Business Management of IT

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Business Management oInormation TechnologyA practical guide or senior nance executives and business managers

INFORMATION TECHNOLOGY & MANAGEMENT


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CPA Australia Ltd (CPA Australia) is the sixth largest proessional accounting body in the world with more than 117,000

members o the nancial, accounting and business proession in 98 countries, including Australia.For inormation about CPA Australia, visit our website: cpaaustralia.com.au

First published 2008

CPA Australia Ltd

ABN 64 008 392 452

385 Bourke Street

Melbourne Vic 3000

Australia

ISBN 9281 876874 28 5

Legal notice

Copyright CPA Australia Ltd (ABN 64 008 392 452) (CPA Australia), 2008. All rights reserved.

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writing is to be made to the Legal Business Unit, CPA Australia Ltd, 385 Bourke Street, Melbourne, Victoria 3000.

CPA Australia has used reasonable care and skill in compiling the content o this material. However, CPA Australia and

the editors make no warranty as to the accuracy or completeness o any inormation in these materials. No par t o these

materials are intended to be advice, whether legal or proessional. Further, as laws change requently, you are advised to

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the exclusion o such liability, CPA Australia limits its liability to the re-supply o the inormation.


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Chris Gillies is an independent non-executive director serving on a number o boards, associations and charities

and advises boards on establishing IT governance leadership in the boardroom. Boards include Oakton, CorporateExpress, Asgard Wealth Solutions, Emergency Telecommunications Statutory Authority Victoria, UCMS,

Commsecure and the MS Society o Australia. She has established and chairs three board IT committees, as well

as advising a number o 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), Chie Inormation Oicer or the Bank o

Melbourne, and Victorian Director o 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

inormation technology.

Advisory committee

JanBarned - Policy adviser, inormation technology and management, CPA Australia.

Jan has held a number o directorships and has over twenty years experience working or both listed and unlisted

domestic and international companies. Her current role at CPA Australia includes identiying current and

emerging issues on inormation technology and management and advocacy to government, industry membershipand the wider public.

Mark Toomey - Managing Director, Inonomics Pty Ltd.

Mark Toomey has more than thirty years experience in planning and delivering inormation communication technology

solutions that enable business perormance. Since 2000, he has specialised in providing governance, management and

strategic advice to business and IT executives, and company directors. Mark is a Fellow o the Australian Institute o

Company Directors and is the Institutes representative on Standards Australias committee controlling the Australian

Standards or Corporate Governance o Inormation and Communications Technology.

Vicky Kelly

Vicky Kelly has over 35 years experience in the IT industry and has worked or Bendigo Bank or the last 13 years. Vicky

is a member o the Banks Executive, has assisted in the establishment o the Board o IT Governance Committee and is

an attendee o that committee.

Diana HolmbergA seasoned IT proessional, 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 identiying and implementing organisational and procedural change to ensure the alignment o

IT delivery to business strategy and to improve IT delivery capabilities. Diana is also a non-executive director on the

Board o Australian Home Care, ocusing on the implementation o eective 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, portolio management and benets realisation. He was a

contributor to Fujitsu Consultings best-selling book authored by John Thorp, The Inormation Paradox Realising the

Business Benets o Inormation Technology. Peter is a member o the ISACAs IT Governance Institutes Val IT Steering

Committee that launched the Val IT Enterprise Value Governance Framework.

JudyMcKay - Associate Proessor, Swinburne University o Technology

Judy McKay is currently academic leader o the inormation systems group in the aculty o inormation andcommunication technologies at Swinburne University o Technology. She joined the sta at Swinburne in 2004 ater

academic appointments in inormation systems at Monash University, Edith Cowan University and Curtin University o

Technology. She has a Bachelor o Arts (majoring in linguistics) and postgraduate qualications in education, business

and inormation systems.

Gavan Ord, Business Policy Adviser, Policy and Research CPA Australia

Gavan Ord is CPA Australias business policy adviser. Gavan has responsibility or the development o policy and

research on issues related to small medium enterprises (SMEs), business management and climate change. During the

course o his career, Gavan has established himsel as a technical expert particularly in the area o taxation. Beore

joining CPA Australia, he held a senior role in technical policy and international development and was a member o

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 o Taxation Law.

About the author


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Special thanks to:

Kate Behan: Managing Director Kerandan Pty LtdNeil 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


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Most business managers would agree that Inormation Technology (IT) is now an integral part o commercial business.

When used eciently and eectively, it can provide organisations with competitive advantage, prot growth andultimately optimal return to stakeholders. However, business managers oten are unsure i they are getting optimal

value rom their IT-enabled assets. Are these assets aordable? Do they come with an acceptable level o risk?

In many organisations, IT is perceived to have ailed when:

projects are late

business needs are not met

IT is over budget

benets are not delivered

Business managers can eel 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 or planning, delivering and assessing

the value o IT across their business, increase the value o their investment in IT.

This guide introduces proven practices that have evolved within these organisations. It ocuses on the business side o

managing IT and is written or senior nance exectives and business managers who have signicant dependence on IT

and who want to know what action they can take to have:

IT processes that provide cost-eective support / services to the business

projects delivered on time and on budget

IT service levels that t the budget and risk prole o the company

a good understanding o IT costs and cost drivers

evidence o the business benets delivered by IT-enabled initiatives

You will also nd a ramework or the Business Management o IT (BMIT) that looks at ways you can modiy your

business planning and management cycle to incorporate ve key processes to ensure the business has a clear

understanding o the role it must play in:

IT alignment with business strategy and objectives

estimation and prioritisation o business programs

setting the IT budget and balancing the supply / demand equation

program and project delivery

benets realisation

planning and delivery o IT services to agreed business requirements

This guide builds on the CPA publication IT Governance:A Practical Guide or Company Directors and Business

Executives which helps directors:

understand what IT governance is and why it is important

assess the level o 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


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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 o BMIT in your organisation 5

2 The BMIT ramework and processes 8

3 Foundations o successul BMIT 12

3.1 Implement clear decision-making and accountability rameworks 12

3.2 Promote common language between business and IT 13

3.3 Build business IT relationships 14

3.4 Improve transparency o IT costs 15

3.5 Introduce business measurement o 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 o 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 orum 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 Benets realisation and monitoring and asset decommissioning 36

6.4 Asset lie monitoring, evaluation and decommissioning 41

Appendix: useul reerence material 44

Table of contents


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Annual plan and budget Sets out the nancial 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 o business systems and IT inrastructure or

sustained eective, ecient and acceptable support o enterprise business.

BMIT Business Management o Inormation Technology (BMIT) is a ramework o

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 benets realisation.

Business case Documentation o the rationale or 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 o interdependent projects that are managed together todeliver a business outcome. IT is just one o these projects. Others may include

business process redesign, customer communications and property t 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 o the board o directors

and the executive management.

IT Inormation Technology (IT) is the term applied to the combination o technology,

processes and people that allow organisations to cost-eectively capture, store,

process, communicate and analyse data and inormation fows internally or

management and sta and externally or stakeholders including suppliers,

customers, shareholders, and regulatory groups.

IT demand pipeline Comprehensive list o the business requests requiring IT eort including large

projects and small change requests covering all aspect o IT delivery (e.g. desktop

change, new applications and changes to existing systems).

Management Management is the process o 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 / portolio management Tracking program selection, prioritisation and delivery against the required

portolio and monitoring progress.

Portolio The collection o planned business programs across all asset classes designed to

deliver the business strategy and objectives.

Project An organised eort to complete a specic dened deliverable or set odeliverables usually satisying one business case. A project has a specic start and end

date, specic objectives, specic resources assigned to perorm the work and a

specic budget.

Strategy An organisations overall plan o development describing the eective use o

resources in support o the organisation in its uture activities. It involves setting

objectives and proposing initiatives or action.

Glossary


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1.2 Why is BMIT so important?

Despite the alling unit cost o technology, business statistics generally show that the proportion o expenditure on

inormation technology continues to rise. In many organisations, the IT capital spend is well over 50 per cent o the

average annual total capital investment. As IT becomes more important and pervasive, business managers are

increasingly challenged to get more value out o their IT investment. Unortunately, ailure o 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 ail or why IT is

not delivering to business service levels:

lack o business planning or IT

lack o accountability and clarity as to who makes decisions about what

ocus is on IT projects rather than business change programs

Lack o business planning or IT means that any planning around the development and use o the companys

technology assets is done by IT and relies entirely on the planning capability and experience o the IT management and

its view o 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 proessionals such as accountants who are

being expected to take responsibility with little expertise or knowledge o how to make sound plans and decisions with

respect to IT.

Additional implications o a lack o 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 o dened business plans and requirements.

IT ends up setting priorities across competing business divisions.

The ocus is on the technology solution and estimates ail to include the associated business costs such as

process change.

IT goes into react mode leading to complex and dicult-to-support IT environments delivering inconsistent service.

IT plans must be a subset o business plans and ormed collaboratively as a result o business strategy and plans.

Lack o accountability and clarity as to who makes decisions about what has three ar reaching consequences:

Large investments result in ailure because business users are not clear about what they want.

Systems ail because business managers dont make the decision on the level o risk it is prepared to carry.

Business programs go over time and over budget due to continual change o scope as no one business

person has accountability or the nal decision on scope.

Benets are not delivered because accountability or 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 or the decisions is clear

more oten than not, the right decisions are made

Successul delivery o IT-enabled change, value delivery and sustainable service can only be achieved through a well-

dened 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?


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Focus on IT projects rather than business programs can result in:

IT delivering an IT solution that business is not prepared or or IT delivering a solution that ails 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 undamental causes o ailed IT-enabled business

programs lie with business management taking accountability or the decisions that must be made by business (not IT)

to aect successul planning, building / acquiring and management o IT assets.

With very little eort, business management can take an active and inormed role in managing the IT assets o their

company. Introducing BMIT processes into the standard business planning and management cycle helps to demystiy IT,

highlights the risks the business may be acing without knowledge, and gives business managers a basis or inormed

decisions. Adopting these processes inorms business managers and enables them to be active participants rather than

powerless onlookers.

1.3 Assessing the level o BMIT in your organisation

Most business managers agree that they are keenly aware o ITs importance to the business. However, most eel they

have very little say in what is delivered by IT and have little idea o the business benets delivered. As a quick test, ll in

these questionnaires to assess the importance o IT in your organisation and your current BMIT capability.

1.3.1 Do you have a clear understanding o the business use o IT?

The ollowing table can help you reocus your expectations o IT in your organisation. Are you sure that your use o IT

is aligned with business expectation? For example, you may expect IT to increase revenue but in act 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 o 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 o the competition

For nance and administration systems

For innovative purposes e.g. research and development

Table 1.3.1.1 Business use o IT



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1.3.2 Do you know how much you spend?

Make sure that the IT spend rom all business unit cost centres is included, not just the IT department. You may besurprised at how much you are spending. Use the ollowing table as a guide.

This yearPrevious

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 % o revenue (A)

Total IT spend (C+D) as a % o 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 % o total company revenue (A)

IT KIR spend (E) as a % o total company expenditure (B)

IT KIR spend (C+D) as a % o total IT spend (G)

% o IT spend sourced internally

% o IT spend sourced rom 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 aced 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



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1.3.4 How well do you plan and manage the use o technology?

How well do you plan and manage the use o IT in your business? Complete the table below. I you answer no to

more than our o 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 o IT when preparing business strategy?

Does the board and executive team determine the level o 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 o 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 orum or prioritising the IT department projects and work?

Is a clear, compelling business case always developed beore an IT investment decision is made?

Are business IT program risks ully understood beore program commencement?

Are IT projects managed as part o the business programs comprising all aspects o the change?

Are there control points in your business programs where you reconrm that the programs are still

viable?

Is business management held accountable or the delivery o business benets rom IT investments?

Does business management decide whether to buy a package or build rom scratch?

Are IT running costs clearly related to business services level requirements, recognising the cost, risk,

perormance trade-os?

Does business management have measures on unit cost o 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 o 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 or, how to ask or it and how to monitor and assess success

IT knows how to build / acquire solutions, advise and deliver to business expectations



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2. The BMIT ramework and processes

Figure 2.0 BMIT ramework

BUSINESSPLANNING

ANDMANAGEMENTCYC

LE

BUSINESS MANAGEMENT OF IT IT MANAGEMENT OF IT

BusinessProcess

BusinessDecisions

ITDecisions

BusinessFramework

Long term

strategic planning

Strategic IT demand

management and

long term strategicalignment process

sstrategic use of IT

s levels of investmentvalue expected

sPRiority

sRisk

What we aim toachieve

s3Olutions

sArchitectures

sCosts and risks

s Technology

opportunities

Annual planning

and budgeting

Annual project and

service level

demand

management and

IT budget

alignment process

sProjectssservicesPERFORMANcesMEAsuressFUNDssPRiority

How we willachieve

sCost estimates

s Performancecapability

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 workprioritisation process

Business program orproject gatingprocess

Benefits realisationand monitoringand asset

decommissioningprocess

Building oracquiring new

capability

s Deliver toestimates

sAdvise on risk

Completed business programs

Expected benefits and measures

s Deliver theservice

sAdvise on risk

Delivering theresults

sUse the servicesrealise the value

sMEAsure the result

sProcess

schange

svalue

sBENEFits

The BMIT ramework (Figure 2.0) is built into the standard business planning and management cycle, incorporating long

term strategic planning through to ongoing operations. The ramework clearly dierentiates between theaccountabilities associated with Business Management o IT and the IT management o IT. It illustrates the interaction

that needs to take place between business and technology to deliver the companys objectives.


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The ve BMIT processes (Figure 2.1) in the ramework support business management in making the right decisions or

eective use o IT. They help business managers understand and measure the delivery o value rom IT assets and canbe tailored to suit company requirements.

The processes must be supported by oundation behaviours and practices that oster collaboration and constructive

interaction between business managers and IT managers.

In section 3, the oundations that will enable this change are examined, with a ocus on why the ollowing are so

important:

implementing clear accountability and decision making rameworks

promoting common language between business and IT

building business IT relationships

ensuring transparency o IT costs

introducing business measurement o IT value

recognising that business programs deliver business value not IT projects.

In section 4, the criticality o 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 ramework and

the BMIT Process 1 Strategic IT demand management and long term strategic alignment.

The BMIT process or 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 portolio o

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 ramework; the common

issues around building and/or acquiring new systems; delivering results and service level monitoring; and asset lie

monitoring, evaluation and decommissioning. Each is captured under the BMIT Process 3 Ongoing IT workprioritization, BMIT Process 4 Business program or project gating and BMIT Process 5 Benets monitoring and

realisation.

The BMIT framework and processes


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Business Framework The Business Question Five BMIT Processes Business management will know:

Long term

strategic planning

How is the businessgoing to use IT inattaining its goals?

1. Strategic IT demandmanagement andlong term strategicalignment process

the long term capital spendrequired to deliver the companysstrategythat IT action is aligned withbusiness strategythe connection between achievinglong term strategic objectives andIT eortthe long term priorities anddependenciesthe risk associated with reducingcapital spend

Annual planning

and budgeting

What is the businessgoing to spend on ITthis year to keep itrunning and todeliver or theuture?

2. Annual projectand service leveldemandmanagement andIT budgetalignment process

that the IT build / acquire budgetis aligned with business demandwhich projects are unded thisnancial year along withguesstimates o the operationaland capital spendthat the Keep IT Running (KIR)budget is aligned with businessservice expectationthe risks associated with cuttingthe KIR budgetthe annual priorities anddependencies

Ongoing

management

Are we working onthe right things orthe right reasons andproducing theintended results?

Are we on track tomeet ourperormance goals?

3. Ongoing IT workprioritisationprocess

4. Building /acquiringcapability andbusiness programor project gating

process

5. Benets realisationand monitoring andassetdecommissioningprocess

that IT eort is ocused on whatthe business requires

that conficting business demands are resolved in line with thecompanys overall intereststhat immediate businessimperatives are delivered with theleast impact on long term plans

that projects which are no longerviable or appropriate areterminated promptlyi dollars and eort spent anddollars to complete are in line withbudgethow scope change decisions havebeen made and what impacts thiswill have on costs and time

the delivery and implementationrisk prole

the service level delivery metricsand ongoing service risk prolewhen to make application andinrastructure asset replacementdecisionsi the planned benets are beingdelivered in line with the businesscasethe IT investment spent onreducing IT operating costs versusnew capability

Figure 2.1 The ve BMIT processes


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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 rom 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 or. Business managements

rustration 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 o the

inrastructure was obsolete and unsupported and only one person knew how to x it when it ell over. He hadattempted to explain the issues to his boss, the CFO, and ailed. I only his business colleagues understood the

problems he aced. They didnt and he lost his job.

A newly appointed IT manager was told o his predecessors ailure and the warning bells went o. He suggested

that beore settling into the job he assess just how the place had gotten into such a mess. At the end o his

ourth week he presented his ndings to the business management team, the key ones being:

Although the business had a clear view o how it wanted to use technology, it had no ormal plans and

hadnt communicated to IT management.

The IT budget was set by the CEO without any regard or the cost o 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 o the risk it was carrying with obsolete equipment and noeective disaster recovery capability.

He recommended that the ollowing practices be adopted immediately:

Even though the role reported to the CFO, IT management must be at the business planning table and part

o the business planning process.

The IT budget should be developed as part o the annual planning process, refecting the true cost o

business demand or IT-enabled change, levels o service and risk.

Business management should conduct a process to better articulate, prioritise, und and approve

requirements beore coming to IT.


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5

Strategic IT demand

management and long termIT alignment process

Business Managementof IT Processes

Ongoing IT work planningand prioritisation process

Business program orproject gating process

Benefits monitoring andrealisation and assetdecommissioning process

Annual projectand service

level demandmanagement and

IT budget alignmentprocess


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A successul BMIT ramework is built on strong collaboration between IT and business. There are a number o

oundation 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 rameworks

promoting common language between business and IT

building business IT relationships

ensuring transparency o IT costs

introducing business measurement o IT value

recognising business programs, not IT projects, deliver business value

Collaborativebusiness ITrelationships

Transparencyof IT costs

Commonlanguagebetweenbusiness and IT

Cleardecisionmakingframeworks

Businessmeasurementof IT value

Businessprograms,not IT projects

Figure 3.1 The ve BMIT processes

3.1 Implement clear decision-making and accountability rameworks












IT management oten makes decisions by deault 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 or

planning the use o IT as part o setting business objectives

and perormance parameters, as well as their responsibility

or delivering the intended business outcomes o theirinvestments.

ITs responsibilities are within their capability to achieve

and that IT is not responsible or things it cannot control

or deliver.

I you are held accountable, youwill be held accountable - so put

in place the tools necessary tohelp meet that accountability.

James CrownCEO Knowledge Group

A simple tool to help establish who is accountable or 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 o

healthy debate when lling it in. This will lead to better understanding o the IT issues acing your organisation.

3. Foundations of a successful BMIT


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Board Business management CFO Head o 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 benets case (ROI) I A I C

Delivering business benets (ROI) I A I C

Measuring delivered benets (ROI) C I A C

Setting business program priorities I A I I

Program delivery on time and budget C A C I

Dening service level requirements C A I C

Delivering service level requirements C I C A

Risk prole or appetite or risk A I I I

A - Makes the nal decision I - Must have input to the decision C - Must be told o the decision

Figure 3.1.1 Decision-making matrix

Once you have agreed who makes the decisions and who is accountable or 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












Mistakes oten occur simply because the business does not understand what IT is talking about and vice versa. IT

speaks its own acronyms and jargon orgetting that the business doesnt necessarily understand and the business

speaks a language that is oreign 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 ully understanding.

The solution to this issue primarily lies in recognising that the languages are dierent and translation mechanisms

are required. Simple admission that one does not understand and clarication is required is a good start. In addition:

Channeling communications through translators such as business analysts and relationship managers is

another way o ensuring eective communication.

The introduction o a shared pipeline list o business requirements which outlines business priorities, IT

estimates and resource availability along with agreed business / IT measures will orm the basis o a common

language that will enable business and IT management to have actual 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 orm the basis o a common language. In IT, architectural models help to

translate the expectations and requirements o IT into terms the business can understand. There is a

Foundations of a successful BMIT


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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 o the current and uture ITenvironment 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












Complex chargeback and buyer supplier arrangements between IT and the business can lead to poor relationships and

lack o trust in IT estimates.

There are a number o ways to enhance the business IT relationship:

Filter work requests through a business prioritisation and approval

process beore asking IT to estimate.

Understand that IT cant estimate accurately what the business

cant dene precisely. Its not possible to do xed price estimates

until all requirements have been specied and detailed design is

complete. First cut guesstimates can be out by 100%. The

introduction o phased estimating can clear up a lot o

misunderstandings between business and IT. The ollowing

diagram sets out the estimating tolerances relating to each phaseo the program liecycle.

IT cant estimateaccurately whatbusiness cannotdeine precisely.

Invest in business analysts to work with business managers and IT architects to identiy the solution

approach. This role can sit in either the business or IT. Unortunately, the relationship role can be seen as an

overhead and it goes rst with budget cuts. This is alse 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 or 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 o business process?o

BusinessStrategyandObjectives

Estimation Tolerance

Build & ImplementDetailed DesignHigh Level DesignProgram FeasibilityProgram Concept

+100%

-100%

0%

Worst Case

Best Case

Most Likely

Figure 3.3.1 Phased estimating: target o estimating is to provide most likelyprediction



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15

3.4 Improve transparency o IT costs












One o the core issues is that companies oten ail to ully understand the true cost o IT and what drives these costs.

In many companies the IT budget does not refect the total IT spend. For various reasons, oten 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 ocus on short termcost reduction without understanding the impact on the

long term viability o IT systems and the business risk

and impact o ailure.

In order to make proper investment decisions in line with the risk

prole o the company, business needs to understand the link

between the IT-enabled business process and volumes and the

cost o the IT services and resources it consumes to deliver these

processes. Business needs to know what it is getting or

its money and what levers it can pull to change what it is

spending now and in the uture.

IT costs are very otenunderstated. Anywhere up to 30%in additional costs can be oundwhen IT costs rom business costscentres are analysed. This can be areal issue when benchmarkingagainst other organisations orwhen understated igures are usedin the metrics to assess thebusiness value o IT.

In many organisations, chart o account design and project accounting methods do not easily enable IT costs and

measurements to be clearly linked to business outcomes, or example, cost o ongoing operations directly related tothe level o service delivered. (See Figure 6.4.1 Cost o Service Agreements.)

The rst step in improving the transparency o IT costs is to separate them into two baskets:

Keep IT Running (KIR) and1.

Discretionary spend (capital and operational)2.

KIR is dened as the cost o supporting, maintaining and growing the current business. It includes the cost o

maintenance and regulatory and compliance changes but does not include the cost o 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 o risk the business is prepared to live with e.g. disaster recovery capability

additional ongoing maintenance costs o new applications or inrastructure 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 ollowing cost levers:

agree to a longer time or recovery in case o a disaster which would decrease the outlay on disaster

recovery inrastructure

accept a higher level o risk by running on obsolete assets which would deer the cost o replacement

accept slower response times which would deer the cost o communication line upgrades

reduce the length o time history les are kept which will result in a lower cost o storage



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Discretionary spend is dened as the cost o 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 or determining annual discretionary spend is set out in section 5.1.

Justication or discretionary spend is usually associated with a business benets case outlining the nancial and non-

nancial benets that will be delivered when the program is implemented. Oten the problem with benets delivery

stems rom the quality o the up-ront planning and scoping work resulting in costs being understated and benets

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 denition available

or estimating

the stated benets are reasonable and achievable

there is a clear dierentiation between nancial and non-nancial benets

the metrics that will be used to measure benets delivery are determined up ront in the business case

costs are monitored throughout the program and the benets case is reassessed i costs blow out

The introduction o the program gating process (Section 6.2) will assist in getting this right.

3.5 Introduce business measurement o IT value

Collaborativebusiness IT

relationships


Commonlanguage

betweenbusiness and IT

Cleardecision

makingframeworks

Businessmeasurement

of IT value

Businessprograms,

not IT projects

Businessprograms,

not IT projects

Collaborativebusiness IT

relationships


Commonlanguage

betweenbusiness and IT

Cleardecision

makingframeworks

I you cant measure it, you cant manage it. Credible business measures o IT eectiveness are essential to all levels o

business planning and prioritising the use o IT. However, in many companies, much o the measurement o IT success

is carried out and communicated by IT in IT terms that are not understood by business managers and are o little use in

the assessment o IT eectiveness to the business.

The ollowing table sets out examples o measures typically used by IT along with measures business management can

introduce to assess IT eectiveness rom a business perspective.

Business measures IT measures

Business time lost Up time percentage

Unit cost per transactionNetwork costs, hardware costs, total MIPS

used

Customer complaints Number o severity 1 problems

Cost o business process Mean time to x problems

Cost per delivery channel Application maintenance costs

Business risk IT personnel turnover

ROI Within budget

Table 3.5.1 Measures to assess IT eectiveness



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Fundamental to successul BMIT is management ully understanding and articulating why it is using IT in the rst place

and what value means or their area o the business and the company. (See Table 1.3.1.1 Business use o IT.)

Business management oten has diculty establishing measures due to a lack o understanding o the behaviour o

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 or measuring both the eectiveness o the current

operations and the value delivered by additional investment in IT-enabled business programs.

Metrics or the eectiveness o the current operations are ideally derived rom the business measures set out in the

service levels agreed between business and IT management. (See section 6.3.1)

Metrics or value delivery rom IT-enabled change programs are ideally based in the companys strategic decisions, or

example:

increase revenue e.g. improved sales capability, new products and services

decrease costs e.g. urther automation o business process

increase productivity, improving existing process improvement

improve customer satisaction

3.6 Recognise that business programs, not IT projects, deliver business 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 rom the times when anything to do

with IT was let to the IT department and they were accountable or the lot, including benets. Times have changed.

Today we need to recognise that there is really no such thing as an IT project. Most programs o change comprise

change to several asset classes in concert including IT, business process, people and organisation. IT cannot be justied

in isolation rom the business program it supports. (See Figure 3.6.1.)

BusinessStrategy

BusinessPrograms

PROPERTY

PEOPLE

TECHNOLOGY

PLANT & EQUIPMENT

FINANCIAL

INFORMATION

Enterprise assets

Interdependen

cies

Building or acquiring IT assets is

rarely stand alone. The best

results occur when the entire

business program o change is

planned, costed and managedas one program and the

benets case is based on the

delivery o the ull program.

Trying to manage change in any

one o these areas in isolation is

destined to ail.

Figure 3.6.1 Business programs composition



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Divided we ailREPLACECO IT costs had increased over time due to increased maintenance costs on ageing and ragmented

sotware. The decision was made to replace existing applications with a highly congurable industry standard

package chosen by the business. The business had been convinced by the supplier that the package would be

easily congured and implemented to meet REPLACECOs business needs. IT was not involved in the decision.

The package was purchased. Business handed over responsibility or implementation to IT.

An IT project manager and project team were appointed to work with the supplier to implement the package.

The list o variations rom the out o the box conguration continued to grow. A heavily modied package was

nally implemented 18 months late and 50% over budget.

A post-implementation review by an external party ound a trail o poor decision-making and unclear

accountabilities. Root causes o the problems were:

no-one owned the business solution

the solution approach was not tested or estimated beore buying

the business benets case was not revisited

business management expected IT to implement with little involvement rom themselves

IT was not involved in the decision to purchase the package

appropriate IT due diligence o the claims o the supplier and the appropriateness o the package were

not carried out by IT

The REPLACECO Board learned o the project ailure. When the ull picture emerged, they had little condence in

either the business or IT. REPLACECO had more large IT projects coming up on the product ront. 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 uture demand. The changes presented to the board included:

an IT / business decision matrix be implemented to ensure clarity around who makes decisions about

what

rom now on all IT developments would be part o business programs under business ownership

all programs o change must go through a rigorous process upront to thoroughly test the solution

approach and benets beore investing signicant dollars

a program gating process be implemented with clear GO / NO GO check points to identiy problems,

revalidate benets and costs to complete



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4. Long term strategic planning

Most companies depend on IT or day-to-day activities. What many ail to realise is that strategic growth also depends

heavily on IT. They also depend on the IT o their business partners and customers. Moreover, many businesses mustalso 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 specic attention to IT as they prepare their long term plans.

The danger in leaving IT out o the long term strategic planning process,

or with short term direction only, means that IT cannot ormulate long

term uture architectures and may end up building IT applications and

inrastructure piecemeal. Lack o eective uture 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 reinorced concrete - its a barrier to change.

Plan to grow into your ITassets not out o them.

Neil Wilson - CEO Oakton

I you dont know where youare going, any road will takeyou 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 eective in planning their IT use.

IT long term planning is an integral part o the business strategic

planning processes. As with a manuacturing plant or property, many IT

assets have long asset liecycles and oten take years to implement,

making IT dependent on eective long term business planning.

Long term strategic planning ramework (Figure 4.0) highlights the business and IT decision areas along with the

interactions and outcomes o long term business planning. This process occurs annually reviewing the relevance o the

long term business strategic directions and the alignment o 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.

BusinessProcess BusinessDecisions BusinessIT Interaction ITDecisions

Long term businesssstrategies and targets

Business use of ITs

Competitive positionings

Business benefitss

Prioritiess

Fundings

IT architectures andsarchitectural principlesCurrent and target ITsarchitecturesIT migration plans andsinitiativesTechnology infrastructuress

Business strategies, priorities,funding, strategic businessbenefits

IT trends and opportunities,future architectures, costs

estimates, risks

3-5 year Business IT Strategic Plan:

Target IT architecturess

Key IT initiatives to achieve targetss

Estimates of IT capital investments

Estimated ongoing operational costsdependencies



Alignment

3-5 year business strategic plan:

Business targetssKey initiatives to achieve targetss

across all asset classes

Estimates of capital investments

Prioritiess

Benefitss

Strategic ITdemandmanagementand long termstrategicalignmentprocess

Figure 4.0 Long term strategic planning ramework

Long termstrategic planning

Annual planningand budgeting

Ongoingmanagement


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Implementation o 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 uture IT architectures are still valid and aligned with

the business strategies and priorities, and dependencies are understood (see Figure 4.3)

a qualied portolio o 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 identied by the plan become the basis or Business Management IT

decision making and the setting o IT priorities.

4.1 BMIT process 1: strategic IT demand management and long termalignment 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

orm the ramework or ongoing business program prioritisation and portolio 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 o technical work behind the scenes. It is a plan that

outlines the IT implications o business strategic intent and translates these implications into the key IT initiatives that

will be required to deliver the strategy.

Long term strategic planning


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Action Who Description

Business strategy review Board, business

managers and IT

manager

Review o the companys strategic direction and objectives to

determine i 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 o business management aimed at translating

business strategy into business action. What is the business

going to do to deliver the strategy?

IT implications o business

action

IT manager, IT

architects andbusiness analysts

Analyse the business and IT impact o the proposed business

actions and group impacts around application amilies, i.e.customer, nance, 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

rom an IT perspective to bridge the gap.

Develop transition plan IT manager, IT

architects, business

analysts and business

managers

High level design o the business programs that will need to

take place to transition rom the present to the uture

including dependencies and guesstimated timerames.

Initiatives, costs and times

to bridge the gap

IT manager, IT

architects, business

analysts and business

managers

Cost estimates, benets and risks (important that the total

cost, not just IT cost is understood)

Feasibility assessment Business managers

and board

Analysis o the proposed transition plan, costs and change

impacts. Can the company aord it? Can it absorb the

change?

Prioritisation and culling o

business action

Business managers

and board

I in the easibility 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

deer, then resubmit to the IT architects to reassess costs.

Business IT strategic plan3-5 year pipeline / portolio o strategic initiatives

business measures

Figure 4.1.1 strategic IT demand management and long term alignment process



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4.2 The business IT strategic plan

The business IT strategic plan sets out:

the current baseline and evolution plan or uture ramework architectures

the technology gap between now and the uture

the principles and policies to guide IT decisions and architectures in building the uture

the prioritised sequence and cost estimates o 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 isthe vehicle that:

clearly interlinks business strategy with IT architectures

balances long term demand against long term IT spend and long term benets

establishes a clear link between business strategy and IT initiatives so that the impact o 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. i 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 inorms

business management o the levers it can pull to vary the dollars over time

orms the basis or business programs that deliver capability and value, rather than IT projects that just

deliver the potential



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Figure 4.2.1 sets out a simple example o how the IT implications o high level statements o strategic direction can be

translated into IT initiatives and costs. There is a signicant amount o architectural work required behind the scenes toachieve this level o connection but it is worth the one o investment to ully understand the investment required over

time to deliver business strategy.

Businessstrategy

Business actionrequired todeliver thestrategy

IT implication othe businessaction

Can thecurrentenvironmentdeliver thecapability?

Gap betweenthe currentand uture

Impact onotherassetclasses

Cost oinitiativesto fll thegap

Doubling

business

in 5 years

Acquire

complimentary

business

Extend into ACT

and Qld

Increase the

capacity o the core

product system to

deal with additional

volumes

No Core product

system upgrade

to latest version

o the package

Property

acquisition

in ACT and

QLD

$1.5m

Extend warehousecapacity

Extend network andinrastructure to

include ACT and

QLD

No Link betweencustomer

inormation

systems

ACT andQLD Oce

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 o the initiatives and costs required to ll the

gap and take the organisation rom the present to the uture. This big picture serves as the base or business and IT

annual planning and or the ongoing prioritisation o 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 inrastructure 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



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Complete the ollowing table. I you score no to more than three questions, it is highly likely that the strategic use o

technology is not being considered or planned appropriately in your company.

How eective 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 rom technology?

Does business management understand what the competition is doing with technology?

Has business management established a consistent way o determining long term IT investment and benets?

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 o new or

existing business strategies?

Does the strategic planning process take into account the short, medium and long term viability o its current IT?

Does the business management consider the risk implications o 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 o the business programs and IT initiatives and costs required to

deliver business strategy and plans (the cost and eort o getting rom the present to the uture)?

Table 4.2.3 Eectiveness o 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 perormance 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 o urther IT cuts but he couldnt get the message across.

SALESCO systems had been purchased 10 years ago and were designed or companies running around hal o

SALESCOs volumes. The system just couldnt keep up, errors increased, response times died and the diminished

business and IT workorce became quite demoralised. Sta turnover increased with some key IT skill sets walkingout the door.

Margins had improved but SALESCO started to lose key customers as a result o poor service and increasing IT

errors. Revenues started to all. The company had started on a downwards spiral.

SALESCO executive had taken IT or granted and ailed to really quantiy the contribution IT systems were making to

business process eciency and eectiveness. They hadnt really thought about why they were using IT and that lack

o 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. Unortunately it was too late. The

replacement program took three years. It took SALESCO ve years to recover.

The investment should have commenced ve years earlier when SALESCO started the planned expansion. The

investment costs and benets should have been built into the long term business plans, not ater the expansion had

taken place.



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Once the businesss long term strategic direction, objectives and priorities have been conrmed, nancial targets are set or

the coming nancial 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 and1.

budget impacts o the plans are not catered or.

The budget process oten overtakes the planning process and the IT budget is developed in isolation o2.

the business plans and budgets.

Both scenarios end with the same result - the IT budget and plans (supply) are not ormulated on planned business

requirements (demand) potentially leading to inerior service and lack o resources to deliver business programs,

projects and services.

The cost o IT is a direct result o the business demand (long and short term) or the delivery o service levels and the IT

component o 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 ormulated interactively with the business over the ollowing three key

areas using the annual planning and budgeting ramework (Figure 5.0):

KIR largely the commodity inrastructure determined by service level required by the business

enhancing current capability - cost o resources to make the changes or enhancements that arise during the

year as a result o short term business imperatives

building / acquiring new capability mostly treated as a capital cost that should have been identied the

long term strategic plan

Adhering to the ramework will ensure that:

the IT budget is not developed in isolation rom the business budget and the costs o proposed IT initiatives

is allocated in the business or IT budgets

the business cost o 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 o IT delivery capability

5. Annual planning and budgeting

Long termstrategic planning

Annual planningand budgeting

Ongoingmanagement


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Business and IT business plans and budgets

Prioritised pipeline / portfolio of business programs and projects

Agreed business service level agreements



BusinessProcess

BusinessDecisions

BusinessIT Interaction

ITDecisions

Annual projectand servicelevel demand

managementand IT budgetalignmentprocess

s-ARKETSCUSTOMERS

s2EVENUESCOSTS

s6OLUMESGEOGRAPHIESresponse times

s0ROPOSEDENHANCEMENTto existing systems

s0ROPOSEDSTRATEGIC

projects and benefits

s0RIORITIES

6OLUMESTRANSACTIONSUSERSCUSTOMERSETCRESPONSETIMESGROWTHESTIMATESGEOGRAPHERS

s#APABILITYCAPACITY

s3KILLS

s3OLUTIONOPTIONSANDARCHITETURALIMPACTS

s3OURCINGARRANGEMENTS

s3ERVICEDELIVERYALTERNATIVES

+EEP)4RUNNING+)2budget

0ROJECTANDENHANCEMENTbudget

3ERVICELEVELCOSTSRISKSAND

PERFORMANCE0ROJECTESTIMATESand resource capacity

s!NNUALBUSINESSPLANS

s/BJECTIVES

s-EASURES

s"ENEFITS

s"USINESSBUDGETS

s/PERATIONALSPEND

s#APITALBUDGETS

Figure 5.0 Annual planning and budgeting ramework

5.1 BMIT process 2: Annual project and service level demandmanagement and IT budget alignment

A number o issues arise in the ongoing delivery o service that could be avoided i the time is taken in the annual

planning and budget process by business and IT management to agree on the levels o 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 benets to the IT project resource (discretionary) budget

ensure that IT supply is unded and capable o delivering to annual business plans

align annual IT program o work with long term business strategy

link IT KIR budget with business service expectations

balance the annual demand supply equation

deliver the rst cut annual work plan, dependencies and priorities

On completion o 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 o

prioritised IT work required to deliver the annual business results

the overview o 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 o the cost, risk and

perormance issues relating to the agreed budget (KIR spend)

Annual planning and budgeting


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BMIT process 2: annual project and service level demand management and IT budget

alignment processAction Who Description

Set annual

objectives

Board and

business

executive

Annual objectives (nancial and other) are set or 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 specic divisional objectives and plans.

Actions to

achieve

objectives

Business

managers

Develop operational plans to deliver the objectives e.g.

change initiatives (new unction, products, processes)

increase in volumes, geographies etc

productivity improvements

Business

budgetdevelopment

CFO, business

managers andIT manager

IT works with business management to identiy the IT implications o the

proposed operational plans. This encompasses:a) KIR and service level implications

b) strategic programs or changes to existing systems to be initiated this nancial

year (subset o the long term strategic plan and roadmap)

IT project cost

and benets o

guesstimates

IT manager, IT

architects,

business

analysts and

business

managers

Interactive process between business managers and IT analysts and estimators

to establish order o magnitude costs that will enable business to validate the

IT costs and benet assumptions in their operational plans and budgets.

Business managers agree preliminary cost and eort estimates and set priorities

or each requirement to assist in the elimination process when the IT budget is

being nalised.

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 o increased volumes, changed geography etc. IT estimates

and advises on costs, perormance and risk and business managers decide how

much they can aord, the risk they are prepared to carry and the perormance

they can live with.

IT budget

development

IT manager Develops IT budget based on the business division requirements or projects and

service levels.

Assessing total

IT demand

IT manager

and business

executives

IT will have analysed and guesstimated the requirements rom all business areas

and come up with the total budget or KIR, a budget or operational projects

and a capital budget or strategic projects. The CEO and executive will decide i

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 rom the business

requirements list using the priorities set by each o 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.

Business and IT business plans and budgetsPrioritised pipeline/portoio o business programs and projects

Agreed business service level agreementsBusiness measures o IT

Figure 5.1.1 BMIT process 2: Annual project and service level demand management and IT budget alignment process



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5.2 Business program prioritisation and budget alignment

There can be many reasons why business priorities change, or 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 eort 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 or 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 unding are in place and budgeted, in all asset classes including IT. Priorities need to be reassessed through all phases o

the planning liecycle 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 thecompanys objectives

Sets Financial Year priorities

prioritised plan o work and budgets which willdeliver this years objectives and keep the companyon course to deliver long term objectives

Sets the IT work plan

re-prioritisation o the annual program o work todeal with unplanned events as they arise

Pip

elineofplannedwork

Figure 5.2.1 Business prioritisation o business demand

5.3 Business prioritisation orum

Eective 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 behal o business management.

Establishing a business orum to support the ongoing IT work prioritisation process and charged with the ollowing

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 benet and that IT eort is ocused on adding value through

new projects and programs (see Figure 5.3.1)

dealing with the strategic alignment and risk issues that may arise rom having to juggle competing

demands or a limited budget

continually assessing the impact o 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 deerred 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



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Evaluate Assess individual applications

Rationalise Streamline spending

Govern Use IT governance to control diversity

20/80 ratio 40/60 ratio

Newprojects

ExistingApplications

Newprojects

ExistingApplications+ =

Figure 5.3.1 Eective prioritisation o IT eort

In some companies, the prioritisation orum charter extends beyond IT and covers the prioritisation o all business changeacross the company.

A word o warning: when establishing a business orum, ensure that this is not a representational group with each

member ghting or their own divisional interests. The group needs executive leadership, the skills and experience to

set priorities and delegated authority to make decisions on behal o the company. IT management is a critical member

to articulate supply constraints which will eect prioritisation. In smaller companies the orum may be a subset o the

management team chaired by the CFO.

To support the ongoing work prioritisation process (Section 6.1), the business orum requires a comprehensive pipeline

list o the total demand and work in progress, including:

strategic initiatives (rom the strategic planning process)

additional business requirements (rom the annual planning process)

adhoc requests or change resulting rom day-to-day business imperatives

The pipeline list provides the vehicle with which the orum can prioritise business demand and IT management, and

develop and resource the work plan o programs, projects and minor work requests.

The level o sophistication o the pipeline list will vary depending on company size, dollars and complexity o demand.

An excel spreadsheet can work quite well. There are also a number o packages on the market that support the

recording, categorising and analysis o business demand and produce inormation that enables business to prioritise its

discretionary spend in line with the business strategy, plans and objectives (portolio management).

A number o organisations have established a program oce to manage and oversee discretionary spend or all assets

classes including IT. This oce is oten located in nance and supports all programs o work across the organisation,

not just IT.

5.4 Service level planning and budget alignment

Many organisations cannot operate i their IT systems are not unction

Business Management of IT

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