planning and budgeting process
31
The annual planning and budgeting process outlines the business programs that are planned and funded for the year
along with the capital and operational budgets. Ongoing management ensures that business and IT management
work together to deliver the planned programs and service levels.
The operational framework outlines the business and IT accountabilities and interaction that must take place for the
successful delivery of any IT-enabled business program, agreed service levels and business benefts (Figure 6.0).
Delivery to agreed service levels
Applications and infrastructure asset replacement assessments and schedules
Delivery of agreed business benefits
Business
Process
Business
Decisions
Business
IT Interaction
IT
Decisions
Ongoing IT
work
prioritisation
process
Business
program or
project gating
process
Benefits
realisation and
monitoring
and asset
decommissioning
process
s"USINESSPROCESSES
s0ROJECTSCOPEAND
requirements
s&UNDING
s"USINESSRESOURCES
s"USINESSBENEFITSCASE
s"USINESSDEPENDENCIES
and priorities
s"USINESSCHANGE
management
s-ONITORSERVICELEVELS
s-ONITORDEMANDAGAINST
supply
s2EVIEWPRIORITIESINLIGHT
OFBUSINESSRESULTS
s"ENEFITSREALISATION
Building or acquiring new capability
s3ERVICELEVELDELIVERY
s(ELPANDPROBLEM
management
s)4RISKPROFILE
s$ISASTERRECOVERYPLANS
s#APACITYPLANS
s3ECURITY
$ and time
estimates,
performance, risk
2EQUIREMENTS
scope,
BUDGET
DELIVERABLES
timeframes,
priorities
Delivering service levels
0RODUCTION
performance
statistics and risk
profile
&EEDBACKON
SERVICELEVELS
ANDCHANGING
priorities
s3OLUTIONAPPROACHES
s0ROJECTANDONGOING
operational cost estimates
s!RCHITECTURALCOMPLIANCE
s$ELIVERYRISKASSESSMENT
s)4PROJECTDELIVERYTO
estimates
s$ELIVERSMALLENHANCEMENTS
Figure 6.0 Ongoing management framework
6.1 BMIT process 3: Ongoing IT work prioritisation process
No matter how well programs of work are planned and prioritised in the long term and annual planning processes, the
reality for all companies is that adhoc requests for work still continue. It is really important that this adhoc work is
vetted and prioritised against the overall objectives of the company. Many IT departments fnd themselves bogged
down with adhoc work leading to underperformance on project work as they try to be all things to all people. The
business prioritisation forum (Section 5.3) along with a solid and credible prioritisation process will nip many problems
in the bud and ensure that:
business and IT resources are working on the right things
the right business management people with the right skill and experience are making the decisions
business division confict for IT resource is resolved by business management not IT
immediate business imperatives are prioritised against long term initiatives
there is an ongoing IT alignment of with other key asset programs
there is continual assessment of priorities to make best use of IT resources
6. Ongoing management
Long term
strategic planning
Annual planning
and budgeting
Ongoing
management
32
One of the critical roles of the ongoing work prioritisation process is to review the viability of the benefts case if a
program of work is delayed. In a case where time to market is fundamental to the business case, delay may completely
invalidate the case and the reason for going ahead would need to be revisited.
Raise a request
for work
Business manager, IT
relationship resource
A request for work can arise out of the strategic planning process,
annual planning or as an adhoc request. A request must contain the
following basic information:
overview of the business requirements and impact
the benefts that would arise if the requirement was fulflled
order of magnitude guess on size and cost including business and
IT resources
Its worth considering a benefts case policy for small changes as they
can consume a great deal of resources on work that doesnt help meet
overall objectives.
Record request Program offce
business demand
coordinator
Records the request in the pipeline. It is worthwhile recording all work
requests even if they dont go ahead. Analysis of this data can advise
management on the level of unmet demand across the company.
Business
validation
Senior
business management
Before IT uses resources to examine the solution approach, it is wise to
have senior management sign off. A great deal of effort can expended
on work that goes nowhere.
Analyse
solution
options
Business management,
business analyst and
architect
For many business requests for work, there are a number of solutions of
varying cost and risk profles. Before expending effort, business
management needs to understand these options and make a decision,
for example, on a quick fx versus long term solution.
Estimate costs
and resource
availability
Business analyst,
architect and IT work
scheduler
The business analyst and architect estimate of IT effort, business effort,
costs and skill set requirements. The IT work scheduler will give an
estimate of the timeframe the work can commence in taking into
account current resource usage on work in progress, specifc skills
requirements and already committed work.
Business case
and business
unit sign-off to
proceed
Business requestor Business management prepare the business case. In many companies
this is done by the IT resources because business doesnt have the time
or skill. This does not mean IT owns the business case.
Business unit
prioritisation
Business unit
management
Business units prioritise their work requests taking into account the
divisions annual and long term objectives. Approved work is then
submitted to the business prioritisation forum.
Groupwide
prioritisation
Business prioritisation
forum
Work is prioritised by the forum and the forum advises requestors of
priority and approximate timeframes. (See Sections 6.2 and 6.3.)
Schedule work
requests
IT work scheduler Work is scheduled into the IT work program ensuring that dependencies
on business and technical resources are covered.
Scheduled program of work
Expected benefts and measures
Figure 6.1.1 Ongoing IT work prioritisation process
Ongoing management
33
6.1.1 Building and / or acquiring new systems
Being able to build or acquire new systems within the timeframes and costs set by the business plan can make or break
a business. Although this is an area that generally gets a lot of project governance and management attention, it is still
subject to the highest failure rates. The most common causes include:
the IT component of the program is planned and executed in
isolation of the business
jumping straight into delivering the program without revisiting
the solution approach, estimates and business case
the business is not prepared for change and not ready to
implement
the business has a problem allocating skilled resources because
they are required to deliver the business bottom line objectives
Business effort is underestimated, on average 50% of the effort
on most projects requires business skills, not IT
People in charge of the project dont have the authority or the
support to make things happen yet are held accountable when
nothing happens
Planning without action is
futile, action without
planning is fatal.
These problems are overcome by business management and IT working together, and by top executive control to
ensure that the right people (particularly business people) remain engaged right to the end of the project. Business
management takes accountability for planning and executing IT-enabled change and IT management takes
accountability for delivery of the technical solution.
Fundamentals to success:
establish one program and one plan reporting to one accountable program manager (Figure 6.1.1)
ensure the program manager has the business and project management skills and experience to do the job
- IT skills are secondary
make business management accountable for all areas of ROI including the IT component
ensure that all associated business costs are understood and included in the business case
Some business programs may require upgrades to IT infrastructure, for example, upgrades to desktop equipment and /
or data networks and software products. These should be traceable back to the business program that requires them.
Figure 6.1.1.1 Program management organisation
Ongoing management
34
6.2 BMIT process 4: Business program or project gating process
Analysis of a number of project failures has found that business requirements and solutions are still being formulated
well into the build phase causing rework, redesign and costs and time blowouts. Effective Business Management of IT
will ensure that the hard work is done up front and approval to fund is not given until scope has been locked down
and the solution concept has been fully tested. The business program or project gating process reinforces business
ownership and focuses attention on the scope, dollar and benefts case alignment. The process will ensure that:
checks are carried out at key stages throughout the program lifecycle to monitor, forecast and complete the
validity of the benefts case
information to make decisions to change or cancel projects is monitored and acted upon
This process can be tailored to your companys requirements.
There are some simple rules that business management can adopt to reduce business program / project failure.
Treat every IT initiative as a business initiative. 1.
Do not start a project without having identifed and tagged the 2.
availability of both the business and IT resources.
Introduce a program / project gating process where business management 3.
assesses progress against predetermined milestones and revisit the
decision to proceed based on the business case still being valid and the
dollars to complete are on target.
Ensure that the right business resources are on the program and taking 4.
accountability for all business requirements.
Planning and organising a program or project can be seen to be an 5.
overhead which just delays the start. It is not.
... the end cost
of the program
depends on the
quality of
business
management
control over the
journey.
Neil Wilson -
CEO, Oakton
Answer the following questions. If you score no to more than two questions, then the chances are that IT-enabled
change in your company will have a high failure rate.
How effective is your BMIT in changing existing systems and building and / or acquiring
new systems?
Yes No
Are IT projects always part of business programs, owned by the business?
Are all costs, business and IT, considered when formulating the benefts case?
Does business management allocate full time resources to programs as required by the plan?
Are programs / projects thoroughly planned, organised and resourced before they commence?
Does business management work with IT and insist on testing and retesting the solution approach
before fnal approval and commitment to fund the program?
Does business management have a program gating process in place too?
Does business management retest the business case throughout the life of the program?
Does business management thoroughly review projects that are not performing to plan and reject
assurances that it will be OK in the end?
Does business management recognise and terminate projects that are no longer viable?
Does business management have plans in place to deliver business benefts once the IT-enabler has
been implemented?

Table 6.2.1 Effectiveness of BMIT on systems
Ongoing management
35
Phase What does business
management review
Decision gate What does business management check?
Initiative
concept
Initiativescope
Businesscaseconcept
Costestimates
Solutionapproach
Decision that the
concept is feasible
and worth
pursuing
recommendation
of spend
Is the proposal part of the overall Business IT strategic plan?
Is the solution approach feasible?
Has the scope covered all aspects of the initiative, business, IT
and external stakeholder impacts?
Have all stakeholders been consulted?
What are estimating assumptions? Do they cover all aspects
of the scope?
Is the conceptual business case valid? Does it cover fnancial
and non-fnancial benefts?
What are the risks in proceeding to detailed planning?
How would detailed planning be approached?
Who would do it? What are the estimated costs?
How would this be governed?
GATE 1
Business
case and
high level
design
Highleveldesignto
deliver the solution
Detailedbusiness
case
Financialandnon-
fnancial benefts and
measures
Guesstimatedbuild
costs and ongoing
operating costs
Decision to fund
the project /
program
What process was used to establish the scope of the program?
What process was used to deliver the high-level design? Were
all stakeholders involved?
Has the high-level design been tested from both a business
process and IT solution perspective?
Have all aspects of the scope been included in the estimating
assumptions?
Is the high-level design compliant with the architectural
direction?
Have the ongoing operating costs been worked out?
Have change management considerations been taken into
account?
Has the acquisition approach (build or acquire package) been
fully investigated?
Have risks been identifed and assessed?
Is there a benefts realisation strategy and is it realistic?
GATE 2
Program /
project
initiation
Project/program
organisation and
governance
Milestonesand
deliverables
Scopelock-down
Decision to
commence the
build or acquire
phase
Are the following in place?
Program or project governance and organisation including
steering committee and business owner
Business and IT resources (fully available as required by the
program plan)
IT development and testing environment
Suitable accommodation
Risk and issue management process
Scope change management process
Benefts realisation plan
Program milestones and budgets for each milestone including
go live
Contracts in place with vendors as required
Scope signed off by business owner
GATE 3
Build
and / or
acquire
Milestonereporting
against budget
Scopechange
reporting
Riskreporting
Decision to
recommend
intervention
Decision to
promote ongoing
production
Throughout the build / acquire phase check:
Scope changes and treatment
Estimates to complete aligned with work to complete
Risk assessment and mitigation measures
Business case reviews

Figure 6.2.2 BMIT process 4: business program or project gating process
Ongoing management
36
6.3 BMIT process 5: benefts realisation and monitoring and asset
decomissioning process
Monitoring service levels and measuring the effectiveness of ongoing operations benefts delivery is an essential input
to long term planning and annual planning and budgeting cycles. It informs whether the investment in IT is delivering
to the planned business strategy and objectives for the companys use of technology.
Questions to ask yourself:
Have the planned programs of work delivered the expected benefts?
Are priorities still valid?
Are services delivering to agreed levels? If not, what is required to achieve service objectives?
What infrastructure assets are due for replacement due to obsolescence or non-performance and what is
the cost?
Are business application maintenance costs and business down-time measures acceptable?
Answer the following questions. If you score no to more than three questions, it is highly likely that business
management is not paying attention to ongoing operational performance from a business perspective.
How effective is your BMIT in ongoing management Yes No
Does business management have business metrics in place to measure overall IT effectiveness?
Does business management monitor service levels from a business perspective and feedback to IT?
Does business management ensure that business users are working within the parameters of agreed
service levels?
Does IT management advise business management of changes in IT infrastructure that may impact
business delivery?
Does IT management have an asset management regime in place to assess IT assets and schedule
replacements?
Does business management understand the cost of specifc IT service levels and the cost drivers
behind this service?
Does IT management keep business management informed as to the health of IT assets and
associated risks?
Does IT management advise business management on ways IT costs can be reduced or reallocated?
Is the effort and cost of adhoc business work requests monitored?
Does the business and IT management have an ongoing work prioritisation process in place that
takes into account immediate business imperatives?
Does the business have a benefts management system in place?
Are benefts realisation, IT effectiveness, service level and asset replacement metrics fed back into the
strategic planning process?

Table 6.3.1 Effectiveness of BMIT on ongoing management
Ongoing management
37
Expected benefts and measures
Appoint the
benefts plan
owner
Business
management
The plan owner could be a business manager or the CFO. The plan owner
ensures that all aspects of the benefts are being delivered and that the total
case has been achieved.
Assign
responsibilities
Plan owner Assigns accountabilities as per the business case to the responsible manager.
For example:
sales targets to the sales manager
headcount reduction to human resources manager
process improvement to process line managers
travel savings to the executive team
Submit specifc
plans
Responsible
manager
The responsible manager submits plans to the plan owner on how and when
the benefts will be delivered. This plan should have developed during the
conduct of the program / project.
Assess assignee
plans
Plan owner The plans are assessed by the plan owner and unrealistic benefts are
eliminated.
Baseline the
measures
Plan owner Financial and non-fnancial baseline measures are recorded for each benefts
area and planned milestones and deliverables are built into key performance
indicators.
Financial
benefts in
fnancial budgets
CFO, plan
owner
Financial benefts are included in fnancial budgets.
Deliver benefts Responsible
manager
The responsible manager carries out the action plan to deliver the benefts and
keep record of status against activities, risks and issues.
Collect results Plan owner Each month, or defned time period, the plan owner collects the results and
records against the baseline.
Monitor delivery Plan owner The plan owner keeps track of delivery of both fnancial and non-fnancial
benefts and reports to the management on milestone achievements and
ultimately when all benefts have been achieved.
Preferably all benefts realisation baselines and measures are kept on a single
database facilitating analysis of results for input into the companys strategic
planning process. This is ideally kept by the CFO.
Quantifed benefts
Input into long term strategic planning

Figure 6.3.1 BMIT process 5: benefits monitoring and realisation process
Ongoing management
38
6.3.1 Service level monitoring and measurement
Business management has a signifcant part to play as the users of ongoing services. It should provide feedback as to
whether the agreed service is meeting business objectives and ensure that service requests from users are within
agreed parameters.
Business circumstances can change and if IT management is not informed of these changes, service levels are unlikely
to be maintained. Likewise, if IT makes infrastructure changes without advising the business or without being aware of
the business impact, business services can be disrupted.
Check the back door
The help desk can become the source of a great deal of IT effort in that requests via this channel into IT can bypass
the usual vetting and prioritisation processes. There is beneft in business management vetting this work request
stream before IT effort is spent. This could result in a reduction in service level costs and resources being freed up to
work on more strategic projects.

Understanding service level costs can be achieved through the introduction of a simple service level costing
model. IT cost centres are used to account for costs around the key IT delivery components used to deliver services
rather than traditional line management cost centres. The following table shows how these costs can be distributed
against service levels by percentage usage based on a technical analysis of the volumes and response times expressed
by the business in the service level agreement.
Service level percentage usage and caluculated monthly cost
IT Delivery
Components
Total Cost
per month
Service
Level 1
Cost Service
Level 2
Cost Service
Level 3
Cost Service
Level 4
Cost Total
Mainframe $405,000 10% $40,500 15% $60,750 60% $243,000 15% $60,750 $405,001
Midrange $230,000 40% $92,500 10% $23,000 25% $57,500 25% $57,500 $230,001
Network
and comms
$130,000 50% $65,000 20% $26,000 10% $13,000 20% $26,000 $130,001
Desktops
and laptops
$250,000 0% - 50% $125,000 0% $ 50% $125,000 $250,001
Email $75,000 10% $7,500 0% $ 50% $37,500 40% $30,000 $75,001
Help desk $150,000 30% $45,000 15% $22,500 20% $30,000 30% $52,500 $150,001
Problem & risk
management
$75,000 25% $18,750 25% $18,750 25% $18,750 25% $18,750 $75,001
Monthly service
level costs
$1,315,000 $268,750 $276,000 $399,750 $370,500 $1,315,007
Note - IT delivery cost components include: hardware, systems software, security, disaster recovery, property and people
Table 6.3.1.1 Cost of service level agreements
Understanding service level performance is traditionally measured by the number of times service levels were not
met. This does not really help with the business question around balancing the IT cost / risk / performance equation.
Introducing quantitative business measures will better enable business management to assess service level costs.
Measures include:
customer satisfaction and / or customer retention
cost of business time lost and / or cost of business errors
Ongoing management
39
Ongoing management
Assessment of IT effectiveness is often measured against on time on budget. This approach can hide a multitude
of issues arising from short cuts and scope change. These issues wont show in project or department budget measures
but will start to cause business pain in the long term. Some examples of trend measures are set out below.
10,000
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
1 2 3 4 5 6 7 8 9
0.70
0.60
0.50
0.40
0.30
0.20
0.10
Revenue IT Costs Unit IT Cost per Transaction

Unit cost per transaction
Time
$
c
e
n
t
s
$
0
0
0
This graphs show IT costs increasing as a % of
revenue but the unit IT cost per transaction
decreasing signifcantly over time indicating
improvement in IT transaction processing
capability. It is highly likely that transaction costs
would be on the increase if IT had implemented
sub optimal solutions.
40,000
35,000
30,000
25,000
20,000
15,000
10,000
5,000
0
1 2 3 4 5 6 7 8 9
350,000
300,000
250,000
200,000
150,000
100,000
50,000
Revenue IT Costs Unit IT Cost per Transaction

IT cost per sales channel
Time
D
o
l
l
a
r
s
T
r
a
n
s
a
c
t
i
o
n
s
The comparative information on channel usage
and IT costs is valuable input into the strategic
planning process and into BMIT discussions as to
the future of sales channel 2. If the business
predicts that volumes will continue to drop, can
IT reduce costs by scaling down infrastructure?
250
200
150
100
50
0
1 2 3 4 5 6 7 8 9
180
160
140
120
100
80
60
40
20
0
Business impact of IT services performance
Time
$
0
0
0
H
o
u
r
s

a
n
d

n
u
m
b
e
r
o
f

p
r
o
b
l
e
m
s
Service Level Problems Business Time Lost Cost of Business Errors
Here business management can see that service
level problems are increasing but not
signifcantly. If viewed alone one may not
consider the situation serious. The key issue here
is that the problems are more severe and are
causing greater business down time and business
error cost.
20000
15000
10000
5000
0
1 2 3 4 5 6 7 8 9
9,000
8,000
7,000
6,000
5,000
4,000
3,000
2,000
1,000
0
IT performance versus business growth
Time
C
u
s
t
o
m
e
r
s
$
0
0
0
KIR Cost Total Assests No of Customers
This graph shows a stable IT KIR cost base
supporting a doubling of asset growth in the
company. This demonstrates IT effectiveness
(providing IT services are performing to required
business standards).
40
Ongoing management
6.4.2 Benefits realisation
Measuring ROI or value delivery from the implementation of IT-enabled business programs is primarily dependent on
business management being very clear as to why the company is using technology in the frst place and what value it
expects IT to deliver and how. The expectation should be clearly articulated in the long term strategic plans and should
be the basis for determining whether or not a program will deliver overall value.
Companies spend a lot of time preparing the business benefts case as the justifcation for spending the dollars. The
problems for ongoing benefts realisation and value delivery start at conception:
IT develops the business case and it is not owned by the business.
The business benefts case loses sight of the overall business strategic
direction.
The benefts are formulated on a case-by-case basis when it is the
sum of the cases that will deliver beneft.
Value with the regard to delivering on the overall company strategy
is often ignored.
Consideration is not given to how the benefts of regulatory and
compliance work should be valued.
In some cases, the development of the business case is where the
focus on benefts stops.
The benefts case is not tested and the case is based unrealistic
savings that in practice cannot be realised.
Beware of an IT
solution looking
for a business
problem.
Identifying benefts and realisation measures isnt diffcult if the same disciplines used in the introduction of any other
business change are applied.
How will the
business use IT?
What are the
business cast
drivers?
What are the
business
actions to
reduce costs?
What are the
planned benefts?
What are the
business
changes?
What are the IT
enablers?
What are
benefts
realisation
measures?
Decrease
transaction costs
to improve
margins to stay
ahead of the
competition
Headcount
Floorspace
Timetopick
Warehouse
space
Delivertime
Buyingpower
Re-engineer and
further
automate
process
Reduce
inventory
Rationalise the
number of
suppliers
Headcount500k
Offcefoorspace
50K
Timetopick100k
Warehousespace
700k
Delivertime100k
Buyingpower500k
Cost of the
business program
to deliver
business action -
including IT
costs
IT costs $2.5m
Business costs
$2.0m
Total $4.5m
Per annum:
Headcount
700k
Offce foor
space 50k
Cost of goods
500k
Warehouse
700k
Total $1.950m p.a.
6.3.2.1 Developing the business benefits case and measures
Figure 6.3.2.1 sets out a simple version of the end-to-end cycle from the business decision on the strategic use of IT
through to the measurement of implementation success.
41
To ensure that the benefts you start with are the benefts you end up with, it is essential to focus on the following
throughout the development of any business-enabled IT program:
Recognise that scope change is a reality and continual testing of the business case through all stages of the
development lifecycle is essential.
Recognise that small, apparently inconsequential changes throughout the project can add up so that
signifcant planned benefts can not in fact be realised. All project and program changes need to be
considered, not just against a project plan but also against a benefts realisation plan.
Be prepared to ditch the program if the business case doesnt stack up.
Recognise that in some instances it will be a combination of programs or projects that will deliver the
benefts not a single implementation.
Ensure that the management responsible for realising the benefts is brought in at the beginning.
Ensure that the business program or project includes the plan and costs involved in realising the
ongoing benefits.
Planning for benefts realisation should commence alongside project planning. The actual realisation of benefts starts
once the IT part of the program has been implemented. In many companies celebration occurs when the system goes
live but there is a tendency to forget that there is another complete plan to be executed the ongoing benefts
realisation plan. This plan is the basis for measuring and monitoring benefts delivery. It is essential that non-IT
management activities are implemented to ensure that changes are made and benefts realised.
Benefts realisation and measurement must apply to both large scale strategic projects but also to the operational
spend on ongoing change and service delivery. Assessing and measuring the following three aspects will in turn tell the
company if it is getting real value from its IT investment:
service level delivery metrics and ongoing
service risk profle
delivery of the planned benefts associated
with a specifc business case or a group of
programs
support of the overall business strategy and
objectives
Benefits cant be realised without
successful business change:
business change cant be
sustained without benefits.
6.4 Asset life monitoring, evaluation and decommissioning
Few business managers have any trouble understanding that physical assets lose performance over time as a result of
wear and tear, ageing and the advent of newer technologies. Asset maintenance and replacement regimes are a well
established part of the ongoing asset management programs in most businesses. The same applies for IT applications
and hardware assets.
Ongoing monitoring and measurement of the operational environment is often overlooked by business and IT. Most
organisations have signifcant dollars tied up in IT assets but few have formal processes in place to manage these application
and infrastructure assets with clear policies on when to upgrade, outsource or retire them based on measuring:
investment in additional function
investment in technology upgrade
cost of maintenance
business time lost due to asset failure
application complexity
currency of the underpinning technology
Ongoing management
42
availability of skills and support
poor documentation
vendors refusal to continue to support ageing systems and infrastructure
business change requiring changes to core systems
Tracking and measuring asset performance from concept through to decommissioning has two key benefts:
It supports decisions to retain, replace or upgrade assets with factual information. 1.
It provides fundamental input into long term strategic planning and annual planning, advising on asset 2.
replacement, benefts realisation, and strategic positioning.
The concept of business application software deteriorating is sometimes diffcult to appreciate. The impact of
continuing business change to these applications can result in them becoming complex and requiring more and more
maintenance and support over time. Ultimately, these applications are unable to respond to business needs.
Companies that do not pay proper attention to IT asset monitoring are likely to expose themselves to this type of risk.
Figure 6.4.1 provides an example of the metrics used to enable better asset keep or replace decisions.
25
20
15
10
5
0
1 2 3 4 5 6 7 8
2000
1800
1600
1400
1200
1000
800
600
400
200
0
Application Life Assessment
Time
H
o
u
r
s

p
e
r

M
o
n
t
h
D
o
l
l
a
r
s
Cost of maintenance Depreciation Business time lost
Figure 6.4.1 Application life assessment metrics
An IT asset management regime needs to track the viability of business applications and infrastructure to ensure that
they are maintained effectively and that replacement occurs when appropriate. It can be possible for organisations to
release substantial capacity for new investment without compromising ongoing operations through effective asset
management and retirement practices.
Figure 6.4.2 (on the next page) sets out examples of how business applications can be factually assessed on their
business value and whether the application should be kept, retired, upgraded or leveraged.
Ongoing management
43
Ongoing management
1.0 2.0 3.0 4.0 5.0
5.0
4.0
3.0
2.0
1.0
0.0
5.0
4.0
3.0
2.0
1.0
0.0
5.0
4.0
3.0
2.0
1.0
0.0
Business Value
Financial Assessment
IT Value
Business & IT Value
5.0
4.0
3.0
2.0
1.0
0.0
$900,000
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$0
Legal
Business impact
Functional coverage
Data quality
Usage
Frequency of usage
Ease of use
Training
Support Design quality
Customisation
Vendor
Integration
Security
Response time
Maintenance
Reliability
IT skill
Technology
Total
support cost
Book value
to date
Total
acquisition cost

Figure 6.4.2 Example application asset measurement and assessment - Oakton Ltd
Ignore IT asset assessment and management at the companys peril
SERVCO supplies and maintains capital equipment for major organisations, some of which have highly critical 24/7
operations. Naturally, the service contracts demand a high level of rigour. They have substantial liquidated damages
clauses which activate when SERVCO fails to meet prescribed service levels.
Fifteen years ago, SERVCO installed a comprehensive package system that has been the basis for running its
business. However, over the years, SERVCO made extensive changes to the system and built several custom
extensions. Over time, the IT team had dwindled and the remaining staff was inexperienced. Senior IT personnel
were not considered necessary, as there was little change happening.
But deep in SERVCOs systems there was a time bomb ticking. The main computer, a very old machine, was
becoming unreliable and spare parts were not available. When the disk drive failed, SERVCO was thrown into
disarray because the only solution was to replace the hardware with a newer model. This required changes to the
software and rare, specialised skills to work with the technologically ancient code. A last minute discovery of a spare
working disk averted disaster but not before several customers had activated the liquidated damages clauses.
If business management had an asset assessment and management system in place the level of risk being carried by
the organisation would have been recognised sooner and perhaps in suffcient time for a constructive solution to
have taken place.
Upgrade
Retire Leverage
Keep
44
Appendix: useful reference material
Aalders, R. and Hind, P. (2002) The IT Managers Survival Guide. Wiley, New York.
Bartlett, John, Managing Programmes of Business Change, Project Manager Today Publications 1998, 3
rd
edition.
Broadbent, M. and Kitzis, E.S. (2005) The New CIO Leader: Setting the Agenda and Delivering Results. Harvard
Business School Press, Boston Massachusetts.
IT Governance Institute (2003) Board Briefng on IT Governance, 2
nd
ed. Available online at
www.itgi.org (accessed 22 September 2005).
IT Governance Institute, Enterprise Value Govenance of the IT Investment The Val IT Framework
IT Goverannce Institute (2005) Governance of the Extended Enterprise: Bridging Business and IT Strategies. Wiley, New
Jersey.
John Ward and Elizabeth Daniel, Benefts Management Delivering Value from IS & IT Investments Cranfeld, 2006.
Jordan, E. and Silcock, L. (2005) Beating IT Risks. Wiley, Chichester.
Lutchen, M.D. (2004) Managing IT as a Business: A Survival Guide for CEOs. Wiley, New Jersey.
Mahmood, M.A. and Szewczak, E.J. (1999) Measuring Information Technology Payoff: Contemporary Appraoches. Ide
publishing Group, Hershey, USA.
Thorp, John, The Information Paradox - Realizing the Business Benefts of Information Technology, McGraw-Hill 1998,
Revised 2003.
Weill, P. and Ross, J.W. (2004) IT Governance: How Top Performers Manage IT Decision Rights for Superior Results.
Harvard Business School Press, Boston, Massachusetts.
CPA Australia
ABN 64 008 392 452
cpaaustralia.com.au
T 1300 73 73 73
National Offce
CPA Australia
Level 28, 385 Bourke Street
Melbourne, VIC 3000
T (03) 9606 9606
F (03) 9670 8901
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