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ICT3261 IT Governance: delivering value from e-Business Chapter 12.

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Presentation on theme: "ICT3261 IT Governance: delivering value from e-Business Chapter 12."— Presentation transcript:

1 ICT3261 IT Governance: delivering value from e-Business Chapter 12

2 ICT3262 Business value and IT Successful organisations must face global competition & deliver value to customers through Successful organisations must face global competition & deliver value to customers through –Effective, efficient business processes & activities by which products & services are created and delivered to customers –Effective relationships with suppliers, business partners, etc. Often now dependent on IT to enable these processes, activities & relationships Often now dependent on IT to enable these processes, activities & relationships

3 ICT3263 Business value of IT How effectively IT is woven into fabric of organisation and exploited to create value for business How effectively IT is woven into fabric of organisation and exploited to create value for business Associated with Associated with –Efficiency gains from IT Eg. Increased throughputs and/or decreased costs Eg. Increased throughputs and/or decreased costs –Effective gains from IT Eg. Improved customer service Eg. Improved customer service –Organisational improvements created through timely & appropriate application & exploitation of information & IT

4 ICT3264 Business value of IT Role of IT changing Role of IT changing –Many investments now geared more towards revenue generation rather than cost reduction Improved quality, quality controls Improved quality, quality controls Responsiveness to changing customer preferences, needs Responsiveness to changing customer preferences, needs Building relationships Building relationships Notion of value changes according to type of IT investment Notion of value changes according to type of IT investment –Efficiency gains – more measurable through headcount reductions, increased throughputs, etc –Effectiveness gains – more intangible, less direct, more diffused across range of organisational activities

5 ICT3265 Required IT capabilities Value derived from IT depends on building required IT capabilities Value derived from IT depends on building required IT capabilities –Need IT capabilities to deliver timely, accurate reliable, quality information across enterprise and trading partners –Need IT capabilities to provide appropriate support for knowledge workers –Need IT capabilities to support core business processes –Need to exploit opportunities for IT innovation

6 ICT3266 Return on IT investments Concerns expressed about whether organisations achieve acceptable returns from IT investments Concerns expressed about whether organisations achieve acceptable returns from IT investments –Failures, disappointment with IS –Failure to achieve expected business benefits –IT infrastructure unable to accommodate business change –Obsolescence, integration problems Require sound IT governance principles, mechanisms and practices to ensure value is derived from IT investments Require sound IT governance principles, mechanisms and practices to ensure value is derived from IT investments

7 ICT3267 IT and business value Provide fast, accurate, secure, reliable, quality IS & information throughout enterprise Provide fast, accurate, secure, reliable, quality IS & information throughout enterprise Enhance ability to share knowledge & expertise across enterprise Enhance ability to share knowledge & expertise across enterprise Improve efficiency Improve efficiency –Reduce costs, time, throughputs, productivity… Enhance effectiveness Enhance effectiveness –Value-add from different perspectives Customers, suppliers, partners, alliances… Customers, suppliers, partners, alliances… Take advantage of new opportunities Take advantage of new opportunities

8 ICT3268 Understanding IT governance Principles, processes, structures, procedures & leadership that organisations implements to ensure IT investments directly support the achievement of business goals and objectives Principles, processes, structures, procedures & leadership that organisations implements to ensure IT investments directly support the achievement of business goals and objectives –business value is derived from IT & IT risks are managed Ensure IT is managed from organisation- wide perspective Ensure IT is managed from organisation- wide perspective –Build effective cross-functional relationships between IRT and rest of business

9 ICT3269 Objectives of IT governance Understand strategic importance of IT Understand strategic importance of IT Understand role of IT in strategic & operational domains Understand role of IT in strategic & operational domains –Implement strategies for IT –Future business growth, development, innovation Set realistic expectations for IT Set realistic expectations for IT –Delivering expected benefits and value Ensure expectations are met Ensure expectations are met –Performance measurement –Innovation, growth Manage risks associated with IT Manage risks associated with IT

10 ICT32610 Sound IT governance processes Sound IT governance processes –Support an environment for the exercise & exploitation of IT resources & capabilities –provide framework for exploitation and explication of relationships between IT and rest of business –Underpin series of organisational routines and procedures through which the business value of IT is realised and IT risk contained Aims of IT governance

11 ICT32611 Supports decision making about IT and e- Business Supports decision making about IT and e- Business –About high level IT maxims (principles) How IT is used How IT is used –About IS/IT strategy –About IT infrastructure Shared & standard services across enterprise…local requirements Shared & standard services across enterprise…local requirements –About IT architecture Technical choices Technical choices –Business applications + information architecture Buy vs build Buy vs build –Investment & prioritisaton (from Weill & Woodham 2002) Effective IT governance

12 ICT32612 Who makes decisions? Business – ‘C’ level execs Business – ‘C’ level execs IT – CIO IT – CIO SBU leaders – localised authority SBU leaders – localised authority Business + IT – ‘C’ levels Business + IT – ‘C’ levels Business + IT (‘C’ levels), plus SBU leaders, or process owners Business + IT (‘C’ levels), plus SBU leaders, or process owners –Federal approach Anarchy Anarchy (From Broadbent & Weill 2002)

13 ICT32613 IT infrastructure & architecture – IT makes decision, with federal inputs IT infrastructure & architecture – IT makes decision, with federal inputs All other decisions – Federal approach All other decisions – Federal approach Who makes decisions? (From Broadbent & Weill 2002)

14 ICT32614 Effective IT governance mechanisms Executive committees (C level) Executive committees (C level) Formal tracking of business value from IT Formal tracking of business value from IT –Effective processes for planning, monitoring & controlling IT Good (deliberate) relationships between business & IT Good (deliberate) relationships between business & IT –Relationship managers? Good mgmt of IT projects Good mgmt of IT projects –Business Projects Office –Formal exception handling process Capital approval committees Capital approval committees SBUs/Process teams with IT membership SBUs/Process teams with IT membership ( From Broadbent & Weill 2002)

15 ICT32615 Characteristics of good governance More focused strategies More focused strategies Clearer business objectives for IT investments Clearer business objectives for IT investments More involvement of senior non-IT executives in IT governance More involvement of senior non-IT executives in IT governance Effective IT processes – IT strategy formulation, IT evaluation, IT benefits realisation, etc. – are formally established & well understood Effective IT processes – IT strategy formulation, IT evaluation, IT benefits realisation, etc. – are formally established & well understood Fewer ‘renegade’ IT behaviours, activities Fewer ‘renegade’ IT behaviours, activities (From Broadbent & Weill 2002)

16 ICT32616 Set objectives IT aligned with business IT used to exploit opportunities, IT used to maximise benefits IT resources used responsibly IT risks managed IT activities increase efficiency decrease costs increase effectiveness manage risks Monitor performance Compare Provide directions (ITGI: Broad Briefing on IT Governance 2001:11) Overview of IT Governance

17 ICT32617 Effective IT governance is evidenced through Effective IT Governance Maxims Structures Processes with the aim of monitoring & controlling IT investments & associated activities to ensure the delivery of business value from IT Capabilities

18 ICT32618 Steps towards IT governance Phase 1: Building the business case Support for business objectives Build compelling business case Originates in SBU (or SBU + IT) Output: Specific proposal for IT investment

19 ICT32619 Steps towards IT governance Phase 2: Alignment & prioritisation higher level scrutiny by entity or committee large projects to Board 3-6 monthly reviews of planning proposal considered against changing initiatives, priorities resultant investment aligned with business goals & objectives Output: Prioritised list of investments

20 ICT32620 Steps towards IT governance Phase 3: Evaluation Rigorous cost/benefit analysis Development of risk profiles Grapple with problem of intangible benefits Cancellation still occurs at this stage Output: Go/no-go decision

21 ICT32621 Steps towards IT governance Phase 4: System acquisition build vs buy vs outsource decision on-going evaluation & scrutiny rigorous project governance mechanisms Output: Robust system for implementation

22 ICT32622 Steps towards IT governance Phase 5: Implementation post-implementation reviews project mgmt success PIRs consume resources business benefits vs new opportunities? 80% of expected benefits good enough? Output: functioning system, not delivering all benefits expected

23 ICT32623 Responsibilities of CIO Understand the business Understand the business –internal + external environment Establish IS dept credibility Establish IS dept credibility –successful & reliable Increase technological maturity Increase technological maturity Create corporate vision for IT Create corporate vision for IT Implement IS architecture Implement IS architecture –based on view of how organisation will operate in future Build relationships with rest of business Build relationships with rest of business

24 ICT32624 Importance of evaluating IT investments Find out if IT is meeting expectations Find out if IT is meeting expectations Senior executives unsure of whether IT is delivering value Senior executives unsure of whether IT is delivering value Justify large-scale investments Justify large-scale investments Post implementation, to ensure IT is delivering expected benefits to organisation, & therefore to stakeholders Post implementation, to ensure IT is delivering expected benefits to organisation, & therefore to stakeholders Contribution of IT to other business projects Contribution of IT to other business projects

25 ICT32625 Issues in evaluating IT Existing measures such as cost benefit analysis may be inadequate Existing measures such as cost benefit analysis may be inadequate Many benefits may be intangible, and therefore difficult to precisely measure Many benefits may be intangible, and therefore difficult to precisely measure Costs and benefits may extend beyond traditional organisational boundaries Costs and benefits may extend beyond traditional organisational boundaries

26 ICT32626 Approaches to Evaluation ROI ROI –all ROI methods based on proposition that an investment now must yield a positive return over a period of time works best when works best when –application under review is expected to generate direct savings or directly attributable benefits –estimates of savings / benefits can be supported by reliable calculations or demonstration –low uncertainty regarding the outcomes least effective when least effective when –benefits cannot be precisely estimated in cash flow terms –there is considerable uncertainty about the value of estimates

27 ICT32627 Cost-Benefit Analysis Cost-Benefit Analysis –tries to overcome problem of valuing intangibles attempts to find surrogate measure for intangible cost or benefit expressed in money terms attempts to find surrogate measure for intangible cost or benefit expressed in money terms –Of particular value when many costs & benefits are intangible when many costs & benefits are intangible where there is broad agreement on the measures used to attach a value to the intangibles where there is broad agreement on the measures used to attach a value to the intangibles –Fails when there are different views on intrinsic value of intangibles & disagreement on the appropriate form of surrogate money value when there are different views on intrinsic value of intangibles & disagreement on the appropriate form of surrogate money value where there is considerable uncertainty about the realisation of the intangible benefits where there is considerable uncertainty about the realisation of the intangible benefits Approaches to Evaluation

28 ICT32628 IT investment mapping Investment Orientation Benefit InfrastructureBusiness ProcessMarket Influence Business Expansion Risk Minimisation Enhance Productivity Current & Planned IT Investments - Focus on cost Planned Business Strategy - Focus on Opportunity

29 ICT32629 Information economics Enhanced ROI Technology Domain Assessment Business Domain Assessment ++ Traditional Cost-Benefit Innovation Value-restructuring Value-acceleration Value-linking Strategic Match Competitive Advantage Management Information Competitive Response Organisational Risk Strategic IS Architecture Definitional Uncertainty Technical Uncertainty IS Infrastructure Risk VALUEVALUE =

30 ICT32630 IE for EC + customer value + customer value (Avram 2001)

31 ICT32631 Create value for shareholders Establish efficient, effective internal processes (& external?) Generate satisfactory ROI & succeed financially Create value for customers Change over time  need for on-going learning & development

32 ICT32632 Balanced scorecard Learning & Growth Internal Business Processes Customers Financial Employee skill Employee morale Employee suggestions Shorter cycle time Process quality Lower rework Customer satisfaction On-time delivery Accounts receivable Return on assets ROA Operating expenses Leading Lagging

33 ICT32633 Balanced scorecard Rejects profit & ROI as only mission Rejects profit & ROI as only mission –investing in competence/capabilities, cultivating relationships with customers, creating databases, etc. important for future success Method for reaching agreement on where organisation should be heading & making sure it stays on course Method for reaching agreement on where organisation should be heading & making sure it stays on course Links short-term operational controls to long-term vision & strategy Links short-term operational controls to long-term vision & strategy Believes no single measure is adequate Believes no single measure is adequate

34 ICT32634 Often applied as measure of IT department efficiency & effectiveness Often applied as measure of IT department efficiency & effectiveness Caution needed to avoid confusion between evaluating a specific IT investment proposal and evaluating performance of IT dept Caution needed to avoid confusion between evaluating a specific IT investment proposal and evaluating performance of IT dept Balanced scorecard

35 ICT32635 pre-investment, benefits from IS/IT investment are potential (expected) benefits only pre-investment, benefits from IS/IT investment are potential (expected) benefits only subsequent events & managerial actions will impact on whether or not they are actually realised as benefits to organisation subsequent events & managerial actions will impact on whether or not they are actually realised as benefits to organisation –  need for post-implementation evaluation Deriving benefits

36 ICT32636 Realising benefits most benefits derived post-project implementation most benefits derived post-project implementation –need to evaluate pre-project to articulate / quantify potential benefits –need to evaluate effects of changes post-project to determine if benefits have been realised “If no measurable effects can be identified post- project, other than the implementation of the technology itself, then one must conclude that no benefits have actually been realised.” (Ward et al. 1996)

37 ICT32637 On-going evaluation of IT investments Pre-investment Development and/or acquisition Post-implementation Potential benefits of EC investments Realised benefits of IS/IT investments Evaluation required Time Proactive benefits management required

38 ICT32638 Benefits management process model Identifying & structuring benefits Potential for further benefits Evaluating & reviewing results Planning benefits realisation Executing the benefits realisation plan

39 ICT32639 Identifying & structuring benefits proposed benefits identified proposed benefits identified –suitable business measures identified both financial & non-financial both financial & non-financial structure benefits to understand linkage between structure benefits to understand linkage between –technology effects –business change –business objectives

40 ICT32640 Planning benefits realisation allocate specific responsibilities for realising benefits allocate specific responsibilities for realising benefits –reject benefit if responsibility cannot be allocated required business changes assessed and planned for required business changes assessed and planned for identify times when benefits will appear identify times when benefits will appear

41 ICT32641 Consider full cost of Consider full cost of –IT development + on-going operations, etc. –business changes –is project viable? Planning benefits realisation

42 ICT32642 Executing the benefits realisation plan implement IS/IT project implement IS/IT project carry out necessary business changes carry out necessary business changes –change implementation plan

43 ICT32643 Evaluating and reviewing results Measures identified in Stage 1 used to evaluate effects of project Measures identified in Stage 1 used to evaluate effects of project –review is of realisation of benefits, not of project progress –not a system quality review –not a witch hunt –not an audit

44 ICT32644 Identify intended benefits that have/have not been achieved Identify intended benefits that have/have not been achieved Identify benefits achieved that were not anticipated Identify benefits achieved that were not anticipated Identify non-benefits Identify non-benefits –decide on action at deal with problems Identify future potential benefits Identify future potential benefits Evaluating and reviewing results

45 ICT32645 Learn from success and failure Learn from success and failure Vital in multi-stage projects where subsequent benefits depend on capabilities developed early on Vital in multi-stage projects where subsequent benefits depend on capabilities developed early on Evaluating and reviewing results

46 ICT32646 Potential for further benefits Post-project review Post-project review –further benefits now realisable (not envisaged earlier) Need now to plan to realise these further benefits Need now to plan to realise these further benefits

47 ICT32647 Planning/Alignment Evaluation Benefits * Are we deriving the maximum benefit for the organisation? * Are we addressing change management issues? - processes - training - trading partners - job redesign * Where are we headed? * What are our objectives? * How can IS/IT support / enable achievement of objectives? * Are we proposing coherent, strategic investments? * Are we aware of the value of our IT investments at certain critical points in the life cycle? * Can we establish a realistic business case? * Are we getting things well done? Broadening considerations of value of IT

48 ICT32648 IT Evaluation & Benefits Management Life Cycle

49 ICT32649 Summary Chapter has focused Chapter has focused –on business value from IT –need to implement sound IT governance processes & practices –need to carefully evaluate IT investments –need to proactively manage realisation of benefits from IT –need to create ongoing cycle of planning, evaluation, benefits management


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