IT Governance Excerpts PM ROI/Case Study 3/12/2012 1

IT Governance on One Page, Ross and Weill MIT Sloan School of Management Companies with effective IT governance have profits that are 20% higher than other companies pursuing similar strategies. Explanation – IT Governance specifies accountabilities for IT related business outcomes and helps companies align their IT investments with their business priorities. Senior management awareness of IT governance processes proved to be the single best indicator of governance effectiveness with top performing firms having 60, 70, or 80% of senior executives aware of how IT is governed. In the study of 300 enterprises around the world, they did not identify a single best formula for governing IT. However the top performing enterprises carefully designed governance. 2

We assess an enterprise or business units governance performance by evaluating the effectiveness of IT governance in delivering four objectives weighted by their importance to the enterprise: – Cost effective use of IT – Effective use of IT for asset utilization – Effective use of IT for growth – Effective use of IT for business flexibility Governance performance varies significantly across enterprises and is approximately bell shaped. The average governance performance was 69 out of 100. The minimum score was 20 and the top third performing firms had scores over 74. Achieving high governance performance meant that the enterprises IT governance was successful in influencing the desired measures of success. IT Governance on One Page, Ross and Weill MIT Sloan School of Management 3

Assess Your IT Governance Performance Question: How important are the following outcomes of your IT gov. on a scale of 1 (not important) to 5 (very important) Question: What is the influence of the IT gov. in your business on the following measures of success on a scale of 1 (not successful ) to 5 (very successful)? a.Cost effective use of IT_________X__________= _______ b.Effective use of IT for growth _________X__________= _______ c.Effective use of IT for asset utilization _________X__________= _______ d.Effective use of IT for business flexibility _________X__________= _______ Importance Total: _____ Total: ____ Calculate governance performance: (Total X100) / (5 X Importance Total) = _____ IT Governance on One Page, Ross and Weill MIT Sloan School of Management 4

The governance performance measure statistically significantly correlates with several three-year average measures of financial performance (e.g., ROE and market capitalization growth). We are not saying governance performance caused superior financial performance. However we can say superior financial performers have high governance performance, and we can study how those enterprises governed. IT Governance on One Page, Ross and Weill MIT Sloan School of Management 5

Five major decision categories: – Principles – Architecture – Infrastructure – Business Application Needs – Prioritization and Investment 6

IT Governance on One Page, Ross and Weill MIT Sloan School of Management Six decision making archetypes: – Business Monarchy – IT Monarchy – Federal (e.g., central government and states working together) – IT Duopoly (two party decision making) – Feudal (business units making separate decisions) – Anarchy IT Governance on one page maps the two categories in a matrix with types of decisions across the top and archetypes across the left-hand side. 7

IT Governance on One Page, Ross and Weill MIT Sloan School of Management Recommendations: – Effective IT governance demands that senior managers define enterprise performance objectives and actively design governance to facilitate desirable behavior consistent with those objectives. – IT investment decision processes can direct business unit priorities by approving only projects that support enterprise strategies even if organizational structures place responsibility for accomplishing project outcomes on business unit managers. In most firms, dual incentives are important. 8

Project Portfolio Management and Managing Multiple Projects:Two Sides of the Same Coin? Lowell D.Dye,PMP,Central Region Manager, PM Solutions, Inc. James S.Pennypacker,Director,Center for Business Practices, PM Solutions, Inc. This paper focuses on what seems to be one of the main causes of failure: – The need to manage multiple project interdependencies assuring their mutual compatibility at the portfolio level. Every different project portfolio selection, therefore, could— and generally does—change either the risk or relevance of each project. This situation is exacerbated when the projects selected have no clear relation or link to the corporate strategy. 9

Project Portfolio Management and Managing Multiple Projects:Two Sides of the Same Coin? Lowell D.Dye,PMP,Central Region Manager, PM Solutions, Inc. James S.Pennypacker,Director,Center for Business Practices, PM Solutions, Inc. 10

Project Portfolio Management and Managing Multiple Projects:Two Sides of the Same Coin? Lowell D.Dye,PMP,Central Region Manager, PM Solutions, Inc. James S.Pennypacker,Director,Center for Business Practices, PM Solutions, Inc. Generally models emphasized day-to-day planning, giving priority to projects based on their perceived level of urgency, with urgency being determined by the level of risk, complexity, or relative strength of the project sponsor. Therefore, what frequently happens is that projects, though strategically relevant, but low risk, are viewed less urgent and given a lower priority in the overall project portfolio than projects with the same or less strategic relevance, but higher risk. 11

Project Portfolio Management and Managing Multiple Projects:Two Sides of the Same Coin? Lowell D.Dye,PMP,Central Region Manager, PM Solutions, Inc. James S.Pennypacker,Director,Center for Business Practices, PM Solutions, Inc. Projects must be prioritized based on their relative importance and contribution to the overall strategy. Each project should be prioritized relative to other projects being evaluated as well as those currently under way. In addition, as the business and technical environment changes, the priority of one or more projects may change also. “The growth rate of multiple, parallel projects in need of program management is phenomenal, between 20% and 30% a year” according to Hugh Ryan, director of the large, complex systems practice at Anderson Consulting. The first priority, says PG&E’s CIO John Keast, is a holistic view of common business goals.“If you focus on the big picture first, then you’ll have people who can deal with the cross-project situations that inevitably come up,” says, Keast. 12

Project Portfolio Management and Managing Multiple Projects:Two Sides of the Same Coin? Lowell D.Dye,PMP,Central Region Manager, PM Solutions, Inc. James S.Pennypacker,Director,Center for Business Practices, PM Solutions, Inc. Regardless of the number of projects, whether one or 100, there are several common objectives for all projects: – Minimum total throughput time (time in shop) for all projects – Minimum total completion time for all projects – Minimum total lateness or lateness penalty for all projects (Meredith & Mantel). To best accomplish these objectives, multiple project environments should be focused on ensuring compatibility among different simultaneous projects with a strategic portfolio approach. Most multiple project environments involve constant change and managers should recognize that a well-defined project selection and prioritization process can give guidance to project and resource managers for planning and allocating resource assignments. Important in this allocation process is the linking of day-to-day planning for each individual project to the long-term business strategy. 13

Project Portfolio Management and Managing Multiple Projects:Two Sides of the Same Coin? Lowell D.Dye,PMP,Central Region Manager, PM Solutions, Inc. James S.Pennypacker,Director,Center for Business Practices, PM Solutions, Inc. By linking medium-term resource allocation, and day-to-day resource planning, to long-term resource allocation, the business strategy process, and to strategic goals, all affected stakeholders will have a better understanding of the overall need for a logical and consistent project selection and prioritization and, in effect, a reliable resource allocation process. The demand for “big-picture” project management can catalyze—and then cement—the long-needed project selection-business strategy- resource allocation integration on which all progressive and competitive CEOs and Senior Managers insist. 14

Project Portfolio Management and Managing Multiple Projects:Two Sides of the Same Coin? Lowell D.Dye,PMP,Central Region Manager, PM Solutions, Inc. James S.Pennypacker,Director,Center for Business Practices, PM Solutions, Inc. In a healthy firm, a variety of different preliminary ideas are fermenting. As these ideas are evaluated, some will fall by the wayside for many reasons: – lack of suitable organizational resources, – unacceptable development costs, – a position too far behind the competition, – lack of strategic fit with the enterprises direction, and so on. There is [and should be] a high mortality rate in these preliminary ideas. Only a small percentage will [and should] survive and will be given additional resources for study and evaluation in later sages of their life cycles. 15