Session 5 - PPT - IT Investment

8/12/2019 Session 5 - PPT - IT Investment

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PMBA6009PMBA6009

Strategic Information SystemsStrategic Information Systems

January January –– February 20February 201010

School of Business

The University of Hong Kong

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IT Investment and Governance (90 minutes)

Break (15 minutes)

Case Discussion - Volkswagen of America: Managing IT

Priorities (45 minutes)

Break (15 minutes)

Guest Talk on IT Governance and Investment

Management at the Hong Kong Jockey Club (75 minutes)

Mr. Sunny Lee, Executive Director, Information Technology,

The Hong Kong Jockey Club and President, Hong Kong

Computer Society

Session 5Session 5



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Key Issues in IT Investment/GovernanceKey Issues in IT Investment/Governance

What to investWhat to invest

Who pays for thatWho pays for that

How to decideHow to decide

Who to decideWho to decide

How to governHow to govern

A local example A local example

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The First Question The First Question ––

What to invest? What to invest?

HardwareHardware

SoftwareSoftware

SystemsSystems

NetworkNetwork

DataData

And People! And People!



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Total Cost of Ownership (TCO) Total Cost of Ownership (TCO)

Introduced by Gartner in the late 1980s whenIntroduced by Gartner in the late 1980s whenPCPC--based IT infrastructures began gainingbased IT infrastructures began gainingpopularity.popularity.

Looks beyond initial capital investments toLooks beyond initial capital investments toinclude costs associated with technical support,include costs associated with technical support,administration and training, i.e., those soft costs.administration and training, i.e., those soft costs.

Not only the cost of purchase (Total Cost ofNot only the cost of purchase (Total Cost of Acquisition, TCA) but all aspects in the further Acquisition, TCA) but all aspects in the furtheruse and maintenance of the system considereduse and maintenance of the system considered

A better/more accurate measure for evaluating A better/more accurate measure for evaluating

IS/IT investments.IS/IT investments.

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The Second Question The Second Question ––

Wh Who pays for the investmento pays for the investment??

Who pays for that?Who pays for that?

Users, IT department, corporate levelUsers, IT department, corporate level

Funding models/methods?Funding models/methods?

ChargeCharge--backback

Allocation Allocation

Corporate budget (especially for new projects)Corporate budget (especially for new projects)



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Funding Models/MethodsFunding Models/Methods

ChargeCharge--backback IT costs are recovered by charging users (could beIT costs are recovered by charging users (could be

individuals, departments or business units) based onindividuals, departments or business units) based onactual usage and cost (plus certain percentage?)actual usage and cost (plus certain percentage?)

Al locat ion Al locat ion Recovered based on something other than usage, suchRecovered based on something other than usage, such

as revenues, login accounts, number of users, etc.as revenues, login accounts, number of users, etc.

CorporateCorporate An annual budget is given to the IT department An annual budget is given to the IT department

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IT Portfolio Management/ApproachIT Portfolio Management/Approach

Move the decision from a technical to a business/Move the decision from a technical to a business/

strategic onestrategic one

Match investment to strategic objectivesMatch investment to strategic objectives

Four types of systems in IT investmentsFour types of systems in IT investments

The Third Question The Third Question ––

How to decide?How to decide?

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TransformationTransformationRenewalRenewal

ExperimentsExperimentsProcessProcess

ImprovementImprovement

Short-termProfitability

Long-termGrowth

SharedInfrastructure

BusinessSolutions

STRATEGIC OBJECTIVESTRATEGIC OBJECTIVE

T E C HN OL O GY

S C OP E

T E C HN OL O GY

S C OP E

A Framework for IT Investment A Framework for IT Investment

EnhancementEnhancement Big Change/Big Change/

ShiftShift



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A Framework for IT Investment A Framework for IT Investment

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StrategicStrategic gain competitive advantage in the marketplacegain competitive advantage in the marketplace

InformationalInformational provide information used to control, manage,provide information used to control, manage,

communicate, analyze, collaborate, etc.communicate, analyze, collaborate, etc.

TransactionalTransactional streamline or cut costs on the way business is donestreamline or cut costs on the way business is done

InfrastructureInfrastructure build the foundation for shared IT services used forbuild the foundation for shared IT services used for

multiple applicationsmultiple applications

Another Framework for IT Investment Another Framework for IT Investment



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Comparing the Two FrameworksComparing the Two Frameworks

Transformation

Renewal

Experiments

Process

Improvement

Strategic

Informational

Transactional

Infrastructure

Ross and Beath on "Beyond theBusiness Case: New Approaches to

IT Investment", SMR, 43(2), 2002

Weill and Aral on "GeneratingPremium Returns on Your IT

Investments",SMR, 47(2), 2006

IT PortfolioIT Portfolio

Management andManagement and

GovernanceGovernance

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Corporate (Board), Business Unit, Functional Level orCorporate (Board), Business Unit, Functional Level orsome combination of the threesome combination of the three

Six approachesSix approaches

Business monarchy (most centralized)Business monarchy (most centralized)

IT monarchyIT monarchy FederalFederal

IT duopolyIT duopoly

Feudal systemFeudal system

Anarchy (most decentralized) Anarchy (most decentralized)

The Fourth Question The Fourth Question – –

Who to decide? Who to decide?



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CC -- Level BusinessLevel Business

Executives (CEO,Executives (CEO,

CFO, COO, CIO)CFO, COO, CIO)

Heads of BusinessHeads of Business

Departments/UnitsDepartments/Units

CC -- Level ITLevel IT

ExecutivesExecutives

(CIO, CTO)(CIO, CTO)

Heads of ITHeads of IT

Departments/UnitsDepartments/Units

Individual Users/Individual Users/

Small groupsSmall groups

BusinessBusiness

MonarchyMonarchy

ITIT

MonarchyMonarchy

FederalFederal

SystemSystem

ITIT

DuopolyDuopoly

Feudal SystemFeudal System

Anarchy Anarchy

The Fourth Question The Fourth Question ––

Who to decide? Who to decide?

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IT Governance

The Fifth Question The Fifth Question ––

How to govern?How to govern?



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What is IT Governance? What is IT Governance?

IT Governance is anIT Governance is an integral part of corporateintegral part of corporategovernancegovernance

It consists of theIt consists of the leadershipleadership and organizationaland organizationalstructures and processesstructures and processes that ensure thethat ensure theorganization's IT sustains and extends theorganization's IT sustains and extends theorganization's strategies and objectivesorganization's strategies and objectives..

This isThis is ““ ABOVE and BEYOND ABOVE and BEYOND”” the ITthe ITdepartment!department!

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Purposes of IT GovernancePurposes of IT Governance

In management terms:In management terms:

DeliverDeliver quality IT solutions on time and withinquality IT solutions on time and within

budgetbudget

Harness and exploit IT toHarness and exploit IT to return businessreturn business

valuevalue

Leverage IT toLeverage IT to increase efficiency andincrease efficiency andproductivity while managing IT risksproductivity while managing IT risks



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Purposes of IT GovernancePurposes of IT Governance

ToTo direct IT endeavorsdirect IT endeavors and to ensure thatand to ensure that ITIT’’ssperformance meets the following objectives:performance meets the following objectives:

For IT toFor IT to be alignedbe aligned with thewith the corporate strategiescorporate strategies

For IT toFor IT to enableenable the company bythe company by exploitingexploitingopportunities and maximizing benefitsopportunities and maximizing benefits

For ITFor IT--relatedrelated risks to be managed appropriatelyrisks to be managed appropriately

For ITFor IT resourcesresources to beto be used responsiblyused responsibly

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Governance and PerformanceGovernance and Performance



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Another Perspective to Look at IT Another Perspective to Look at IT

GovernanceGovernance

Depends on for what the organizationDepends on for what the organization

uses ITuses IT ––>>

The IT Strategic Impact GridThe IT Strategic Impact Grid

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IT Strategic Impact GridIT Strategic Impact Grid



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IT Strategic Impact GridIT Strategic Impact Grid

For Defensive (Support and Factory) modesFor Defensive (Support and Factory) modes No needNo need for an independent IT Governance Committee butfor an independent IT Governance Committee but

the top management and the board need to be aware ofthe top management and the board need to be aware ofleadingleading--edge practice and monitor the competitiveedge practice and monitor the competitivelandscape for any change that would require a morelandscape for any change that would require a moreaggressive use of ITaggressive use of IT

For Offensive (Strategic and Turnaround)For Offensive (Strategic and Turnaround)modesmodes Critical to haveCritical to have an independent IT Governance Committeean independent IT Governance Committee

as the organization requires a fully informed IT committeeas the organization requires a fully informed IT committeewith at least one IT expert as a member with at least one IT expert as a member

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IT Governance ProcessesIT Governance Processes



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IT Strategic AlignmentIT Strategic Alignment

Ascertain that IT strategy Ascertain that IT strategyisis aligned with corporatealigned with corporatestrategystrategy

Ascertain that IT delivers Ascertain that IT delivers

throughthrough clear expectationsclear expectations

and measurementand measurement

Direct IT strategy toDirect IT strategy to

balance IT investmentsbalance IT investments

Make decisions aboutMake decisions about

where IT resources shouldwhere IT resources should

be focusedbe focused

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IT ValueIT Value

DeliverDeliver on timeon time andand withinwithin

budgetbudget

Provide customerProvide customer trusttrust andand

competitivecompetitive timetime--toto--marketmarket

EnhanceEnhance reputationreputation,, productproduct

leadershipleadership andand costcost

efficiencyefficiency



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IT Risk ManagementIT Risk Management

TransparentTransparent about theabout the

significant riskssignificant risks

Beware that theBeware that the finalfinal

responsibilityresponsibility is with theis with the

boardboard

Adopt a Adopt a proactiveproactive riskrisk

management approachmanagement approach

Insist risk management beInsist risk management be

embedded in the operationembedded in the operation

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IT Performance MeasurementIT Performance Measurement

Define and monitorDefine and monitor

measuresmeasures together withtogether with

managementmanagement

Leverage a system ofLeverage a system of

balanced businessbalanced business

scorecardsscorecards maintainedmaintained

by managementby management



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The Balanced ScorecardThe Balanced Scorecard

By Kaplan and Norton in 1992By Kaplan and Norton in 1992

Four perspectivesFour perspectives

How do customers see us? (customer perspective)How do customers see us? (customer perspective)

At what must we excel? (internal business perspective) At what must we excel? (internal business perspective)

Can we continue to improve and create value?Can we continue to improve and create value?

(innovation and learning perspective)(innovation and learning perspective)

How do we look to shareholders? (financial perspective)How do we look to shareholders? (financial perspective)

IT Balanced ScorecardIT Balanced Scorecard

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IT Balanced ScorecardIT Balanced Scorecard



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COBIT and Val ITCOBIT and Val IT Control Objectives for Information and Related Technologies

(from IT Governance Institute)

Value Management of IT (based on COBIT)

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The delivery question.

Do we have:

• Effective and disciplined

management, delivery

and change management processes

• Competent and available technical

and business

resources to deliver:

– The required capabilities

– The organisational changes

required to

leverage the capabilities

The strategic question.

Is the investment:

• In line with our vision

• Consistent with our business

principles

• Contributing to our strategic

objectives

• Providing optimal value, at

affordable cost, at an

acceptable level of risk

The architecture

question.

Is the investment:

• In line with our

architecture

• Consistent with our

architectural principles

• Contributing to the

population of our

architecture

• In line with other

initiatives

The value question.

Do we have:

• A clear and shared

understanding of the

expected benefits

• Clear accountability for

realising the benefits

• Relevant metrics

• An effective benefits

realisation process over

the full economic life cycle of

the investment



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Val IT Framework 2.0 Val IT Framework 2.0

http://www.itgi.org/Template_ITGI.cfm

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IT Governance andIT Governance and

Portfolio ManagementPortfolio Management

Daniel Lai, BBS, JPHead of Information Technology

A Local Example A Local Example





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IS/IT Organisation FrameworkIS/IT Organisation Framework

ITEMC

Financial Director (Chairman)

Operations Director

RSM...

Head of FC&T

Head of IT

ITSD Senior Systems Manager (Secretary)

ITEMC

Financial Director (Chairman)Operations Director

RSM...

Head of FC&THead of IT


Program Management Group

Head of IT (Chairman)ITSD Systems Manager



IT Planning Group

Head of IT (Chairman)

Divisional representativesITSD Senior Systems Manager

(Secretary)

IT Planning Group

Head of IT (Chairman)Divisional representatives

ITSD Senior Systems Manager

(Secretary)

Project Steering Group

Project Sponsor (Chairman)Business Project Manager

Head of ITITSD Information Systems Manager

ITSD Systems Manager


Project Sponsor (Chairman)

Business Project Manager Head of IT

ITSD Information Systems Manager





ITSD Information Systems Manager ITSD Systems Manager



Business Project Manager









Head of IT

ITSD Information Systems Manager


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• To provide Information Technology (IT)

direction, policy, and strategy for the

Corporation

• To ensure IT products and services are

delivered effectively to meet the

Corporation’s business needs

• To ensure IT investments provide

optimum values and benefits to the

Corporation

• To ensure priorities and financial and

other resources are allocated

appropriately

Information Technology ExecutiveInformation Technology Executive

Management CommitteeManagement Committee

ITEMCITEMCITEMC

PMGPMGPMGITPGITPGITPG

PSCPSCPSCPSCPSCPSC

PSCPSCPSC

SDGSDGSDGBSMGBSMGBSMG

ITEMC


Operations Director

RSM...

Head of FC&T

Head of IT


ITEMC


Operations Director RSM

...





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To review, analyse, assess and

group IS/IT project initiatives and

business cases, with a view to

ensure that: IS/IT investments align with and add

values to the business, and that

proposed project initiatives are

considered at an enterprise level

IS/IT projects are well justified and

prioritised in supporting Corporate

business objectives, strategic plans,

performance goals and targets

IS/IT applications are effective and

efficient, and conform to Corporate IS/IT

directions and system architecture

Information Technology Planning GroupInformation Technology Planning Group

ITEMCITEMCITEMC


PSCPSCPSCPSCPSCPSC

PSCPSCPSC


ITEMC


Operations Director RSM...

Head of FC&T

Head of IT


ITEMC


Operations Director

RSM...



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To perform central allocation andsmoothing function for IS/IT projects

against approved ITSD and computer

budget

To alert and monitor inter-projectdependency, and to resolve conflicts

among IS/IT projects

To monitor changes in project scope,

schedule, resources, and the overall

impacts to all IS/IT projects

To review technical, functional and

integration design for all IS/IT projects

to ensure alignment to IS/IT blue-print

and application/technology architecture

To provide a forum for effective

communication between IS/IT projects

Programme Management GroupProgramme Management Group

ITEMCITEMCITEMC


PSCPSCPSCPSCPSCPSC

PSCPSCPSC





Head of IT (Chairman)




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To direct and control a specificTo direct and control a specific

IT project dictating funding,IT project dictating funding,

resources, objectives, scoperesources, objectives, scope

and any changesand any changes

Project Steering CommitteeProject Steering Committee

ITEMCITEMCITEMC


PSCPSCPSCPSCPSCPSC

PSCPSCPSC








Head of IT


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To be responsible to define the

business requirements,

manage the deployment,

transformation and business

processes of a specific IT

project

Business Systems Management GroupBusiness Systems Management Group

ITEMCITEMCITEMC


PSCPSCPSCPSCPSCPSC

PSCPSCPSC






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For 15 minutes

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Session 5Session 5


Break (15 minutes)



Break (15 minutes)




The Hong Kong Jockey Club and President, Hong Kong

Computer Society



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Volkswagen of America: Volkswagen of America:

Managing IT PrioritiesManaging IT Priorities

What was the pressing issue?

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Why was there an excess demand for IT funding?



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What was the new funding allocation process?

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What is your assessment of the funding allocation

process? its pros and cons?

Pros Cons



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What lessons can be learned from the case about

governance of IT investment?

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For 15 minutes



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Break (15 minutes)



Break (15 minutes)




The Hong Kong Jockey Club and President, Hong KongComputer Society

Session 5Session 5

Documents

Session 5 - PPT - IT Investment