This action might not be possible to undo. Are you sure you want to continue?
G E TT I N G T H E B E S T O U T O F C Y B E R S PA C E
CROSSING THE EXECUTIVE DIGITAL DIVIDE
A jargon-free guide to what it takes to gain value out of expenditures in information technologies and to sensibly manage their risks
Recent publications by the same author
• Justifying I.T. audits to executives: paper for the proceedings of the “Governance and Audit Africa” Conference, Mombasa, Kenya, 2006. Published by the MIS Training Institute. • Crossing the Executive Digital Divide (abriged version), 2006, published by the Diplo Foundation • Jargon, protocols and uniforms, barriers to effective communications (with Stefano Baldi), Intercultural Communication and Diplomacy, 2004, published by the Diplo Foundation, http://www.diplomacy.edu • Misunderstood: The I.T. manager’s lament, Intercultural Communication and Diplomacy, 2004, published by the Diplo Foundation, http://www.diplomacy.edu • The Information Society Library (consisting of ten booklets) (with Stefano Baldi and Jovan Kurbalija), December 2003, published by the Diplo Foundation. Details available at: http://www.diplomacy. edu/ISL/intro.htm • Sections on “Data vs. Information”, “End User Computing” and “Outsourcing” of the Encyclopedia of Information Systems, Academic Press, 2003. • Conectivity for a better world, IEEE LEOS Newsletter, Vol 17, N° 3, June 2003 • Information Insecurity (with Ambassador A. Kamal), 2nd Edition, November 2002, published by the United Nations Information and Communications Task Force – available as a free download from: http://www.unicttaskforce.org
ISBN Published by DiploFoundation and Global Knowledge Partnership DiploFoundation Malta:4th Floor, Regional Building Regional Rd. Msida, MSD 13, Malta Switzerland: DiploFoundation Rue de Lausanne 56 CH-1202 Genève 21, Switzerland E-mail: firstname.lastname@example.org Website: http://www.diplomacy.edu Global Knowledge Partnership Secretariat Lot L2-I-4, Enterprise 4 Technology Park Malaysia, Bukit Jalil 57000 Kuala Lumpur, Malaysia Email: email@example.com Website: http://www.globalknowledge.org Edited by Dejan Konstantinović and Steven Slavik Illustrations: Zoran Marčetić – Marča and Ed Gelbstein The use the Hemera Royalty Free “Giant Box of Art” and the copyright free Microsoft Clipart Gallery is gratefuly acknowledged Cover Design by Nenad Došen Layout & Prepress: Aleksandar Nedeljkov © Copyright 2006, Eduardo Gelbstein
IntroductIon When technology becomes master We get to disaster Faster Grook by Piet Hein
Purpose of this book
In just a few decades, information and communications technologies (ICT) have become ubiquitous: manufacturing and research, critical infrastructures, transportation, hospitals, government, diplomacy, education, financial services and more have been transformed by ICT. This has enabled the creation of significant value but technology is neutral. It can be used to advantage and also misused and abused. Nonetheless, as the world becomes connected, the way in which ICT reduces the impact of distance and time zones has resulted in the creation of an Information Society.
Participation in the Information Society was a major theme of the World Summit on the Information Society, (Geneva, December 2003 and Tunis, November 2005). However this participation requires substantial sums of money for investing in technologies and the supporting their day-today operation. In the developed world this money is in the range of 3 to 8 percent of an organisation’s total expenditures. In developing countries, this percentages are even higher and there may be additional challenges: infrastructure facilities (electricity and telecommunications) of limited capacity and not having the same degree of experience in the management of ICT projects and operations. Both are components of the Digital Divide, and barriers to the successful and sustainable implementation of ICT. The analogy of holding a tiger by the tail is appropriate to both the developed and developing worlds. The role executives in the governance of ICT is to make the tiger perform to deliver value and to ensure that its associated risks are sensibly managed. This is distinct from the technical management of ICT, a specialist’s job that could be seen as the equivalent of feeding the tiger and cleaning its cage. The technical people who deal with ICT have major responsibilities but they cannot succeed without the participation of executives: they know what constitutes value and have the authority to drive change, take the actions needed to contain risk and derive benefits. As ICT should be used to improve the way organisations work, support new are information-rich services and/or products. This has three side effects: One: it changes the way people and organisations work. Change is never easy. Two: it requires the people using these technologies to acquire new skills, and, in particular, information literacy. This requires learning to be continuous. Three: A new family of risks notably those of information security and cybercrime. Spending money on ICT is easy: take enthusiastic technical workers, add vendors, consultants, service providers and a few other components and that’s it. Then wait for a while (from months to years) and this will result in new infrastructure, new or improved computer systems or facilities such as e-mail systems or a website.
However, this is just the beginning of the story. What may actually happen is that: • Many projects, particularly software made specially for an organisation, end up costing much more than planned, take a lot longer than promised and often fail to meet the promises made when approval to proceed was given. Many large projects are abandoned before completion…; There is a track record of unfulfilled expectations. The promises of delivering executive information”, “decision support”, “competitive advantage”, “superior performance”, “knowledge management” and many other buzzwords have frequently not materialised; Many other investments do not produce worthwile business results, despite the expectations held when starting to work on them. The money could have been better spent on other things…; When an organisation does not have the knowledge and experience to manage the life cycle of such investments, once the vendors and consultants have gone, the situation becomes unsustainable and things go from bad to worse; There are also systems which the workforce is unable to exploit because of the lack of skills and lack of training. In some cases there is also an inability to adapt to new methods of working resulting from the new technologies and systems;
All of these can be found in the private and public sectors. Many, if not most, executives, place the responsibility (sometimes also the blame) for the above problems on their Chief Information Officer, or whatever other title the most senior person dealing with these technologies may have. At the same time, many Chief Information Officers complain that their bosses “don’t understand their problems”, that they are not allowed to contribute to business strategy, that their budgets are insufficient, etc. This is a sign that there is another divide: one between executives – who have many other responsibilities to attend to – and information technologists. This book is intended to bridge this divide by taking the mystery out of the many aspects of managing and governing ICT. The premise for this book is that the position of an organisation in the Information Age or Information Society – ranging from failure to leadership, is strongly influenced by the degree to which the organisation is affected by an Executive Digital Divide, where there is little or no mean-
ingful communication between executives and technologists on how to gain the most advantage from the potential that technology has to offer. This book, based on many years of experience and research (much of it the hard way), consists of 17 chapters that can be read independently of each other. Each chapter starts with a small number of key questions on the subject it covers and a chapter summary, recognising that executives may not always be able to find time to read books that have several hundred pages. Each chapter ends with a series of action points – activities that should not be delegated to ICT people in order to ensure that ICT is used to benefit the organisation. Whenever appropriate, the chapters include examples from the real world and Executive Dilemmas. The latter differ from case studies in that the situations described in them rarely have a single right answer, and the most appropriate answer for one organisation may not be appropriate elsewhere.
C O N T E N T S
Introduction and purpose of this book�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��3 1. Setting the scene for the executive digital divide
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 13 ICTisjustanothertechnicalthing…butisitreally? �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 13 Digitaldivides �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 16 �� TheICTBoardgame �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 19 ActionPoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��23
2. How well are we doing with Ict?
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��27 Whygooddiagnosticsmakeadifference�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��27 Answeringthesixkeyquestions �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��29 Atypicaltoolkitforexecutives �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��34 �� Executivedilemma:Theauditors’reportonICT �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��46 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��47
3. Information assets and technology
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��53 Data,informationandknowledge �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��53 Howorganisationsuseinformation�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��56 Theroleoftechnology �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��63 Managinginformationassetsasaportfolio�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��64 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��70
4. Impact of Ict on organisations and on people
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��73 Observations �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��73 ShouldinvestmentsinICTmakeadifference?�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��76 Humanandorganisationalreactionstochange �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��79 �� TheExecutive’schallenge�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��83 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��83
5. Financial aspects of Ict: expenditures
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��87 WhydoesICTcostsomuch?�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��87 DirectandindirectcostsofICT �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��97 �� Executivedilemma:whydon’tweknowthetruecostofICT?�� �� �� �� �� �� ��100 Canexpendituresbecontained?�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 101 Isoutsourcingexpensive?�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��103 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��104
6. Financial aspects of Ict: benefits
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��107 TheICTbenefitsparadox �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��108 IdentifyingandquantifyingbenefitsrelatedtoICT �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��109 Techniquesforevaluatingbenefits�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 112 ExecutiveDilemma:Quickspend�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 114 TheproblemwithICTbenefits�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 115 AnotherExecutiveDilemma:Technologymigrationandtechnology opportunity �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 121 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 123
7. Ict strategies that work
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 127 SettingthesceneforanICTstrategy �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 127 �� TheroleandimportanceofanICTstrategy�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 128 GettingtogripswithanICTstrategy �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 129 FactorsthatmakeanICTstrategysuccessful �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��130 PrerequisitesandminimumcontentsofanICTstrategy�� �� �� �� �� �� �� �� �� �� �� �� 133 ExecutiveDilemma�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��138 ActionPoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 139
8. Ict service delivery processes: resources, quality and risk
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��143 Definitionandimportanceofprocesses�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��143 TheartandscienceofProcessManagement �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��145 Servicedeliveryprocessesandtheirrisks �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��148 Peopleissues �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 155 ExecutiveDilemma:thechaoticdatacentre�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��156 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 157
9. Managing Ict projects for success, quality and reduced risk
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 161 Whatexactlyisaproject?�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 161 FactsaboutICTprojects �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��164 Quality:Theprojectsponsor’sdilemma �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 170 Themostcommonreasonswhyprojectsgowrong�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 175 TheartandscienceofProjectManagement �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 178 Actionpoints�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 179
10. risk management
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��183 Managingrisks�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��183 Murphy’sLawisaliveandwell �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��184 ThemainareasofICTrisk�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��187 Whatarethestepsneededtomanagerisk? �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��190 �� Theexecutive’sroleinmanagingrisk�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��194 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��196
11. Information insecurity: the external risks
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��199 Importanceofinformationsecurity �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��199 �� IssuesforExecutives �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��202 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 213
12. Information insecurity: the insider threat
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 217 ElectronicMisconduct:abuse,fraudandcrimethroughICT �� �� �� �� �� �� �� �� 217 Themotivatorsthatdrivetheinsiderthreat �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��222 �� Executivedilemma:Suspicionofamaliciousinsider�� �� �� �� �� �� �� �� �� �� �� �� �� �� ��223 ExecutiveDilemma:WhatshallwedoaboutSusan?�� �� �� �� �� �� �� �� �� �� �� �� �� �� ��224 Preparingforprotectingagainstinsiderthreats �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��228 Issuesandlimitationsarisingfromthisprotection �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��235 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��236
13. contingency planning for Ict
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��239 Definitions �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��239 ICTdisastersandtheircauses�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��240 Executivedilemma:Whathappenedtoourbusinesscontinuity arrangements!?�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 241 Thefourmainstagesofdealingwithanemergency �� �� �� �� �� �� �� �� �� �� �� �� �� �� 241 �� SpecificchallengesofContingencyPlanningandBusinessContinuity252 Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��253
14. Ict organisations and Ict people
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��257 RolesandresponsibilitiesofICTorganisations �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��257 �� Centralisationandoutsourcing �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��259 TherolesandresponsibilitiesoftheChiefInformationOfficer�� �� �� �� �� ��262 PlacingtheICTfunctionwithinanorganisation �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��264 MeasuringtheperformanceofanICTfunction�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��264 ICTpeople:TheChiefInformationOfficerandothers�� �� �� �� �� �� �� �� �� �� �� �� ��266 Executivedilemma:TheCIOhasresigned �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��269 �� OrganisationalmistakesthatpreventtheCIOfromsucceeding�� �� �� �� �� ��270 GoodquestionstoaskICTmanagers �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��271 �� ActionPoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��275
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��279 Settingthesceneforoutsourcingandoffshoring�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��279 Activitiesthatlendthemselvestooutsourcing �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��280 �� Benefits,potentialproblemsandrisksinoutsourcing �� �� �� �� �� �� �� �� �� �� �� �� ��283 CriticalSuccessFactors(CSF)�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��288 Astep-by-stepguidetomanagingtheoutsourcingprocess �� �� �� �� �� �� �� ��289 �� Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��293
16. Legal and ethical aspects of Ict
Keyquestionsandchaptersummary�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��297 AboutthelawandICT �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��297 ThespecialnatureoflegislationconcerningICT�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��299 ICTrelatedareasarecoveredbylegislation�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��300 ICTcontractsandlicences:practicalissues�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��304 Ethicalissues �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��308 �� Actionpoints �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� 311
17. concluding remarks A.1 Listing of all the key questions �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��323 A.2 Listing of all the action points. . . . . . . . . . . . . . . . . . . . . . . . . . 329 A.3 A short contradictionary of Ict frequently used terms . . . . . 339 Acknowledgements �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��341 About the author�� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� �� ��343
C h a p t e r
Setting the scene
Don’t talk to me about computers. It’s Greek to me. Genuine statement from a Chief Executive to his Chief Information Officer
CROSSING THE ExECUTIVE DIGITAL DIVIDE 13
Key queStIonS And cHAPter SuMMAry • • Why should an executive be interested in this kind of “tekkie” thing – information technologies are the job of the Chief Information Officer… aren’t they? Is there really an “executive digital divide” and if so, what is it about?
The success of the Information and Communications Technology (ICT) industry has been such that many organisations now have a computer in every desk, workers have their own personal computers, personal digital assistants, smart mobile phones and more. Many countries in the developing world are major players in ICT – such as the software development industry in India and the manufacture of personal computers in China. Interest in participating in the Information Society is apparent everywhere. Many executives tend to see ICT as a purely technical matter to be delegated to a Chief Information Officer or to a service providers. This chapter argues that there is another way of looking at these technologies: as part of a “game” played by executives and the Chief Information Officer, and presents several facts about ICT that require executive attention. The ICT game is played with real money, it has flexible rules. The definitions of what it means to win or lose varies from place to place. Moreover, once the game has started, there is no way to leave it other than by going out of business. Experience shows that when executives do not take an interest in the strategic role of ICT, these systems and facilities are not seen as corporate assets but rather as an expensive liability. In these situations return on the investment is poor, and even negative. If ICT is expected to play a strategic role in an organisation, the digital divide that exists between the executive unfamiliar with what it takes to derive benefits from these technologies and the technologists who tend to focus more on technology than on what it is used for must be bridged.
Ict IS juSt AnotHer tecHnIcAL tHIng… but IS It reALLy? Of course there is a large technical component to “Information and communications technology” (ICT from now on) but technology is merely another word for tool and what counts is the ability to use such tools and there is a divide between those who know how to and those who don’t. This is nothing new, and Mark Twain said that “the man who does not read good books has no advantage over the man who cannot”. Electricity and telephones have become critical utilities as it is virtually impossible to conduct any kind of business activity without them. Exec-
14 CROSSING THE ExECUTIVE DIGITAL DIVIDE
utives do not need to know how they work to be able to use them to advantage: plug the right device into the right socket and that’s it. Somebody else takes care to make sure that it all works properly. This is not yet the case with computers but it is increasingly going that way. Besides, the disruption that followed the widespread use of electricity and telephones took place in the 19th century and the current generation has no memory (other than by visiting a museum) of the transitions that took place in factories and offices, in banking and commerce and also to the providers of the services that new technologies displaced such as the supply of coal and ice to buildings, gas lighting, telephone operators and many more. Electronic computers are relatively new – roughly sixty years. Computer networks are newer still and the earlier ones were limited to at best, a single organisation. The Internet started as a multi-organisation network for a limited community at the end of the 1960s. The World Wide Web and the current enthusiasm for the Internet became apparent in the mid 1990s. In the early days anyone who do anything at all with a computer was referred to as a “mathematical genius” and the role of computers was limited to automating relatively simple repeatable activities involving large quantities of numbers, like accounting and payroll. In these earlier days, executives never saw a computer unless they were curious to see what this expensive monster in the basement looked like: lots of flashing lights, many switches and surrounded by people wearing white labcoats. Information and communications technologies have become ubiquitous and, at least in the developed world, financially more accessible than ever before. Despite this much about them remains a mystery to executives even though it is now well known that expenditures on ICT represent a substantial proportion of operating costs and that these costs are rising.
Facts about Ict
ICT is an expanding trillion dollar plus global industry driven by innovation that feeds further innovation. Dramatic cost reductions in the last ten to fifteen years have allowed ICT to reach a growing proportion of the world population both in the workplace and, increasingly, at home: • At least 750 million people around the world access the Internet and there are over 70 million websites. This number is growing fast and
CROSSING THE ExECUTIVE DIGITAL DIVIDE 15
• • •
is projected to exceed the number of fixed telephones around the world (1 billion) in the near future – in addition to which there were 1.7 billion cellphones at the end of 2004. Cellphones can perform functions other than to enable voice messages (radio, music jukeboxes, photographic camera, Internet access, email and text services); Personal computers, personal digital assistants and cellphones have become commodities in a large number of countries; Organisations are irreversibly dependent on ICT, to the degree that a short network outage or an interruption of a few hours of the electronic mail service causes significant disruption to large numbers of workers; Total ICT expenditures in the corporate environment are typically in the 2.5 to 10% of their total expenditure and are growing as ICT plays an ever more important role in day-to-day operations; ICT accounts for substantial costs. Its true total cost which includes several hidden components is considerably higher than the budget of the ICT function – sometimes twice as much. The benchmark for this cost in early 2005 is an average of 12,000 dollars per employee per year; The demand for additional resources for ICT keeps growing (it is forecasted that in the USA corporate ICT expenditures in 2005 will be 7% higher than in 2004) even though unit costs of hardware and telecommunications keep dropping; ICT has a track record of runaway projects with escalating – if not exploding - costs and timescales and many unfulfilled promises which led many ICT departments to lose credibility in the eyes of executives; Technology lifecycles have become short requiring substantial and frequent investments merely to “keep up to date”; The value derived from ICT investments is hard to determine, let alone measure as there are no standard techniques for ascribing value to information. In addition, value will not be found in the places where expenditures are incurred but elsewhere in the organisation, and this value does not arise from technology but from what people can do with it.
As is these facts were not enough, ICTs have also brought with them management issues that have become executive headaches: • An inability to exploit the organisation’s information assets because of a lack of knowledge of what is available, lack of training of the
16 CROSSING THE ExECUTIVE DIGITAL DIVIDE
• • •
workforce and a lack of recInconsistent logic ognition that data and inforCompanies that provide a car to selected emmation are valuable corpoployees, make sure that those getting it have a rate assets; driving license (which implies training and passBusiness risks: runaway and ing an examination). Companies that provide a fully configured notebook computer to selected failed projects, poor quality employees do not ask for the equivalent of a of ICT services, inadequate driving license – i.e. evidence that the person in contingency planning, lack question has had any kind of training and indeof compliance with legislapendent validation of their computer skills. tion and more; However, the lifecycle costs of a small car and Unfulfilled ICT promises: those of a high end notebook computer, fully configured and loaded with software are in the still waiting for “executive same order of magnitude... information”, “decision support”, “competitive advantage”, “superior performance”, “knowledge management” and many other buzzwords. Expectations are greater than results; Developing robust business cases for investments in ICT given that value is hard to determine; Learning how to develop and implement ICT strategies that lead to improved business performance and results; The lack of effective communications between business executives and ICT people;
Depending on how these are handled by an organisation, ICT could be seen by executives as either a strength or a liability – or, if things are not too bad, a weakness. In this situation the organisation will not be likely to become a major player in an information society or an information economy.
dIgItAL dIvIdeS Much has been written about the Digital Divide. This term is mainly used to describe those parts of the world that have no access to ICT at affordable prices or that cannot invest in the necessary infrastructures. Those facing these problems usually also lack the skills and the software needed to put ICT to productive use. Advanced economies have digital divides too – parts of the geography where services like broadband Internet access are not available or socioeconomic groups of people who are unable to exploit these technologies.
CROSSING THE ExECUTIVE DIGITAL DIVIDE 17
This book is about a different “digital divide”: that of executives who are too busy, unfamiliar or even unaware of the impact that ICT can have on an organisation in the Information Age and have not thought about what it takes to deploy ICT successfully in an organisation. There are other Digital Divides, for example in countries which for political or cultural reasons restrict access to information from external sources such as satellite television or the World Wide Web. These aspects of the Digital Divide fall outside the scope of this book.
the executive digital divide
A first diagnostic an executive can use to determine the extent of this personal divide, is the ease with which the following five questions can be answered without having to ask someone else: • • • Does my organisation know what information it has and is it treated as an asset? What is this information primarily used for? Is the value of the organisation’s information understood, managed and measured? Is the organisation culturally ready for the Information Age and focusing on information for its own benefit and that of its stakeholders? Is the organisation technically ready for the Information Age?
The people responsible for ICT are very likely to enthusiastically say “yes” to this last question. However, the full answer also requires the organisation’s workforce to be computer and information literate and to have access to suitable training and support. The dialog between executives and technologists, when it takes place at all, is made difficult by different perspectives on what is important which may differ from the executive perspective, with the result that ICT activities are not aligned with the needs and priorities of an organisation. Besides, jargon perpetuates ICT’s mysteries.
18 CROSSING THE ExECUTIVE DIGITAL DIVIDE
As the Information Age is only just starting, most people are finding their way learning how to gain the benefits that ICT has to offer. Treating today as a transitional stage towards a new kind of literacy, and taking steps to increase it, will have a good return for individuals and organisations. The ICT function does not usually report to senior executives but is placed lower in the management structure. Chief Information Officers (CIO) or Directors of ICT often work as peers of those responsible for other utility functions.
Our changing times : In the 5th Century AD, St. Ambrose, Bishop of Milan was described as the brainiest person in the world: he could read without moving his lips. In 1970, only a small number of people could do anything useful with a computer. In 2004, there are an estimated 750 million people who have access to the Internet.
Because some 50 years ago the finance function was one of the first to adopt computer systems, it is not unusual to find the CIO reporting to the Chief Finance Officer or to the Chief of Administration. This reflects the significant cost and emphasis on technology of ICT as a utility. When an organisation categorises the CIOs as a “technical expert”, thet are treated as outsiders to the business strategic planning and development processes. To compound the CIO’s challenge, the benefits of making good use of ICT do not arise from technology, which is only an enabler, but from peoples’ creativity, ability to spot opportunities for changing the status quo and to apply and use technology where it matters – having an ICT strategy that works. Exploiting ICT can very different from one organisation to another, depending on where they are positioned on each of the lines. This can only succeed when technical services work well enough for their intended purpose, just like any other utility.
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This utility aspect of ICT (as distinct of its strategic use) distances executives from the ICT function and, conversely, the ICT function finds itself isolated (and often unloved) by the executive.
tHe Ict boArd gAMe Why not look at investing in ICT as if it were a game that has to be played in order to participate in the information society? This game is played with real money and it is not a game of chance (and certainly should not be). Unlike a board game it should be a Board game in which the governance of ICT should not be delegated (or abdicated) to technical people in the hope that all will be well.
20 CROSSING THE ExECUTIVE DIGITAL DIVIDE
The game, which requires considerable sums of real money involves several players, among them the Chief Executive Officer, the Chief Operations Officer, the Chief Finance Officer, the Chief of Human Resources, the Internal Auditors, the Chief Information Officer and also external parties: vendors, service providers and outsourcers. The game has few rules: 1. Once a player has entered the game, there is no possibility to quit; 2. Each player has different objectives and different definitions of what it means “to win”; 3. There are three strategies for playing this game: Lead, Follow or Lag Behind; 4. Winning a round of this game does not give a player an advantage for subsequent rounds. There are shades of winning this game, and these are determined by how well the player is able to perform in a number of areas: • Like in other board (and Board) game, a wrong move can penalise a player (for example “you have invested in the wrong computer system and must live with it for at least five years before you can replace it”) while an inspired move can place a player in the lead; Benefits are always in the future and speculative. Playing this game to win requires an act of faith from executives, who place their organisation’s money on priorities, choices and vendors that appear right at decision time; Playing the game to be a leader involves the biggest risks –by investing in technologies and products that may not be mature enough or
Highly visible and successful first movers include Amazon, the online retailer, e-Bay, online auctions and Federal Express (document and parcel distribution). Many other winners of the ICT game are only visible in their own field and not so well known by the general public. These will be found in hospitals, airlines, online learning institutions, financial services, and everywhere else. Successful leaders breed followers – when for example a few banks started to offer online access to their clients, other banks had really no choice but to do the same. This “me-too” approach works well for organisations that have business strategies that do not require them to be the top player in their market. It is inevitable that there will be laggards – organisations that because of their culture or financial environment are unable to even keep up with the followers and end up lagging behind. Laggards would typically have old computer systems (some possibly no longer useful) and older technologies (perhaps no longer supported by their vendors). The gap between leaders and the laggards will continue to grow creating yet another form of a digital divide which, if nothing is done could make laggard organisations irrelevant in the Information Age.
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developing products and services for which the market may not be ready. Those first movers that succeed have a major competitive advantage over others in their field; Losing the game results in one or more of the following, although this list is not complete: • • • • The organisation’s ICT is a clear liability that prevents it from maintaining a credible position in the Information Age; The organisation has ICT projects that failed or were completed late, at greater cost than planned and/or with disappointing results; The day-to-day ICT operations of the organisation are not good enough, information security may be inadequate and contingency plans insufficient; The cost of ICT to the organisation is not well known and, if known, higher than peer organisations.
This book proposes to executives two premises to avoid becoming a loser in this game: Premise #1: Competent ICT people are very interested in the subject, enthusiastic, optimistic and hard working. However their focus may be stronger on technology than on what it is used for and how well this is done; Premise #2: Certain decisions concerning ICT are too important for an organisation to be left to ICT people: The governance of ICT should not be left to the Chief Information Officer alone and should not be a rubber stamp by the executive or the Board. Behind the jargon and acronyms, the management practices that lead to effective results in ICT are no different from those in other activities.
Are we playing this game the wrong way?
Possibly, if ICT is not part of the executive’s agenda in “playing the Board game” in those areas that can make a difference to the performance of their organisation, if this is due to lack of time or lack of interest. ICT professionals appear to be seldom well regarded, trusted or
22 CROSSING THE ExECUTIVE DIGITAL DIVIDE
admired in the organisations for which they work and rarely have a place in management boards or other executive circles. Instead they are regarded as the organisation’s plumbers, a word used by several senior ICT managers at various times. They also frequently voiced the complaint that “my boss does not understand me and is not interested in what we do”. But then it is also true that ICT people are, by and large, not great communicators. When the working and cooperative relationship that ought to exist between business processes and ICT are not strong, the organisation as a whole is weakened. Discussions over many years confirmed that ICT is regarded by many executives (who avoided playing the Board game and detached themselves from these matters) as an expensive headache while a smaller number of them see ICT as a force to strengthen their organisation and enrich the work environment when properly executed. The utility aspect of ICT – the technologies, processes and people that: • • • Make computers, networks, directories, software and other things, function correctly seven days a week, twenty four hours a day; Ensure disruptions are handled quickly and effectively; Take steps to deliver these services at a reasonable cost
is unavoidable (it is also outsourceable). This utility represents 70 and 80 percent of the ICT budget and should only be an executive concern when it does not perform as expected (technically, financially or organisationally). The strategic tool role of ICT implies innovation. Innovation drives change. Given that most people desire stability and that nobody likes to be a loser, change represents a significant executive challenge because it is likely to be opposed. Of course, if the ICT utility does not work well enough, it is unlikely that ICT will be used as a strategic tool as the Chief Information Officer would not have the credibility to be a member of the executive team.
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ActIon PoIntS An old proverb states that “When there is a will there is a way”. This is particularly true for ICT and bridging, or at least narrowing, the Executive Digital Divide is one step that should help. Executives who take a serious interest in ICT and see it as a strategic tool and are also prepared to lead the organisational change that follows such implementations will be better placed to gain value out of the significant investments involved than those who don’t. Taking a greater interest is necessary but not sufficient. The executive also needs a good awareness of what ICT can deliver and what it cannot do, understand the issues that need to be addressed, be good at risk management and not least, ensure that the right people are engaged to deliver results that make a difference.
C h a p t e r
How well are we doing with ICT ?
Of course you are entitled to a second opinion, but please hurry ! Advice supposedly given by a doctor to his patient
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Key queStIonS And cHAPter SuMMAry • • • • • • • What is the track record of the ICT function? What are the efficiency and effectiveness of the organisation’s ICT? What is the value assigned to information, knowledge work and ICT? Where does the money spent on ICT go? What are the legacies and constraints on ICT in the organisation? Do we have a well articulated vision of how we should exploit ICT? What tools and methodologies can an executive use to find out answers to these questions?
The performance of the ICT utility is well understood – technical services are invisible until they fail, at which point the activities of an organisation are disrupted. But this is not the only symptom of poor performance: the technology may work wonderfully but when it is used to support poor processes, it only succeeds in speeding up the mess… Information technologies and systems that fail to support the needs of their users are a liability to any organisation. The same is true of systems that are functionally adequate but are not matched by a workforce that has the skills to exploit them or the information they produce. As ICT represents a significant percentage of an organisation’s total expenditures, it is legitimate to assess the contribution that ICT makes to business results. The results of this assessment can then be used as an input to strategic decisions on ICT should be managed in future. Several approaches are presented, from simple and quick reviews to various levels of audit. The chapter also refers to other, more sophisticated tools such as the Balanced Scorecard that take a wider view of the role of ICT in the work of an organisation.
WHy good dIAgnoStIcS MAKe A dIFFerence In less than 60 years, ICT has become ubiquitous. This does not mean that we are able to take full advantage of what the technologies allow: wide ranging access to information, the ability to combine and process data and information and the creation ofnew knowledge out of this processing. ICT requires significant budgets and human resources. Depending on what an organisation does, these are in the range from around 3% to 10% of total expenditures. Such amounts are too high to hide as overheads and also too high to accept without question as “the cost of doing business”.
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How should one determine if ICT is an organisation’s strength or a liability and take corrective actions to gain more value out of current and future investments? Relying on “gut feeling” and intuition is a good start – after all if ICT is a major strength or a serious liability, this will not be a secret to people inside (or outside) the organisation. Beyond this, there are many useful diagnostic tools. These are the equivalent of a person having regular medical checkups to identify potential health problems before these manifest themselves. The question of “how well are we doing with ICT” should not be asked of ICT people as their perspective1 will be focused on technology and possibly a desire to acquire more resources. It may also be unduly optimistic. A full diagnostic involves four links in a chain. The first link has to do with the choices to be made of products and vendors. This is a very technical activity which is the responsibility of the Chief Information officer. Typical poor choices are unsuitable products, technical architectures that become quickly obsolete or selecting vendor that risk going out of business.
The second link represents all the computer systems that have been bought and developed to meet the requirements of an organisation, the data, databases and other sources of information (for example workflow and document management systems), Intranets, line of business systems, administrative applications, etc.
See Chapter 14
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The acronym used in ICT since its early days is GIGO – Garbage In, Garbage Out: he best computer systems will not be of much use if the data they process is of poor quality (inaccurate, outdated, incomplete). Conversely, in the Information Age, having quality data but no systems to analyse it for patterns, discoveries and other non-evident features, is a handicap. The third link is about how well technologies and systems are delivered to the people who use them, i.e. the quality of delivery processes2, the skills and experience of the technical personnel involved in these tasks and the skills of database administrators and others who manage data and information. When the quality of service delivery is not good enough, dissatisfaction and frustration grow quickly among those condemned to use these systems and facilities. The final link addresses the skills and experience of the people who use these tools, data and information sources. The weakest link in this chain will determine whether investments in ICT are worthwhile or a waste of money. Identifying and strengthening this weakest link is one of the many challenges facing executives. Strengthening just one link may not be enough and diagnostics of how well ICT is performing should be conducted on a regular basis.
AnSWerIng tHe SIx Key queStIonS Seeking answers to the first six questions in the introduction is a good a place to start. These answers should be supported by evidence and metrics, not just opinions. As the book explores other aspects of ICT, there will be more questions (and answers to them – there are no definitive answers that fit all situations). Question 1: What is the track record of ICT in the organisation? This deceptively simple question covers several aspects of “track record”: • The direct contribution that the ICT function brings to business processes and business results;
Chapters 8 and 9
30 CROSSING THE ExECUTIVE DIGITAL DIVIDE
• • • •
The ability to deliver ICT projects that are (reasonably) within the original specifications, budgets and timescales; The ability to deliver ICT services (computer room operations, networking, information security, user support, disaster recovery and other to an appropriate level of quality; The relationships between the ICT function with executives, staff and vendors, particularly in terms of credibility and trust; The ICT skills of staff and management to exploit information systems, data, documents and other related facilities;
It is to be expected that executives confronted with a a poor ICT track record would have either taken action or are looking for the best way to deal with this. Those who recognise this problem and do nothing about it are likely to discover that this poor track record will not improve by itself and could get steadily worse. Question 2: What are the efficiency and effectiveness of the organisation’s ICT? Efficiency is all about doing “ICT things” the right way – making best use of resources, removing systematic problems and working to achieve simplicity to displace complexity, the enemy of manageability. An ICT function that is not efficient incurs expenditures greater than necessary and at the same time is not able to deliver the required level of service quality or to complete projects on time and within budget. Effectiveness is doing the right things (better still, doing the right things the right way). An effective ICT adds value by enabling innovation, automation, knowledge work and by making the best possible use of data and information assets in support of the organisation’s business strategy and objectives. An ICT function that is not effective cannot make a contribution to an organisation’s work and may even be an obstacle to its development. Question 3: Where does the money spent on ICT go?
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One way of finding an answer to this question is to look at the budget lines of the ICT function. This will provide answers but these may not particularly illuminating – so much spent on salaries, so much on purchases, so much on third party contracts, and so on. While this information may give indicators about the cost of the infrastructure, the productivity of the ICT function, the cost-effectiveness of the technologies, the competitiveness of charges for services from external suppliers, etc., the executive will remain in the dark as to whether this money is spent to support business objectives. A different approach assigns the cost of individual components to what computer systems and networks are used for, and the four categories of “value creation”, “ongoing support”, “administration” and “security” are just examples of how this approach works. Value creation is the category most strongly linked to effectiveness and therefore the one with the highest impact and strategic importance. Many support tasks are critical to the smooth operation of an organisation, ranging from effective websites, electronic mail and those functions that are closely linked to business activities such as accounts receivable). At the other extreme, basic administration (accounts, procurement, human resources) are activities that must be carried out but which add limited business value and as such, present an opportunity for seeking cost reductions. Information security1 is an corporate function growning in importance as a result of living and working in a networked world: cybercrime and other forms of cyber-attack have become a fact of life. Many cost accounting systems are not structured to provide financial data in this format and some organisations actually know how much they spend on ICT but not exactly how these expenditures map against these or comparable categories. Whether or not this is a problem for an executive depends on an organisation’s governance culture. Question 4: What is the value assigned to information, knowledge work and ICT? Financial and management accounting always include tangible assets such as computing equipment and other infrastructure items. From time
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to time, some forms of intellectual property, such as trademarks, are also counted as assets. In mergers and acquisitions it is usual to place a value on information assets such as client databases and custom software. This valuation is conducted on the basis of goodwill and mutual agreement. The rest of an organisation’s information and data does not appear explicitly in the accounts because there are no standards for assigning value to such information. This is probably because accounting standards evolved considerably before information and data could be regarded as organisational assets. This creates other executive headaches: the cost of ICT is significant and measurable (with some difficulty)1, while the value of information and of “intangible” benefits2 cannot be easily measured as they are intangible and speculative. This should not preclude finding an answer to this question as executive and managerial decisions require good information. If the ICT systems in place provide such information, then they are indispensible and valuable. When they do not, the organisation may face a real problem. Knowledge organisations are those where a substantial percentage of the workforce searches for, analyses and makes extensive use of information. ICT plays a critical role in enabling this work. There are also organisations where most of the workforce does not handle information as the main task of their duties. Nevertheless, ICT is important when used, for example, in the automation of industrial processes (from electricity generation to the robotic assembly of motorcars and everything else). The intellectual property that describes these processes, and of the software used to computerise them is almost certain to be of high value. This is confirmed by the level of industrial espionage seeking intellectual property, a major concern and a criminal offence. Question 5: What are the legacies and constraints on ICT in our environment? ICT has been around for long enough to go through several cycles of technologies many of which have since disappeared. The major push to computerise accounting and payroll systems goes back to the 1960s and real1 2
Chapter 5 Chapter 6
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time tracking systems to the 1970s. Data networks linking geographically dispersed organisations also have long histories. Until the emergence of the Internet and Open Source software (based on public domain standards), computer systems and network used proprietary designs and therefore, computer systems and software based on, say, IBM™ products were incompatible with those from Digital™, both of them incompatible with those from Unisys™ or any other company and so on. This is one of the aspects of technical legacies – migrating from one technical architecture to a different one. This is expensive, complex and technically risky, as many organisations discovered when preparing to deal with the Year 2000 problem and/or when they were encouraged by vendors to believe that new architectures would give them great new benefits such as user-friendliness and flexibility (true) and dramatic cost savings (not always true). Converting data to move it from one technical architecture to another is another legacy problem. This is a headache because “old” data is not always complete and correct and needs to be cleansed for such a move. This presents an opportunity for unethical players to corrupt data with intent to defraud or sabotage an organisation3. Other legacies exist in the technical skills of an organisation – programmers with long years of experience in COBOL or another programming language, will face problems in migrating to a significantly different language (such as C++ or Visual Basic) or to environments such as SAP™ or Peoplesoft™. Retraining may not be enough if the legacy staff is unwilling or unable to undergo this conversion. Constraints represent a different class of issues and limit an organisation’s ability to invest and/or implement change. Such constraints may involve: • • • organisational politics and attitudes to change; the willingness to take substantial risks in ICT projects; the cooperation of employees to acquire new skills, change the way that work is performed
and all the side effects that these factors imply. Downsizing and outsourcing are instances that bring constraints and other tensions to the foreground.
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Lack of a good understanding of these legacies and constraints may create unrealistic expectations about what can be achieved through technology and lead to failed initiatives. Question 6: Do we have a well articulated vision of how we should exploit ICT? This is not a trick question. It is tempting to believe that the status quo is fine and the legacies and constraints explored in Question 5 would not allow this status quo to change anyway. In the changing world of the Information Age this may be a dangerous assumption: an organisation in a networked society must work with stakeholders (clients, regulators, suppliers and competitors in the commercial sector and donors, governments, non-governmental organisations and others in the not-for-profit sector) who have quite different expectations and motivations.
A tyPIcAL tooLKIt For executIveS The above questions may tempt the reader to call for a consultant to find the answers. This may not be in the executive’s best interest as consultants come and go, leaving behind them a report which may or may not be read in detail and for which they assume no liability. An audit may be a better option. In addition to audits (discussed below) there are other tools that could be used internally requiring different degrees of effort. A companion volume to this book, the Toolkit for Executives contains a collection of such tools as well as checklists and lists of proven practices. A few of the tools are presented here.: Tool 1: Audits for ICT effectiveness and efficiency metrics Tool 2: Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis Tool 3: How agile is your ICT organisation? Tool 4: Organisational information intelligence Tool 5: Organisational metabolic rate
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Tool 6: The balanced scorecard for ICT Here are some brief descriptions of what these tools do. Tool N° 1: Audits and other tools for ICT effectiveness and efficiency metrics The various components of this tool need to be invoked by an executive. These are of various degrees of complexity, and fall in three categories: Surveys, Audits and Benchmarks. 1.1. Surveys are used to discover what people in the organisation feel about ICT – for example user satisfaction surveys and client or stakeholder satisfaction surveys. This can be simple questionnaires or forms placed online on an Intranet or website or also interviews with a statistically meaningful sample. Such surveys provide feedback on the efficiency and effectiveness of ICT as perceived by the people for whom ICT services and facilities are intended. The grading that can be obtained from such surveys is fairly coarse, usually five levels between “Highly satisfied” and “Highly dissatisfied” and most people, unless assured anonymity, will be cautions rather than candid. The statistics produced by the Help Desk (when they do) can also be good indicators. These would include: average number of calls to the help desk per day, most frequent problems, most frequent callers). 1.2 Audits (internal and external). I.T. audits are the means through which executives can strengthen the governance of how technology is deployed in an organization. These audits provide facts-based, independent and unbiased views on what is really going on in activities such as Information quality, Risk management, Information (in)security, Maturity of I.T. processes, Alignment and value added, Regulatory compliance and Compliance with enterprise policies. Audits can also identify weak controls that can be abused with criminal or malicious intent as is the case of fraud perpetrated through the use of computer systems.
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When should an organization conduct an I.T. audit that is not imposed by external requirements or in the absence of an audit strategy? I.T. audits should be considered when executives cannot give informed answers to the few questions below as this suggests that I.T. governance is weak. No disrespect to CIOs, but they should not be the person to give the answers. Managing expenditures and value How trustworthy is the information created by our systems? How good has the return on I.T. investment been over the years? How well aligned are our expenditures on I.T. with our business priorities? Risk management Are we complying with legislation and regulations with I.T. implications? How much risk of data disasters or fraud do we face? Could our organization survive an I.T. disaster and recover from it? I.T. performance (outsourced or not) What I.T. assets do we have and how well are they used? Does the I.T. function deliver as promised? What are the track records of the I.T. function and of I.T. projects? Are we good enough at managing changes in I.T. projects and activities? Are there weaknesses in our I.T. that we should know about? Whether the corporate risk associated with not having good answers to these questions is acceptable, must be determined by each organization.
value delivered by I.t. audits
“Value” is a difficult word because it means different things to different people. For an operations manager it could mean reducing costs while for a shareholder it would mean an increase in the price of a company’s stock. For this article, value to an executive means avoiding surprises. Such surprises could include computer disasters that paralize the organization or that major investments in I.T. end up not adding real business value. A professional independent audit will deliver value in the form of an exit meeting where the findings, observations and recommendations can be presented and discussed, followed a few days later by a report based on evidence (records, statements of fact and other information that can be
CROSSING THE ExECUTIVE DIGITAL DIVIDE 37
verified) and includes management’s response to the recommendations made. Such reports will be effective if they recognise that: • • • • the target readers are busy, don’t like bad news and prefer solutions to problems; its recommendations are prioritized, relevant and worthwhile; no action will be taken unless the reader is totally persuaded of the need; nobody will remember what was in the previous audit report (which may be so carefully filed that it cannot be found)
Audit reports can (see “Choosing the right type of audit” below) cover risks such as weak controls, poor practices, specific areas of risk, noncompliance issues, missing and incomplete policies and missing or incomplete activities or focus on benefits such as demonstrating alignment, effective procurement of I.T., benefits delivered and ROI. These reports will provide executives with information they did not have before and focus on big-impact items and propose realistic actions to address them. The findings should go beyond stating what is wrong and include a discussion of why. The audit should also give the organization pointers to good practices and methods for self-evaluation. In our less-than-ideal world, the following detract value from an I.T. audit and should be addressed in the definition of the audit scope of the audit and when selecting the auditors: • • • • A report that takes so long to produce that time would have been wasted in dealing with findings of substance; A report that essentially contains information that was already known prior to the audit (sometimes this is useful if it confirms that some concerns were justified); Long lists of nit-picking issues and (too many) recommendations that would not result in significant improvements; Using the audit as an excuse to take actions already decided such as a decision to outsource or to replace the CIO.
critical Success Factors (cSFs) for I.t. audits
This article focuses on four CSFs needed for a high value audit outcome These are: Choosing the right type of audit
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Choosing the right auditors Deciding who gets the audit report The attitude of the CIO to I.T. audits Choosing the “right” type of audit Just as there are many types of medical examination, audits (internal or external) come in several flavors, as shown in the picture. Each one will have its specific benefits as well as associated costs and duration.
Each intersection in the figure defines a possible audit framework. The closer you are to the point of origin of these lines, the less confidence you should have on your I.T., even if you did not have any major problem so far. The factors that influence the decision of which audit is “right” in any given situation are:
I.T. audits can be grouped into six main categories. Experienced auditors often add one more, informal, category: the “the smell test”: there are I.T. organizations run in a way that an experienced auditor will quickly determine that they “stink”. Common indicators include: dirty and untidy computer rooms, spaghetti cabling, incomplete or no documentation, unsupported (and even unlicensed) software, easy access to facilities and/or no fire extinguishers, the lack of a standby generator and more of the kind.
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General Controls Reviews (GCR) These audits are the most common and provide insights on how I.T. arrangements affect the applications used by an organization. Typical GCRs use questionnaires or checklists to examine topics such as physical security, access controls, systems development methodology, contingency planning, data integrity and authorization and authentication technologies. GCRs are usually conducted by auditors that have a general (not specialized) knowledge of information technology and also by external auditors as part of their statutory audit work: to express an opinion as to whether the financial statements of an organization show a true and fair view of the situation and comply with relevant legislation. Such audits, particularly those focusing on financial systems that contain numerous programmed procedures will also examine controls over systems implementation and maintenance, systems software, computer operations, program and data file security. The “smell test” is particularly useful when dealing with a large and complex I.T. environment that is poorly documented and has not been recently audited. Compliance audits These are conducted to certify that an organization’s I.T. infrastructure, applications and controls meet the requirements of a) the law, b) relevant regulations or c) the policies and standards the organization has adopted. Examples include: The Sarbanes-Oxley Act (USA), the Data Protection Directive (EU), the Health and Safety Act (UK) and ISO 17799 (information security). Compliance audits may be mandatory. COBIT based audits The Control Objectives for Information Technology (COBIT) of the Information Technology Governance Institute have been widely adopted. COBIT is structured in four sections: Plan and Organize (mainly concerned with the governance of I.T.), Acquire and Implement, Deliver and Support, Monitor and evaluate. Each of the 34 controls in COBIT has guidelines for defining sets of Key Goal Indicators and Key Performance Indicators. COBIT also includes the concept of maturity levels against which to examine each control. The six levels of maturity are: 0: non-existent, 1: initial or ad-hoc, 2: repeatable and intuitive, 3: defined process, 4: managed and measurable, 5: optimized.
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COBIT does not specify what the appropriate level of maturity for an organization should be although levels 0 and 1 are unlikely to be of much help to anyone. Data analysis audits These audits are found in the grey area between audits and investigations. Audits that require auditee data to be extracted and analysed (frequently when fraud is suspected) is supported by Computer Assisted Audit Techniques (CAATs) and data mining software that can be used on huge databases to narrow down and be able to focus on specific issues. Technical reviews These consist of in-depth analyses of a computing environment and includes operating systems, application systems, networks, connectivity, internet and intranets, disaster recovery and business continuity plans, vulnerability review, business applications, change management, IT strategic planning, and any other I.T. issues relevant at the time of the audit. These reviews, carried out by specialist auditors, should provide authoritative and objective opinions on the extent to which an organization can rely on systems and technologies. Their detailed nature also implies that these audits require considerable time to complete. Implementation and post-implementation benefits audits Pre-implementation reviews and audit participation in the development of a computer system project are the cheapest and most effective way to provide for systems auditability and adequacy of controls. Finding that these are insufficient at the stage of rolling a system out or once it is up and running implies additional programming, change controls, testing and disruption to end users. Post-implementation benefits audits are the least frequently performed. Their purpose is to validate that the future benefits used to justify an I.T. project have been achieved. These audits are an opportunity to strengthen the evaluation of business cases for I.T. investments, for which there is a tendency to claim that benefits are “intangible” or otherwise difficult to quantify even though such investments can reach tens to hundreds of millions of dollars. While the case of post-implementation benefits audits appears strong, these are difficult, time consuming and, by implication, costly. They are
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definitely worth doing to reach better decisions in future if past implementations failed to deliver the benefits expected of them.
“Rarely” – including “never before” and “not for a long long time” are common situations outside the financial services industry and particularly noticeable in small organizations. “After a crisis” is a common reason for calling the auditors. A crisis can be anything from discovering, for example, after a power cut that the computer room has no standby power supply, that data has been lost or disclosed, fraud, a logical bomb followed by extortion and other unpleasant surprises. “For every major project”, where “major” should be taken as a something that has high visibility in the organization’s budget and/or is critical to its future activities.
Audits disrupt the day-to-day activities of an I.T. organization as the CIO and many of the staff need to meet with the auditors, provide documents, discuss preliminary findings. It is therefore good practice to agree on the scope of audit to be just “good enough” to meet requirements. Besides Internal Audit units are often unable to resource extensive I.T. audits. Contracting this work out is an additional expense and there is merit in scoping the audit to be also quick (= less expensive). A detailed review of controls in a major and complex application such as a customized ERP, or for the configuration and controls of operating systems (e.g. IBM’s family of TPF, z/OS, and Linux in one data centre) requires considerable expertise and time to be conducted at a depth that produces dependable results. Organizations for which certification is important, for example to ISO 27000 “Information security management system requirements standard”, must accept that such audits are mandated by certifying organizations and that they need to be conducted at prescribed time intervals. Financial benchmarks These are harder to establish and, from a corporate perspective, probably the most useful. They relate to how much is spent on ICT and how
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effectively. Typical benchmarks would include the Total Cost of Ownership1 for a networked personal computer – a figure that will vary according to the model adopted, but which in 2004, several independent sources put at around 10,000 US dollars per year. The book “The Squandered Computer”2, remains among the best sellers on this subject. Other tools A companion publication, “The executive toolkit”, contains many other tools and provides guidelines on their use. Five of them are briefly discussed here: Tool N° 2: Strengths, Weaknesses, Opportunities and Threats (SWOT) analysis Organisations are complex systems that serve no purpose working in isolation. As complex systems they are not perfect and each organisation, regardless of what they do and where they are will have strengths and weaknesses. Most organisations are willing to recognise and make explicit their own strengths (sometimes overstating them). They may be less willing to admit to their weaknesses, legacies and constraints, and even less willing to take action to deal with them. These are often rationalised and accepted as things that are “too difficult” or that cannot be changed (a myth invented by people who have an interest in maintaining the status quo). External factors can be described as either opportunities and threats.
Chapter 5 The squandered computer, by Paul Strassman, Information Economics Press, 1998
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Combining these four, Strengths, Weaknesses, Opportunities and Threats in a single reality check, is called a SWOT analysis. This has the merit of being quick and simple to conduct as it requires filling a simple table. This process can be particularly useful when conducted independently by several people, internal and external, representing different perspectives or roles with regards to an organisation and consolidating the results into a final table. Differences emerging from this consolidation merit individual discussion as they will identify how a situation is perceived by various parts of an organisation. Clarifying these differences will be a major benefit in itself. Tool N° 3: How agile is your ICT organisation? ICT organisations have their own culture and dynamics. They range from the highly dynamic, innovative and responsive to the ever changing needs of an organisation, to the lethargic and uncaring. The areas covered by a typical agility checklist are: • • • • • • Relevance of agility to the organisation; ICT governance; ICT personnel and the ICT organisation; Technology; Cost structures; Focus.
A “perfect” ICT organisation would score the equivalent to an olympic gold medal. A low score points to a lethargic organisation unable to meet its stakeholders expectations. Tool N° 4: Organisational information intelligence This tool is used to identify the role of knowledge work in an organisation. Knowledge work includes analysis, diagnostics, evaluations, research, software development, statistics and similar activities. The determination of organisational information intelligence uses two simple analyses: An assessment of the percentage of people engaged in knowledge work. A high percentage (more than 70%) describes an organisation where
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workers have considerable independence and individuality and are therefore not easily interchanged or replaced. Organisations where this percentage is low, typical of those engaged in structured and repeatable processes have substantially different ICT needs. The second analysis permits an assessment of the degree to which knowledge workers are able to exploit the organisation’s information assets. In their article1 Managing by Wire Haeckel and Nolan introduce the concept of an Information Intelligence Quotient (IIQ) describing the importance of three activities in the effective use of information: • The ability to define information needs, find this information from internal or external sources and access the information if such access is not restricted. This involves more than using Google as the knowledge worker must validate this information prior to its intended use. The ability to integrate the information found with other sources to create a new information product (report, analysis, etc). When this work is done by a team or involves collaboration with other knowledge workers, the ability to share information, in cultural, physical and electronic terms determines the outcome of such activities. If there is a culture of “information itself is power”, sharing will be limited. The ability to extract meaning from data. This is vital in knowledge work and requires a detailed understanding of the way in which data has been defined, captured and processed. For example, distance could be measured in miles or kilometers and errors in the interpretation of such data could result in meaningless results.
Harvard Business Review, Managing by Wire, Sep-Oct 1993) Stephan Haeckel and Richard Nolan
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Tool N° 5: Organisational metabolic rate Every organisation has its own way of doing things, defined by its history, culture, management style and operating environment. The metabolic rate defines how quickly it can move to accomplish specific objectives such as procurement and recruitment. Other of metabolic rate indicators relate to flexibility in the application of rules and regulations and how budgets are managed. This metabolic rate is deeply ingrained in culture and behaviour. A slow metabolic rate will work against things that are urgent and important, even if the end result is “saving money regardless of cost” and firefighting while waiting for things to happen. At the other extreme, the expectations of organisations with a very fast metabolic rate drive the pace of work and there is a risk of burnout for those who cannot sustain the pace. Burnout results in waste and bad decisions. Organisational metabolism defines the practicality of plans for change and for major projects – ambitious plans are incompatible with low metabolic rates and an inability to mobilise resources quickly in the ICT function is incompatible with the expectations of a fast moving organisation. Tool N° 6: The balanced scorecard for ICT The balanced scorecard (BSC) introduced in 19922, provides a different perspective from traditional management reporting based on lagging indicators and assumes that information about how an organisation performed in the past supports a limited ability to project how it will perform in the future. Besides, the authors argue, pure financial indicators used in traditional reporting are not sufficient to understand the value of intangible assets such as data, information, customer goodwill and others.
The Balanced Scorecard: translating strategy into action, by Robert S. Kaplan and David P. Norton. Harvard Business Review.
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Supporters of the BSC claim that it enables more rational decisions to be taken by having a better understanding of their future impact. The basic BSC proposes four linked perspectives, including the traditional financial one and is used to examine the interactions between these perspectives. The BSC can be made to fit circumstances where a smaller or greater number of perspectives is required. In addition to its role as a management tool, the BSC is also seen as a valuable mechanism to gain clarity regarding strategy and as a communications tool.
executIve dILeMMA: tHe AudItorS’ rePort on Ict This, and other executive dilemmas in this book, has multiple possible answers and no single right answer that would apply in all circumstances. The Internal Auditors of a large multinational delivered a confidential and sensitive report to the Chief Executive: the ICT function, which had not been the subject of a technical audit for several years, is responsible for several exposures for the company. The summary findings of the report indicate that: • The Chief Information Officer was unable to work effectively with Business Units to deploy standards for technology and computer applications across the company – many Business Units had become autonomous in ICT and were working without due regard to best
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practices ignoring corporate needs for the integration of data. However, because things work quite well, both the CIO and the Business Unit managers are comfortable with the situation. There is weak compliance with corporate policies concerning the use, misuse and abuse of ICT, and these policies need updating. In addition, the company does not fully comply with some areas of recent legislation, notably on the accuracy of financial reporting and on the prevention of fraud and other criminal activities. The cost of service provision in ICT was assessed as being clearly higher than necessary due the weakness of corporate controls on ICT expenditures. The ICT function is large – 850 people distributed among several locations in different countries and is responsible for a substantial portfolio of critical applications. However, it is not fully aware of the ICT activities at the business units and there is no longer a comprehensive view of ICT across the company.
Where would you start to unravel this situation and how would you go about it? While now there is little point in assigning blame, what do you think caused such a situation to develop and was there something executives could have done to prevent it from escalating to such a level?
ActIon PoIntS If your organisation’s ICT performance, business impact and value for money seem fine: Congratulations! You are among the Winners of the ICT Board game (not a crowded place). The challenge now is to remain at this level. If there appear to be doubts, concerns or problems about performance, costs or in difficulties in assessing the value added by ICT: Things will not get better by themselves – the reverse is more likely. In these circumstances, executive action is necessary to diagnose the true nature and extent of the problems in order to take appropriate corrective action. When a SWOT analysis is insufficient and the financial data on costs and benefits is inconclusive, incomplete or incomprehensible, it is recommended to carry out a series of audits of the ICT function, specifically:
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• • •
A technical audit if there are performance problems and/or A financial audit if the true costs of ICT are unclear and/or A board level review of the benefits delivered by ICT in the last few years, and, if these are unclear or undefined, the development of a new strategy to change the situation.
and, in parallel, conduct an assessment of skill gaps for the people who use the computer systems and ICT facilities of the organisation – part of the problem could be their inability to exploit the tools put at their disposal due to lack of training or other essential ICT skills. Other audits that may prove necessary if the outcome of the previous audits gives cause for concern may include: • • • Compliance with national legislation relating to ICT (data protection, privacy, cybercrime, health and safety at work, etc) Compliance with policies relating to the use, misuse and abuse of ICT Information security audit
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Supplement: The 34 areas of control of COBIT V.4 of 2005
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34
PO PO 1 PO 2 PO 3 PO 4 PO 5 PO 6 PO 7 PO 8 PO 9 PO 10 AI AI 1 AI 2 AI 3 AI 4 AI 5 AI 6 AI 7 DS DS 1 DS 2 DS 3 DS 4 DS 5 DS 6 DS 7 DS 8 DS 9 DS 10 DS 11 DS 12 DS 13 M M1 M2 M3 M4
Planning and Organisation Define a Strategic IT plan Define the information architecture Determine technological direction Define the IT processes, organisation and relationships Manage the IT investment Communicate management aims and direction Manage the IT Human Resources Manage Quality Assess and manage IT risks Manage projects Acquisition and implementation Identify automated solutions Acquire and maintain applications software Acquire and maintain technology infrastructure Enable operation and use Procure IT resources Manage changes Install and accredit solutions and changes Delivery and support Define and manage service levels Manage third party services Manage performance and capacity Ensure continuous service Ensure systems security Identify and allocate costs Educate and train users Manage service desk and incidents Manage the configuration Manage problems Manage data Manage the physical environment Manage operations Monitoring Monitor and evaluate IT performance Monitor and evaluate internal control Ensure regulatory compliance Provide IT governance
The full material of COBIT (CDROM, books and other material) can be obtained from the Information Systems Audit and Control Association (http://www.isaca.org)
C h a p t e r
Information assets and technology
It is not what technology can do that matters. What counts is what you can do with it
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Key queStIonS And cHAPter SuMMAry • What are the differences between data, information and knowledge? • Transaction and knowledge workers: what exactly do they do and why does it matter? • How do businesses and organisations use information and knowledge? • Why is information quality important and what determines quality? • What is the appropriate role for technology in “Information Technology” and what does it take to be able to exploit it? • Asset management for information systems and technology: does it make sense?
Organisations invest in information and communications technologies because they have a need to process, store and disseminate information in a combination of many possible ways. Technology is neutral: it can be used to advantage and it can also be misused and abused. Beyond this, when the skills needed to use of information as a resource are weak or absent, technologies become an unproductive or wasted asset. Making the best out of ICT that data and information be treated as assets and that the people who use these technologies have an adequate knowledge of how the tools should be used and the skills to assess the quality of data and information. One of the earliest sayings in the ICT industry was GIGO: garbage in, garbage out. This continues to be true
dAtA, InForMAtIon And KnoWLedge Data is no more and no less than symbols about the property of something. Data can be observed, measured and collected and then used for reasoning or calculation. An example of data would be the number that appears in a house’s electricity meter. Information is obtained when data from one or more sources is summarised and organised for a purpose and in a given context. Information can be presented in multiple formats (text, images, video). The invoice from the electricity distribution company that arrives after the meter has been read, shows the difference between two readings (data)
A major challenge to the exploitation of data is the often weak understanding of the semantic meaning of data. The Mars Climatic orbiters that crashed in November 1999 did so because distance data was processed in metric units by one system and imperial units by another one.
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and applies a tariff to the quantity used (data) and becomes information for the recipient. This information leads to an action, payment. Knowledge is harder to define without getting into philosophical arguments. A definition that works well is that “knowledge is the ability to use information to do something with it”. While information can be collected, distributed and shared, knowledge is an individual’s attribute and, as such, hard to detach and transfer. In most cases it is difficult to acquire. The lowest level of knowledge is awareness: to know about something. Visiting a website that discusses tropical birds or the origins of colour television, will give the visitor information that can be absorbed and put in context with what the person already had found out about a subject. Knowing about something is not sufficient to learn how to do something. Reading books about playing the piano will not make the reader a a proficient pianist. Knowing how to do something requires practice and a transfer of advice and experience from somebody who already knows how. The highest level of knowledge is reached when a person understands why something is the way it is – the level at which theoretical physicists, economists and other researchers operate, building frameworks and applying analytical and systems thinking skills as well as creativity. The pursuit of knowledge and the collection and sharing of information have a prominent place in human history. The earliest technologies were used some 30,000 years ago to leave paintings in caves detailing the environment of their inhabitants and these evolved some 5,000 years ago to the point that gave us writing and devices that could store information (clay tablets then).
• More information has been produced in the past 30 years than in the previous 5,000; • A weekday edition of The New York Times contains more information than the average person of the 16th century would encounter in a lifetime ; • The amount of available information now doubles every five years.
Technology in various forms - newspapers, reports, TV, cellular phones, websites, e-mail and more has enabled this proliferation. We are now hooked on technology and in this overload scenario, we are all faced with warehouses full of information that we have not yet learned how to exploit.
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While organisations have a senior person with a title like Chief Information Officer, much of their time is devoted to managing technology and service delivery and not to managing the data and information that technologies process and store. Responsibility for data and information is usually distributed among several functions or departments. To complicate matters, authors, consultants and vendors talk about knowledge management (KM). Solution sellers will say that KM will “enable workers to capture, manage and share information throughout their organisations”. Consultant-speak turns this into “leveraging assets and experiences” and other such words that fail to address the cultural barriers to sharing information and the difficulties inherent in transferring knowledge. The cook, knowledge and experience The fact that most accounting functions are done using computers is taken for granted. In the light of recent financial misadventures, the idea of “cooking the books” leads to the cook metaphor: the cook is an example of how a knowledge worker operates. What does a good cook do? 1. Selects ingredients for their suitability and quality; 2. From training and experience, the cook knows how to prepare and combine these ingredients for maximum effect – how to cut them, mix them, how long to cook them for, what to add and in what quantities; 3. Arranges the cooked ingredients into a plate ready for serving at the right time. A good cook is also able to produce different dishes from essentially the same ingredients. A cook uses an array of technology – knives, blenders, whisks, pots, pans, let alone refrigerators, freezers, microwave and conventioanl ovens. As anyone who has tried their hand at cooking knows, the end result will depend more on the ingredients and preparation than on the tools used to prepare them.
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Moving out of the kitchen into an office, (where nobody is cooking the books!), a knowledge worker must find the right ingredients (data and information) to accomplish a given task and use experience and judgment to combine them in the right way to create new information to meet a particular requirement. Does this information have value? Organisations think it does as otherwise they would not employ people to work with information. Some information has a clear commercial value, for example patents, proprietary processes, the ownership of a unique photograph, breaking news and other privileged information. In many other cases, such value is not evident. Trying to put a value on data and information is no different from trying to measure pain because there are no common units of measurement, and its definition involves many subjective and intangible elements. This situation is not satisfactory from an executive’s perspective, as investments in ICT are significant and technology alone does not contribute to results – only the way technologies are used does. In a letter to the MIT Technology Review (September 2004), Paul Strassmann writes that … “IT is a catalyst of excellence but also an accelerator of incompetence”.
HoW orgAnISAtIonS uSe InForMAtIon The different ways of working with ICT ICT vendors have several things in common with drug dealers: • • • They refer to their clients as “users”; Their products can become addictive (computer games, SMS on cellphones, etc.); Many products can be used without an instruction manual.
Access to ICT does not guarantee that it will be used to good effect –computer games in the workplace are a good example of negative productivity. When computer games are not available, there are alternatives, such as giving unlimited unmonitored access to the Internet to all computers on a network.
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The earliest applications of ICT in organisations (in the 1950s and 1960s) were for the support of repeatable, structured and systematic activities (processes) such as payroll and financial accounting. Process support is close in concept to the use of machine tools in manufacturing – the machine (in this case the computer, software and other components) does the work and the operator feeds the machine with raw material (data). The worker does not need to have special skills or a deep understanding of what the machine does or how it does it: the systems are designed to do the “thinking”, which is not really thinking but the systematic application of the steps and business rules built into the software. Taking the examples of a supermarket cashier or an airline seat reservation, ICT is used for process support, and as each article processed or reservation are individual transactions: the worker is a transaction worker. Transaction workers are trained in the use of systems without much difficulty and are also interchangeable. Automation is used to deskill tasks, and has social consequences – alienation and lack of mental stimulation. When process support is combined with publication – for example the Frequently Asked Questions pages in an e-commerce website - this is done to enable the client to operate on a self-service basis. In many cases it takes a great deal of knowledge and skills to find a way to actually contact a person at the online vendor’s organisation. The left hand side of the chart deals with a different dimension. Here the worker uses the machine in order to support her or his thinking and creative skills. In a book published in 1988 (In the Age of the Intelligent Ma-
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chine), the author, Shoshana Zhuboff, introduced the concept of “informate” to denote the opposite of “automate”. Today, this is now referred to as knowledge work. Knowledge takes many forms, from statistical analysis (for example, what is the average expenditure of a client in a supermarket) to complex operations on large amounts of data, such as data mining, pattern recognition and discovery (for example, what is the busiest day/time for a supermarket and what are the most popular items sold during that period). Other types of knowledge work consists of remote diagnostics from computer room hardware to telemedicine. “End user computing” is another kind of knowledge work – this worker is self-sufficient to do some computer programming and capable of creating templates, macros, models and other programs for their personal use. While useful End User Computing , if not well managed, can cause undesirable side effects – in a bad scenario information anarchy – by enabling inconsistent, incompatible and possibly doubtful quality applications all over the place. Another form of end user computing is the design of web pages and departmental websites. This can also create information anarchy. Simulation, modeling and virtual realities are all knowledge work. Here computer systems behave as “real” objects or processes to support research, validate theories and create environments which do not exist in reality. The digital imaging used in movies and other creative endeavours is a related example of the creative use of ICT. Networking also enables online collaboration, where knowledge workers at different locations, and possibly timezones, can work together on projects ranging from report preparation to software development. An example of this are projects where software development is shared in centres across the world to give a 24 hours design capability (for example USA, Europe and India sharing the development of a project) and other complex projects sometimes involving workers from different companies working on a joint venture.
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Similarly, groups of knowledge workers can use networking facilities and tools to create communities of practice to discuss problems of common interest, creative solutions to such problems and foster information exchanges. Contrary to transaction workers, knowledge workers are not easily interchangeable. Companies and organisations that realise the importance of knowledge work and their dependence on such workers, reward them accordingly - particularly in competitive environments. Publication vs Personalisation Publication is a well establsihed use of information. A recent trend enabled by knowledge work is that of personalisation. This, instead of providing a “one size fits all” collection of information, as traditional publication does, allows the dissemination of information to be tailored for an individual. One example of personalisation is subscribing to alerts services that send an e-mail every time there is an item published or posted on a website that meets an individual’s specified profile. Another example is where an e-commerce supplier recommends items based on a person’s past queries and purchases as well as on what other people with similar buying patterns have also bought.
different profiles of information use
There is no “standard” way of using ICT, even though many components of ICT have become commodities. Using the framework presented earlier, this chart illustrates the different emphasis that different organisations place on the use of ICT. While every organisation will apply these technologies differently, the basic rules of what it takes to succeed in this are essentially the same.
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Information science and information management are much older than ICT. Many aspects of it are hundreds, if not thousands, years old, going back to the oldest libraries.
A man with one watch knows the time. A man with two watches is never sure. Unattributed statement
Returning to the cook’s metaphor, the science of information management is the equivalent of ensuring that the ingredients are appropriate for what will be cooked. Data administration is the function that looks after the definitions of all important data in an organisation – not only semantic definitions “what is an employee” but also how these are encoded and formatted in various databases. Weak data administration can lead to incompatibilities – where systems are unable to exchange information or can only do so after some kind of conversion with the risk of confusion if the semantic meaning of different data definitions is inconsistent. A good example for the need for data administration can be found in a computer system for human resources management:
In theory, it is possible that a single computer system will handle all the functions relating to an employee as shown in the diagram. It is more likely that several of these functions are handled by separate computer systems, possibly owned and managed by different departments - for example membership of the pension plan, medical insurance with a third
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party, cellphone charges, IT equipment and systems access, telephone directories, etc. Unless all of these systems have consistent definitions of “employee”, confusion is certain to occur. For example, should contractors engaged for a long period of time be included in the telephone directory? – and what about interns and trainees?. This begs the question whether an organisation actually has a single telephone directory – it is not uncommon for large organisations to have several directories and for these not to be synchronised. Lack of care with regards to the completeness and accuracy of data, could result in problems, including legal ones such as failing to comply with Data Protection and Privacy legislation. Database administration is a function performed for one or more related databases. One of its objectives is defining who has the right to access what data and ensuring that data is not modified by unauthorised individuals. This is critical to avoid breaches of confidentiality (what is the boss’s salary?) or fraud (modifying one’s annual leave record or transferring funds to a personal account). Given the growth of cyber-crime, sound mechanisms and controls must be in place in all database administration functions where security and confidentiality are important. Access rights and policies extend beyond the database administration function, as these cover access to networks, to the Internet and other functions. These are the responsibility of system and network administrators. The fragmentation of these responsibilities require executives to put in place governance and oversight mechanisms as self-defence measures. Quality Assurance Just because data or information has been bought, printed or obtained through a computer it does not mean that it is necessarily suitable for a particular need. It may not even be correct. A “quality” information resource is one that meets the needs of its end-user.
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The quality of an information resource is determined by factors grouped in three categories: Content, time and format. Content quality relies on the degree to which the information resource is accurate (if a study of weather requires temperature information to an accuracy of one tenth of a degree, anything that is accurate to one degree will not do), the degree to which it is complete (if such temperatures are only available for Europe and the study is global…) and its traceability, does it come from an authoritative source and can it be substantiated or validated with other sources? Time is defined by currency and timeliness: • • To state that there are 750 million people that have access to the Internet may be accurate but of little use unless this information states the date on which this was established; A manager that needs a report on daily operating incidents needs such a report at the end of each day (or early the following day) not “mañana” - some undefined future time.
Format is important to make the information resource usable. It is defined by presentation, style and media: having to find just one item of information in a 200 page report written in bureaucratese or in a foreign language implies that the report is not the most appropriate format, particularly if it is printed. Similarly, a report in electronic form but produced using some exotic software that cannot be easily converted to a more common format is equally problematic.
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tHe roLe oF tecHnoLogy The range of computing and communications technologies keeps growing. The most common technologies are:
NB: COTS stands for Conventional Off The Shelf (software) All of these technologies should be recognised as assets and be traced through inventory numbers, contracts, licences and other documentation. Critical points about technology: # 1 Technology is no more than a tool. It can be used to advantage, misused and abused. U.S. President J.F. Kennedy said in 1962, “space science, like nuclear science and all technology, has no conscience of its own. Whether it will become a force of good or evil depends on man”; # 2 ICT has relatively short life cycles driven by innovation and marketing; A personal computer is considered “old” after four years, the life of notebook computers in a corporate environment is around three years. Servers of all kinds (including mainframe technology) have a service life of no more than five years. The longest-lasting ICT components are cabling (ten years) and robotic tape management systems for storage (ten years and more). New versions of corporate software (Peoplesoft™, SAP™ or Oracle™ applications for example) are released at relatively short intervals of less than 5 years, followed by the withdrawal of vendor support for older versions after another year or two. This makes upgrades to new versions mandatory or cause clients to take the risk of working without vendor support, something some organisations choose to do.
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# 3 ICTs are marketed to a wide population – many ICT items found in an office or corporate environment are also for sale in supermarkets and many people have such technologies in their home. Like the fashion industry, it thrives on obsolescence and on creating a “need” for bigger, faster, feature-rich gadgets which translate into high expectations in the workplace. Does a transaction worker really need a high power computer with a super-fast video card, stereo speakers a DVD player and more when it is possible to buy a basic computer for office use for considerably less? # 4 These factors combine to take a substantial percentage of an organisation’s ICT budget just for operations, upgrades and maintenance – typically 70 percent of the budget, leaving only 30 percent or so for innovative development and new applications.
exploiting data, information and technology
Even the best technologies cannot help those who are culturally reluctant to use them (like the technophobic executive who never sent an e-mail and has their incoming e-mail printed by their secretaries (they do exist) or the person who has never bought anything online. Most critical are those employees who lack the basic skills on how to use these technologies the corporate equivalent of the person only able to put a frozen meal in the microwave oven. Technology will not make them a become a better cook. The identification of skills gaps, briefings, training and due attention to the need for such skills during recruitment are vital factors for an organisation to be able to exploit their information assets.
MAnAgIng InForMAtIon ASSetS AS A PortFoLIo Data and information, ICT hardware, software, databases, licences and contracts should be regarded as an organisation’s assets. The purpose of portfolio management is to ensure that the organisation knows what it information assets has and what it knows about them. This approach offers important benefits. A key benefit is the ability to strengthen the alignment of ICT investments with business objectives and the governance of ICT in the organisation.
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Other benefits are the enhanced visibility of the organisation’s information assets and the possibility of consolidating systems, facilities and contracts. In addition, good asset management practices lead to reduced costs and improved risk management, notably the risks of: 1. Multiple (and incompatible) implementations of systems to perform basic business functions such as accounting, human resource management and payroll; 2. Inconsistent data definitions used in business units and departments that make it difficult to aggregate and compare data across the organisation as a whole; 3. A lack of knowledge about systems which are underused or not used at all; 4. Investments in systems that do not contribute business value. 5. Loss of data – including user identities and passwords and other potentially critical data as a result of theft or careless disposals of older equipment (data and software on hard disks); 6. Legal exposures as a result of disposals that do not meet environmental regulations, observance of the terms and conditions of software licences, intellectual property infringements, etc; 7. Infringements of the terms of contract of software licences, leases and outsourcing; 8. Failure to meet regulatory requirements such as those in Data Protection Directives, Financial Services Authorities, Health and Safety at Work, etc.; 9. Loss of reputation as a result of being seen as having suffered any of the above.
Implementing asset management for Ict
ICT Asset Management is the collection of processes that create and maintain an inventory of the organisation’s knowledge of their information systems, facilities and services, including all hardware, software, licences, contracts including those for services. This information is used for managing the financial aspects of the ownership of such assets, their total cost of ownership, depreciation, licensing, maintenance, and insurance. More importantly, a well managed portfolio of information assets can be used to support forward planning
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and strategic management of ICT. A portfolio is expected to include four major sections:
Each of these sections may be maintained by a different organisational unit and these individual sections integrated by one person, perhaps the Chief Information Officer (unless the role of this person is limited to infrastructure and basic ICT service provision) or a senior executive responsible for planning and strategy.
Skills asset management
The return on investments made in ICT systems and facilities will only be as good as the ability of their end users to exploit them. End users can be grouped in three categories: • External users such as e-commerce clients or partner organisations in virtual supply chains or joint ventures. These are outside the control of an organisation and training cannot be provided to them. However, an effective help desk and feedback from these end-users can be used as indicators of where to make improvements to enable them to make good use of such facilities; Internal users engaged in process support (transaction workers), performing structured, largely repetitive tasks with a limited number of systems. They can be naïve users, trainees or experts. Training, good documentation, help desk facilities and performance monitoring are essential components of skills asset management. There is merit in recording the ICT skills of individuals, particular-
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ly those of using non-COTS (conventional off the shelf) software in their H.R. records and conducting training needs analysis to ensure the maximum return on training investments. Internal knowledge workers performing analysis, simulations, business intelligence, design, etc. These are value creators. Ensuring that they have and maintain an appropriate level of skills in the use of ICT is critical to the performance of their work.
Infrastructure Asset Management
Starting with a full inventory of hardware, operating system and other utility software, networks, infrastructure asset management provides the information needed to manage maintenance contracts, leasing contracts, third party contracts for services or facilities (data links, telephone lines, Internet access, etc). Information derived from infrastructure asset management supports: • • • • plans for the renewal or replacement of equipment; compliance with the terms and conditions of COTS software licences; the financial assessment of the cost of ownership; the operations of a help desk (by identifying exactly the type of equipment, software, their location and other essential information when dealing with problems);
Such information should be maintained in a standard format at all the locations where an organisation has a presence. Although more complex to manage in a multi-site organisation than at a single location, it is an important tool for managing the cost of ICT. Information gathered through infrastructure asset management may identify opportunities for the consolidation and rationalisation of data centres, networks, help desks and other features to gain economies of scale, reduce operating and disaster recovery costs and consolidate procurement activities. When the operation of the infrastructure and basic facilities, desktop computing, etc are being or have been outsourced, the initial inventory will be an important component of the Request for Proposals and for the transfer of assets to the outsourcer. The subsequent management of these assets becomes the responsibility of the outsourcing services provider.
68 CROSSING THE ExECUTIVE DIGITAL DIVIDE Applications and Facilities Asset Management
A typical medium size organisation will have tens, if not hundreds of computer systems (applications). Such systems usually have ancilliary facilities such as off-site secure data storage, which could be application specific, and business continuity plans. Applications are rarely just “off the shelf”, and are customised to some degree to meet the specific requirements and working style of an organisation. A large organisation may have hundreds to thousands of such systems. These systems are frequently linked to exchange data and the inventory of computer systems should include a systems architecture, perhaps a diagram, identifying the dependencies of systems on other systems. Applications and facilities asset management is, by definition, the centralization of detailed information about applications with the purpose of gaining an organisation-wide picture of the portfolio of current applications, a statement of their condition and the individual plans for the future of these applications. A statement of the condition of applications is important. Applications may be in any of the following conditions: • • • • Quality software, fully documented to an acceptable quality standard; Quality software, partially documented – backlog of documentation applies to recent bug fixes and enhancements; Adequate software, partly documented. This applies to old applications (“legacy systems”) where their support depends on a small number of equally “legacy staff”; Fragile software, partly documented or largely undocumented – a clear problem area.
The work conducted by organisations all over the world to prepare for the Y2K problem saw a massive reduction of fragile and adequate but undocumented software. Individual plans for applications should also be documented in the asset management process. Such plans could be one of the following:
Retire – Freeze – Maintain - Re-engineer - Replace
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“Freeze” means that there will be no further enhancements to this application. “Maintain” means that bugs and other problems will be fixed. Reengineer means that the system will perform comparable functions using a different technical platform. This information is needed to support business decisions about proposed ICT projects, reduce diversity, cut costs and maximise the productivity and effectiveness of applications development and support activities. A word of caution: implementing an asset management system where one did not previously exist may not be welcome in distributed organisations: this will be seen as an attempt to gain control of activities where autonomy existed previously. This is a political problem. While the views of information assets at the departmental and business unit level are valuable in their own right, there is a major benefit to the executive of the headquarters/ parent organisation whenit becomes possible to gain an organisation-wide view of how ICT is structured and the identification of the opportunities this entails. A special aspect of asset management deals with the retention periods for documents and financial data which are in most cases defined by legal requirements. This raises many questions in the e-world. Must electronic mail messages be kept, and if so, for how long? Is it enough to keep “old data” in tape cartridges? In fact the answer to this last question is that it isn’t, as the software that was used to create this data must also be kept as all the tape cartridges contain is a sequence of 0s and 1s that makes no sense at all. The archival policy must make provision for keeping a working copy of all the software needed to read this data as well as its documentation.
Ict projects portfolio
This is a complete catalog of all current and proposed ICT projects indicating their relationship to the current portfolio (for example if a proposed project is to replace an existing system) and highlight how the new project will interface with existing applications and facilities. The purpose of a projects portfolio is to enable the executive to gain a comprehensive view of the future evolution of ICT in the organisation, identify potential conflicts, overlaps and duplications and, more importantly, to be in a position to decide on priorities for the allocation of resources to such initiatives.
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To be of value, each entry in a projects portfolio must demonstrate alignment with the organisation’s overall strategy and objectives as well as provide trustworthy indications of the costs, benefits and risks of each proposal, the estimated duration of the proposed project.
ActIon PoIntS Recognise that data, information and software defining your organisation’s business rules and processes are valuable assets. Prevent your organisation from drifting into information anarchy by ensuring all information assets have an identified custodian or “owner” and that a minimum set of standards is implemented and adhered to. Ensure that the organisation knows what it has and what it knows. Ensure that the workforce has the necessary capacities and skills to exploit the information assets with which they work.
C h a p t e r
Impact of ICT on organisations and on people
There is nothing more difficult or more dangerous than to try to change the order of things Niccolo Machiavelli (The Prince, 1515)
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Key queStIonS And cHAPter SuMMAry • What have we learned about the impact of ICT in the “real world”? • Should ICT investments make a difference, and if so, how much? • How do organisations and people react when confronted with disruptive change? • What are the challenges facing the non-ICT executive?
The introduction of new technology in the workplace invariably brings change with it. The amount of change that an organisation absorb depends on its culture and environment. As the father of Total Quality Management, W. Edwards Deming once said, “it is not necessary to change. Survival is not mandatory”. Given that change is opposed to human nature’s need for stability, is likely that many change initiatives will be resisted and that not all the members of the workforce can adjust to such changes, particularly if they are disruptive rather than incremental. The managerial challenges of leading change and ensuring the successful implementation and adoption of ICT initiatives are discussed in the context of organisational culture and focus on the executive’s challenge – not the technologist’s which are of a totally different nature and are discussed in subsequent chapters.
obServAtIonS Investing on ICT does not have a predetermined outcome: it may allow an organisation to become a leader in its field and it can also result no real benefits. Becoming a leader or gaining significant benefits does not come without facing the many challenges of change.
Computerising ineffective processes only speeds up the mess. Anonymous IT industry statement
Global corporate annual investment in ICT is estimated at 2 trillion US dollars (twelve zeros after the 2!). Nevertheless, the combined efforts of CIOs, executives, researchers, consultants and vendors cannot guarantee that such investments are always successful and productive. There is much literature bemoaning the difficulties in making productive ICT investments. There are also many conferences every years on how to gain more value out of ICT. These confirm that this is not a simple matter of investing and then collecting dividends.
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the consequences of myopic vision In the early 1990s several enterpreneurs – Fidelity, Schwab, E-Trade and others moved into online brokerage through the Internet. Merrill Lynch, a more conservative company, considered it and decided against it – too many uncertainties, too many risks and maybe the Internet was only a fad after all. Now, like the others, Merrill Lynch offers online trading but it missed the opportunity to be a market leader.
There are, of course, many case studies based on companies and public sector organisations that had tremendous successes deploying ICT. There are many more that discuss the lessons learned from systems that worked more or less as intended but which provided no benefits or from investments that resulted in negative productivity gains because of the inappropriate use of an employer’s information technology facilities as well as misuse and abuse. The most famous current successes include: Federal Express and UPS in logistics, Amazon in online retailing and several e-government initiatives (such as the ability to renew driving licenses or submitting tax returns on line) in several countries. Less successful ICT deployments are not talked about in polite circles unless they become known as the Great Computer Disasters like the infamous London Ambulance Service Computer Aided Dispatch system (LASCAD) of 1992, the Mars Climate Orbiters that crashed in 1999, the current US Government’s Internal Revenue Service overhaul of its systems and many others. ICT managers (should) know of such situations.
observations about Ict in the real world
Here are seven painful facts about the successful use of ICT: Observation # 1: There is a low correlation between ICT expenditures and business results. This is determined not by technology but by how it is applied and exploited. Observation # 2: ICT can make or break an organisation. An inability to succeed may lead to irrelevance or bankruptcy. Observation # 3: There is no universal process that ensures the successful deployment of ICT (if there was everybody would be using it – wouldn’t they?). The factors that make the difference between success and failure
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are discussed in this book acknowledging that every organisation is different. Observation # 4: Regardless of how good the quality of the technologies, systems and of the information handled by them, their impact depends on the relevance of the technical solution and the ability of the users of these systems to do something useful with this information.
When these four first observations are fulfilled and combined, they have a positive impact on individuals. This gives a good chance that investments in ICT will have an impact on results – profits in the business sectors and whatever other metrics of success are used in the public sector and other non-profit ventures. Observation # 5: Reward and risk are linked – innovative ICT focused on incremental improvements and low organisational or business risk will have modest benefits. High impact, high benefit ICT projects will be, by their very nature, disruptive to an organisation and therefore, high risk.
In his 1997 book “Disruptive Technology”, Clayton Christensen describes “the innovator’s dilemma” where technological innovation can cause great companies to fail. An example of this was the emergence of the personal computer, that became a respectable business tool when IBM first produced a 16 bit PC in 1980. A few years later IBM and Wang were in serious trouble because they did not have a monopoly on these PCs which were displacing demand for other products. IBM managed to get out of their bad situation in the mid 1990s and Wang has since gone out of business.
Observation # 6: Something like 70-80% of all ICT expenditures go to maintain what is already there and the remaining 20-30% is devoted to new developments. Therefore, attempts to reduce the cost of ICT by cutting budgets do not work as intended as they result in abandoning innovation, the impact on results these could have and freezing the status quo.
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Observation # 7: There are better ways to reduce the cost of ICT than cutting its budget, and these should be led by the ICT function – such as simplification, vendor management, rationalisation, adoption of best practices and outsourcing.
SHouLd InveStMentS In Ict MAKe A dIFFerence? In the Information Age, it could be assumed that few executives would say “NO”. If the answer really is “NO” – it states that In this case the best way forward would be to spend only to maintain the status quo with acceptable technical performance – minimal upgrades, essential maintenance and accept the consequences of lagging behind others. This approach can work well enough in some environments, particularly those that already work well performing functions that are relatively stable (energy generation, industrial automation) and also in environments where innovation is known to have high technical implementation risks and very high costs (as is the case in air traffic control). Many of the Great Computing Disasters revolve around attempts to replace such “old” ICT with complex innovative solutions. However if the answer is “YES”, it means that in “making a difference”, ICT implementations will change the status-quo within an organisation. This becomes a challenge to executives as change will be resisted and even opposed. Resistance to change is not new and reflects human nature, as Niccolo Macchiavelli pointed out in the 16th Century and it would exist even if ICT did not. The introduction of word processing in the late 1970s was greeted with resistance from workers and trade unions – who insisted that nobody should work for more than two hours in front of a screen without a half an hour break as there were fears that electromagnetic radiation, repetitive strain injury and looking at the screen all day would have detrimental effects on the health of workers. The popularity of computer games, the Internet and home computing in general show that these concerns were exaggerated. What happened was that the usefulness of these systems quickly overcame resistance.
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Other innovations that apparently were unlikely to change the status-quo – like the introduction of electronic mail were adopted with great enthusiasm by all but the most technophobic executives who refuse to have a computer in their office. However the impact of electronic mail turned out to be quite disruptive by enabling quick informal exchanges disregarding organisational boundaries and even protocol.
disruptive e-mail At a diplomatic reception, a senior Ambassador expressed concern that e-mail had weakened protocol and that younger diplomats no longer referred to him as “Mr. Ambassador” but addressed him in a casual style and by his first name. The Ambassador did not believe if it would be possible to return to the old protocol.
Making a difference will always have unintended consequences and unpredictable side-effects. One of the advantages of explicitly admitting that ICT investments should make a difference is that it provides a way to define how its benefits will be measured1. Information Economics is not a mature discipline – it has a long way to go to catch up with the traditional economics in which land, labour and capital are the only things that matter. One of the leading thinkers and writers on Information Economics, Paul Strassmann said that “investing in IT without verifiable benefits, is not managing, it’s gambling”. While this is totally right, there is an element of gambling in ICT investments. This is confirmed by looking at conference programs and studying ICT publications. Is it possible and desirable to break out of a cycle where expenditures are made simply to keep up with technology – as in • “our personal computers are too slow and must be upgraded”; • “we must upgrade our systems to an Enterprise Resource Planning (ERP) system (or a Customer Relation Management (CRM) system”; • “we need to be in Knowledge Management” and many more similar needs. This is possible and should be vigorously pursued. Deciding on what should be invested in and its priorities is a governance issue that should not be delegated to ICT people.
the many ways of making a difference
In the same way as twin brothers will drive identical cars in different w ays, ICT hardware and software products, many of which have become
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commodities, will be applied and used in different ways in every organisation. Some will benefit from it to a high degree while others will not because ICT can be applied in non-creative and creative ways. Non-creative uses of ICT Uses of ICT that focus on process automation, increased productivity, cost reduction or simply to replicate something that has already been done elsewhere (for example not being among the first in establishing an Intranet or engaging in Business-to-Business electronic commerce) are typical situations of following the leaders rather than being creative. Non-creative uses of ICT are rarely focused on knowledge work or on empowering the workforce. In most cases they deal with tightly regulated, repeatable processes where conformity and consistency are priorities. Many of these uses will be resisted by those who prefer the status quo over change, unless their implementation does not challenge the assumption that there are certain things that cannot be changed, in which case they stand a good chance of being adopted. The benefits of non-creative uses of ICT will generally be modest, in line with their low risk. In most cases the outcome of such investments is meeting some desired targets. Such benefits can be quantified without too much difficulty. Creative uses of ICT These exploit information to create value to the organisation and/or its clients. They are also high-risk, in terms of outcome and technology because their benefits, while substantial are also speculative, thus requiring an Act of Faith from the project sponsor. The factors that unlock the value of information are complex and require appropriate technology choices, a profound understanding of the organisation’s internal unique knowledge and the ability to combine this knowledge with technology. Knowledge workers focus on the creation of products and services with a high information/ knowledge content. Current leaders in this field include: • Producers of software, modelling tools and virtual reality tools and products;
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Various forms of computer “art” such as in the film and entertainment industries; Virtual organisations where work is conducted around the globe on a continuous basis, taking advantage of skills available in different time zones
Creative uses of ICT can be found in any area of activity and will only succeed in the right cultural environment. This needs a business model in which knowledge workers are empowered to be creative and to share information and knowledge with their peers as is the case, for example, in consultancy companies, in which the knowledge capital of their workforce is a major asset.
HuMAn And orgAnISAtIonAL reActIonS to cHAnge Change and individuals Human reactions to change are predictable. Most people do not like change when they cannot control it and fear its consequences, in particular that of becoming a “loser”. A loser can take many shapes: a person who loses their job and may not be able to find a comparable alternative, a person who loses influence in the organisation or someone who is ill equipped to cope with new responsibilites and/or the need for new skills. Those who feel they may become losers will have a negative attitude to change. Many will become “tree huggers” and will argue that the proposed change “will not work”. Many will not be able to adjust to the new environment and will end up suffering from stress. More harmful to an organisation seeking change are the active resistors – the “leg breakers”. They
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will use political skills, internal networks and their organisational knowledge and experience to derail the change initiative. They often succeed. Bystanders are likely to be in the majority and will support the idea of change “in principle” on a wait and see basis. Most but not all of them will succeed in adapting. Those who fail to adapt will become legacy staff for as long as they remain in the organisation. The remaining category, the Change Agents are those who will identify, argue for and lead initiatives. They ought to be considered as star performers in organisations that think creatively about the future. They are likely to be seen as “dangerous individuals” in those organisations that prize bureaucratic conformity. The distribution of such characters in an organisation depends on its culture. Change Agents may be very senior managers or leaders – as was the case when IBM brought in Lou Gerstner to be their Chief Executive despite his lack of experience in the ICT industry – or middle managers that seize and opportunity to do something important for an organisation, such as restructuring a whole department or business unit. From time to time, the Change Agent will be a less senior manager who discovers a great opportunity and is able to share the enthusiasm for pursuing it with executives. Organisations consist of people and assets. The collective behaviour of people in an organisation defines its “organisational culture” through its activities, history, values and the expectations of the organisation’s owners. This book proposes four parameters to describe it. These parameters can take any value between the two extremes and together can be used to describe anything from a department or business unit to a major conglomerate, at least in broad terms.
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The stakeholders’ expectations – whether they are shareholders, company owners or the board of a not-for-profit organisation have a defining role in how change is perceived and pursued (or resisted). Risk averse management is a handicap in the case of an organisation facing high expectations from its stakeholders. In the private sector of many countries this is a self-correcting situation through “separation”. When stakeholders expectations and top management culture are matched by a reward system where high expectations are linked to reward by results (meritocracy), innovation, change and high performance will be clear targets shared by the workforce. At the other extreme, low expectations (the organisation talks of reform but does not act on it because it’s “too difficult and will take a long time”) and a politicised reward system – where it matters more who you know than what you do, innovation and change will be only discussed (interminably). An adventurous manager who believes in meritocracy but has been recruited by an organisation that doesn’t will quickly become frustrated. Many will leave, others will give in and adopt this culture if it offers job security in exchange. Finally teamwork: a mercenary workforce, where everyone competes with everyone else is incompatible with Knowledge Work, where sharing is an essential requirement. Change and organisations The owners of an organisation can be private individuals, shareholders, government and others like the donors that support a foundation. These owners have a major say in the organisation’s strategy and how this transforms itself into a culture. In the book The End of Change1, the authors argue that there are four basic types of organisation when it comes to reacting to change. The authors say organisations that change infrequently and then only
The End of Change, by Peter Scott Morgan et.al, Mc. Graw Hill, July 2000. The diagram on this page is based on an illustration in this book.
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in small ways, should be described as Pyramid organisations – the most stable geometric shape – hard to shift or to turn on its side. Pyramid organisations tend to have long histories and are traditional in their outlook – to them the future will be an extrapolation of the past and maintaining the status quo is important. Strongly hierarchical, they promote staff from within and on the basis of seniority and personal networks rather than on merit. They hold strong beliefs that certain things “cannot be changed” (arguably a myth invented by bureaucrats to maintain the status quo). While more common in the public sector than in the commercial competitive environment, pyramid organisations can be found everywhere where long history and tradition play a major role in their culture. An example of a pyramid organisation that was forced to change was IBM in the early 1990s: a highly successful company that dominated the ICT market for many years, it did not adapt to the changes that one of its products, the personal computer, had unleashed and lost a substantial share of its market. Facing a crisis, IBM broke with tradition and appointed an outsider (Lou Gerstner) to lead the company. Yhe new Chief Executive decided that the way forward was to transform the Pyramid into a cube – another stable geometrical shape that can be turned on its side to become stable again. A cube organisation undergoes substantial change to overcome a crisis or achieve a major transformation as is the case with mergers and acquisitions. Such a transformation can only be achieved with effective leadership. In such situations many traditions have to be abandoned to change things that were hitherto thought as fixed and impossible to change. Consensus is not part of the process and there are many painful decisions to be taken. Returning to the IBM example, nearly half the workforce at that time (over 200,000 employees) were moved out of the company. Nearly the same amount of new staff was recruited over the years that followed. Another commonly found type of organisation is described as a cylinder, easy to roll with minimum effort, where small and frequent changes are part of their day-to-day operations. Such organisations often practice Total Quality Management and Continuous Process Improvement. Here change is not seen as disruptive and is driven and implemented by the workforce, considered to be the experts in the processes and therefore, the best qualified to identify ways to improve them. These organisations tend to have incentive-based reward and recognition mechanisms.
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The final class of organisations discussed in the book are those rare instances that face dramatic change on a frequent basis – the sphere in the diagram. These are not found in the corporate or government worlds but rather in innovative and creative environments where ideas and efforts that do not appear to lead to success are abandoned and replaced by something else – for example in advertising. One more factor influences the way in which organisations respond to change: their metabolic rate. Those with a fast metabolic rate are well used to deal with changing needs and act upon them promptly. Organisations in a competitive environment need a fast metabolic rate to survive and thrive. Those with slow metabolic rates, react to opportunities by creating committees, working groups or task forces in the search for consensus, and engage in Analysis Paralysis. These tend to be pyramid organisations with a long history, often with a strong trade union presence as well as in the not-for-profit sector.
tHe executIve’S cHALLenge There is no magic formula for success in implementing change. Change brings forward a collection of people issues that require careful handling and a headache. Executive leadership is vital to the success of any change initiative. Change driven by the innovative, creative introduction of ICT is never smooth as it requires considerable adaptation and learning by the workforce. Some people will be unable to cope with these demands.
ActIon PoIntS Ensure that the purpose of investing in ICT is clear and communicated to all those who will be impacted by the changes resulting from this investment. The factors that will unlock the benefits of investing in ICT require executive action – these are always beyond the reach of ICT managers. This is discussed in more detail in Chapter 6.
C h a p t e r
Financial aspects of ICT ICT expenditures
Not everything that counts can be counted Not everything that can be counted counts Albert Einstein
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Key queStIonS And cHAPter SuMMAry • • • • • Why does ICT cost so much? What drives the cost of ICT? How does an organisation know the total cost of its ICT? Can the cost of ICT be contained? Is outsourcing expensive?
Organisations spend between 2 and 10 percent of their turnover on ICT. At the same time, it is clear that the price of a personal computer and its standard software is in the order of 1,000 US dollars or Euros and that a wireless home network can be implemented for a few hundred more. This chapter explores where the rest of the corporate money goes. Direct costs are linked to the complexity of ICT, the level of quality of service required, the uniqueness of solutions. Indirect costs are often forgotten and this leads to the belief that all ICT expenditures are represented by the budget of the ICT function. This is not true and the direct costs incurred by other functions together with indirect costs can add to as much as the budget of the ICT function. When the true cost of ICT is now well known, executives will not be able to determine how their expenditures compare with those of other organisations in the same line of business (and this is true for the not-for-profit world. Not only this, they will not have a sound basis on which to evaluate the potential for outsourcing some or all ICT activities.
WHy doeS Ict coSt So MucH? A genuine Frequently Asked Question for at least four good reasons: 1. ICT represents a significant and visible expense – somewhere between 2 and 10 percent of an organisation’s total turnover, depending on their activity; 2. There is good evidence that ICT expenditures have little correlation with business results. A best selling book on this topic is Paul Strassmann’s The Squandered Computer1. Many other voices have joined in to confirm this; 3. The true cost of ICT is greater than the budget of the ICT function as expenditures have migrated to where they are not easily counted. For example, shouldn’t the cost of developing sophisticated spreadsheets in the Finance department be counted as an ICT cost or the time spent by a marketing manager designing a departmental web page? 4. ICT project costs have a poor track record of underestimation.
The Squandered Computer, by Paul Strassmann, 1998, Information Economics Press.
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Many ICT items have become commodities – personal computers, wireless networks, broadband Internet access, cellular phones, colour printers, scanners and more. These are widely advertised, there is strong price competition and their cost can be determined quite accurately. This creates a paradox: if you can buy a personal computer (PC) for less than a thousand dollars, how can corporate ICT expenditure for a networked PC be as much as 10,000 US dollars per employee per year?.
In the corporate environment the cost of end-user hardware and software represents around 15 percent of the total cost of providing ICT systems, facilities and services. Where does the money go? The answer is that four factors drive costs upwards. These are: • • • • The many components behind a computer on a desk; The complexity required to provide a quality service; The scale of ICT operations; Computer applications software
The many components behind a computer on a desk The computer on a desk is only a small part of the total cost of ownership of ICT. In a well run organisation the elements that support it should be as “invisible” as other utilities – electricity, water or the telephone’s dial tone. The difference with these utilities is that today few organisations generate their own electricity or purify their water supply but many continue to run their own ICT infrastructure. Over the last twenty years many have decided to outsource the operational aspects of ICT while others are “happy” to operate their ICT infrastructure. Regardless of where operational work is carried out, substantial amounts of facilities, equipment, software and people are required to make things work. The table summarises the major items needed to do so (a complete list would be much longer). Each one of these represents a non-trivial cost component and people costs are an important element.
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Facilities Computer room(s) Help desk offices ICT staff offices Standby generator Battery room Fire extinction Physical security Off-premises storage Disaster recovery
Hardware Servers Storage (all media) Networking Cabling Security Racks and cabinets Consumables (tapes, toner, etc) Maintenance and support …
Software Operating systems Utilities Diagnostics Databases Development tools Applications Maintenance and support Other tools (e.g. anti- virus, antispam,…) …
People Operations Support Business Analysis Development Contract management Security Data administration Database administration Projects Office
How little or how much of each of these components is needed to meet the needs of a particular organisation depends on its sophistication in the use of ICT, the expected quality of service and the scale of the operation. The cost of each facility, hardware and software consists two components: a one-time acquisition cost and recurring costs, of which maintenance is a typical one. All these expenditures are what would be expected to be present in a reasonably transparent ICT budget. Many other cost components are often hidden in other functional budgets such as the cost of procurement, legal services, insurance, internal audit and so on. These are discussed later in this chapter. Budget structures may not present costs in the same categories as the table shown here. Some budgets may have a category “personnel costs” but these not include facilities such as accommodation. Items such as standby power generators may not even appear under ICT costs but rather as “rental of property and equipment”. ICT complexity, quality of service and scale ICT hardware and software will, sooner or later, fail to operate. This could be the result of a mechanical or electrical failure, software errors, poor or incorrect configuration or any of a multitude of possible causes including human error.
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For a single user this is inconvenient. For an organisation this could rapidly become a major problem – this is certainly the case for anyone engaged in e-commerce, financial institutions, airlines and other transaction-oriented organisations. This is just as much of a problem elsewhere – any multinational organisation with employees at many locations around the world whose networks, e-mail systems or other facilities become inoperable for the best part of a day will be seriously disrupted. “Quality of service” is the way to define the degree to which ICT should be organized to avoid disruptions. There is a price to pay for service quality, and a significant one at that: Twenty four hours a day, seven days a week, (24*7) The Information Age has made distance and timezones less relevant than they used to be. While many organisations continue to work in the world of “Monday to Friday, 9am to 5pm”, their ICT requirements extend beyond these hours. Remote access to systems and facilities by a mobile workforce, access to electronic mail, websites and information security, etc. all require ICT operations twenty-four hours a day, seven days a week. This has cost implications: Regardless of the level of automation in a computer room, human intervention is essential when disruptions occur and on-site presence needs to be catered for to provide 24*7 cover. As a typical employee works some 7 to 8 hours a day for 220 days in a year, it takes five people (suitably qualified, trained and willing to work shifts) to provide cover 365 days a year in three shifts of eight hours. 99.9x availability When business processes rely on ICT, downtime – the time during which the ICT is not available to perform – means that business processes can either not be conducted at all (electronic commerce) or can only be performed in a degraded manner by doing them manually and then updating the computer systems when their operation is restored.
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Service interruptions can be planned (manageable) or unplanned (disruptive). Planned interruptions are needed to implement major maintenance, upgrades, equipment replacement, testing and other such activities. Well run operations plan such activities to take place in the middle of night on weekends, public holidays and at other times when disruption to business operations can be minimised. The average duration of planned service interruptions reported by the Gartner Group (an ICT industry advisory service) ranges between 250 hours a year (average) and less than 12 hours a year (best in class). The remainder of this discussion focuses on availability as affected by unplanned downtime, measured as a percentage where 100% means that ICT systems and facilities are always operational. • • • • An availability of 99 % describes a total annual downtime of around 90 hours An availability of 99.9 % describes a total annual downtime of 9 hours An availability of 99.99 % describes a total annual downtime of just under 1 hour An availability of 99.999 % (known in ICT jargon as “five nines” describes a total annual downtime of 5 minutes
Downtime can be reduced through measures such as resilient design, backup facilities in hotstand-by (i.e. ready to go operational at very short notice) and emergency response teams. Increases in availability (reductions in downtime) can be achieved but at a cost, as complexity increases rapidly. The chart illustrates that to increase availability from what is considered standard (in the range of 98 to 99%) to a “silver” level doubles the cost of ICT operations, to a “gold” level, triples it. Moving to a “platinum” level of very infrequent and short interruptions results in considerably higher cost.
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Therefore the specification of quality of service must be realistic – the mindless pursuit of perfection is always too expensive. Dealing with scale Scale also increases complexity and costs. This can be illustrated by the telephone extension example: Anyone with a little technical ability can buy a telephone set, a reel of cable and, within a short time, install a second telephone in another room at home. The total cost of doing this would be marginally more than the telephone set (perhaps it would be necessary to buy a drill as well as the reel of cable). Given the success of this little exercise, why not install ten telephones – one in every room and also in the garage?. Clearly this will require more time and some planning. Even if the time required to do this work is not costed, having so many telephones will need a more sophisticated central telephone and possibly one or two more telephone lines with separate numbers. The cost of this is noticeably higher than the cost of the individual telephone units and will also incur higher recurring charges. So far so good. The next step up would involve installing one hundred telephones. This is a real project. The labour involved in cabling alone is not trivial and would have to be paid or accounted for. There is a need for a small switchboard, possibly with an operator, the need to assign extension numbers to each phone, produce a directory and keep it up-to-date. If the telephones are fairly sophisticated, training would have to be provided to their assigned users. Moving up to one thousand telephones becomes very complex. In this scenario the telephone exchange becomes a critical piece of equipment
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and will need to be supported by technical people. Then there will be regular requests for MACs (moves, additions and changes). At this level, dayto-day operations require additional features such as voice mail. Anything above ten thousand telephones is a major project, and the total cost of such an operation divided by the number of telephones would be much greater than the cost of a single phones. Of course, the economies of scale of buying ten thousand identical phones would help to reduce the total cost but not enough to compensate for the cost of scale.
The need to store documents in electronic form is growing fast because so many documents are created and disseminated in electronic form and meeting legal requirements for the preservation and archival of data and information. The total volume of data and information in electronic form is doubling every three to five years. However low the cost of storing one megabyte of data, there is a steady need for more capacity and for the resources needed to manage all this data, including backups and disaster recovery capabilities.
Computer applications and other software Several classes of software are needed to meet an organisation’s ICT needs. There are items that are invisible other than to the ICT service providers. These items include operating systems used in the data centre, databases, monitoring and diagnostic tools, help desk support and inventory management, development environments (the tools, utilities and libraries that programmers use to build other applications software) and more. The cost of software in this category is substantial. Conventional, off the shelf (COTS) software, sometimes referred to as shrink-wrapped is used mainly for desktop computing – office suites, electronic mail and internet browsers, groupware and workflow applications and others that are installed essentially as they are. This kind of software has a life of roughly four years (vendors produce new versions on an almost annual basis but the “old” software remains usable. The cost of this software is negotiable, particularly through volume.
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Business applications, the software most strongly aligned with the business processes and activities of an organisation needs tailoring to the practices and preferences of each organisation (a process referred to as customisation). Quite often, applications are made to measure from scratch to meet specific requirements. The customisation of commercial products involves substantial sums of money – an Enterprise Resource Planning system (ERP) for an organisation with several thousand employees will have an implementation cost in the tens of millions of US dollars/Euros. A major part of this cost will be the fees of the experts who carry out the customisation. Developing systems of any level of sophistication (= complexity) from scratch is a major undertaking where costs, timescales and risks are all significant. As in the case of customisation, the main cost component is expertise, regardless of whether the work is done by employees in an ICT function, a contractor or vendor or in off-shore centres where salaries are considerably lower than in OECD countries. The management of such projects is discussed elsewhere in this book. A list of all the items that need to be considered to understand the cost of a software project – from initial concept to its implementation and operation - would look like this:
Item Project preparation costs Concept, definition, feasibility assessment Preparation of detailed estimates or of a Request for Proposals (RFP) (consultancy + internal resources) Evaluation of responses to the RFP Contract negotiation costs (legal fees, travel, etc) One time costs Project management and project team Setting up change control processes and systems Hardware purchases Software licences and tools Custom software development (in house or external) Cost Estimator Accuracy
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Item Training of ICT staff to meet requirements of the project Contractors and consultants Installation, systems integration and related testing Data preparation, data conversion and migration, data integrity audits Development of disaster recovery plans and initial testing End user acceptance testing Briefings and staff communications Migration of all staff to the new systems/ facilities Recurrent annual and lifecycle costs Data centre operations (including backup/ restore and all other operational activities) Systems administration and database administration Disaster recovery arrangements including testing End user support and ongoing staff training Hardware maintenance, upgrades and replacements Software licences renewals, upgrades, migration to new versions Post implementation costs Disposal of legacy systems (if this project is a replacement) Project review and impact analysis, lessons learned Post-implementation benefits audit (2 to 3 years after completion of the project)
Tables of this kind are more useful and plausible when they indicate who worked out the cost estimates and the accuracy to which these costs have been estimated.
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Lifecycle costs This table shows four cost categories. Together they represent the cost of a computer system over its service life. The desktop telephones used in the example on scale are likely to have a substantial service life, ten years or more and relatively low maintenance costs. This is not the case with the majority of ICT equipment. Many enterprises have maintenance contracts, sometimes included in the procurement contract so that the vendor or an associated company perform repairs on such equipment. Larger items of equipment – from servers to enterprise storage systems and networking devices always have maintenance contracts. It is prudent to assume that the annual cost of maintenance for such hardware is in the order of 10% of the purchase price. Software licences come in many categories, ranging from a one time payment (typical for desktop software, although some vendors charge annual license fees) to usage-based fees or machine-size related fees. Some of these fees are annual, other involve a first payment followed by annual fees. In addition to license fees, there are other costs related to software: maintenance charges that entitle the licensee to obtain upgrades, patches and fixes (additional software provided by the vendor to “cure” defects in the licensed product). From time to time vendors package all these features into a new release of the software. These are frequently available against payment of an additional fee. There is a catch: while obtaining such a release is not mandatory, the vendor will not provide technical support unless a certain version and level of the software has been installed. For software developed to meet the specific requirements of an organisation – either by customising a package (ORACLE™ Financials or SAP™, for example) or by developing the application from scratch, there are also maintenance and enhancement costs to be incurred. “Maintenance” means correcting bugs and errors and keeping the relevant documentation up to date. “Enhancements” means the development of additional features. Unpleasant and expensive surprises may arise when the vendor decides to issue a completely new version of the basic software, usually followed by an announcement that support for existing versions will be terminated in the not so distant future (often two years). A new version of a pack-
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age may not allow the migration of all the customisation work done for the version in use and require considerable effort to achieve this. Typical maintenance expenditures can be estimated at around 15% of the total cost of developing the software. The cost of enhancements can vary from zero, when the application is frozen to large amounts of money if the enhancements are large and complex. Expenditures to maintain and upgrade infrastructure items are hard to justify through conventional Return On Investment (ROI) calculations as they are merely a component in a complex network of separate components that only add value as a whole and then only when they are put to productive use.
dIrect And IndIrect coStS oF Ict Direct costs These are the clearly identifiable ITC costs associated with specific resources. However, budgets and accounting systems do not always capture these expenditures in a way that identifies the purpose for which the expenditure was incurred. Prerequisites to understanding direct costs include comprehensive inventories of hardware, software and personnel (including temporary staff, consultants, contractors, trainees and others), as well as all ICT contracts (for maintenance, services, etc). The following (typical) questions may not have good answers unless accounting systems are designed to collect data and prepare reports of this kind: • • What is the total direct cost of developing and maintaining the software for the payroll system? How much time has employee “Joe Bloggs” spent on the enhancement of the SAP® payroll module?
Accounting practices such as Activity Based Costing (ABC) may give a better picture. ABC is not always worth implementing because of its complexity, and is primarily used where detailed cost accounting is a prime
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business requirement. For example, ICT Service providers use ABC because of intense competition in the outsourcing of ICT operations. Knowing the exact cost of service provision can make the difference between profit and loss. When weak cost reporting is combined with weak governance, many activities will increase costs: • • Diversity of solutions, technical platforms and parallel initiatives, particularly for common tasks where standardisation might be a better option; The enthusiasm of technical personnel for the newest technologies resulting in “evaluations and pilot schemes” – these are resource-intensive but may have limited business value and be subsequently abandoned; The Mindless Pursuit of Perfection reflected in the over-specification of technology and performance requirements; Extensive reliance on consultants.
Indirect costs The ubiquity of ICT has caused expenditures to migrate to where they are not easily counted, and these become indirect costs. Many will be regarded as the “Cost of Doing Business” and may or may not appear as specific budget items. Such indirect costs fall in two categories: those that could be reasonably measured or estimated and those that are hard to monitor and should therefore be referred to as “invisible costs”: The first category includes the costs of • • • • Accommodation for ICT staff, computer rooms, their ancilliary equipment and related services – for example building maintenance and physical security; Procurement of ICT items by the purchasing department in an environment where this is treated as a corporate service not charged internally; Eecruiting ICT staff – the advertising, interviewing, travel expenses, etc of candidates when these activities are carried out the Human Resources department; Reviewing ICT contracts by the corporate Legal Department, internal audits, etc …
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Invisible costs include: • End user ICT activities: These represent tasks taken over by individuals who evolve to behave as part of the ICT support structure. Usually done on an “as requested” basis in addition to their regular job, this may consume considerable unplanned and unmeasured time and resources. This ranges from handling personal computer assistance within a work group to designing non-corporate templates, macros, small databases and other small applications. Downtime: The cost of downtime is estimated to be in the range from 50,000 US dollars an hour (in activities that do not have a critical business impact) to several million US dollars an hour – for example in foreign exchanges and other financial institutions. For the purpose of assigning value to downtime, it is recommended that (in 2004-5) the figure of 1 US dollar or 1€ per minute per employee be used in OECD countries.
The cost of downtime will be largely defined by the nature of the work impacted – for example a currency trader could lose valuable deals while an administrator could do other tasks for a while.
the total cost of ownership (tco)
The concept of TCO was developed in the late 1980s by the Gartner Group, a research and advisory services company specialising in ICT. Their analysis focused on the cost of owning and deploying personal computers (PC) over a lifecycle of five years. This analysis took into account all the issues raised above. Their findings received much public exposure and showed that a networked PC could cost an enterprise nearly 10,000 US dollars a year. This caused the technology and financial communities to gasp in surprise. The Gartner TCO methodology was subsequently reviewed by many parties and accepted as a robust way to evaluate total costs. In essence the TCO includes the direct and indirect costs, incurred throughout the life cycle of an asset, including acquisition, deployment, operation, support and retirement. The adoption of the concept of TCO has two significant benefits for executives: Benefit 1: it proves that the initial costs of hardware and software are a small part of the true overall cost of ICT and the total cost is manageable through executive action.
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Benefit 2: it makes it possible to determine the efficiency of how ICT is deployed in an organisation and make meaningful comparisons against published performance data (benchmarks). This enables executives to take informed decisions on matters such as outsourcing.
estimated and real costs
ICT projects, particularly software development are notorious for being consistently under-estimated. Situations such as where a “fixed-price turnkey project” with a price tag of 10 million dollars ends up costing over 40 million are not uncommon. There are several books and publications that confirm that many organisations invest heavily in large software projects that ultimately go wrong. Moreover, projects that do get completed, take longer than anticipated, cost more than budgeted for and, frequently, do not deliver the full functionality initially promised.
executIve dILeMMA: WHy don’t We KnoW tHe true coSt oF Ict? In government, as well as in other areas of activity, there is much emphasis on the control of budgets and cash flow. In such situations, a typical budget formulation for the ICT function will contain lines for: • • • • • • Staff costs Non-staff costs Hardware and software purchases Maintenance contracts and consumables Telecommunications and perhaps a few other lines of this kind
Well suited to controls, this approach makes it difficult to identify expenditures against specific activities – for example how much is spent in total on a particular computer system like electronic mail. When the total true cost is not known in any detail, how does an executive know how well these expenditures compare with other departments or comparable offices? Is it important for an organisation to benchmark the way in which these expenditures are incurred?
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cAn exPendItureS be contAIned? While cutting the budget of an ICT function does indeed contain costs, this may prove to be no better than an SMRC approach: Saving Money Regardless of Cost – an inefficient ICT operation risks getting worse unless six actions to contain costs are implemented in earnest. These six actions are: • • • • • • An emphasis on standardisation; Enterprise wide contracts; Rationalization and consolidation of ICT activities and infrastructures; Service levels that are “good enough” and no better; Effective change control; Outsourcing.
Standardisation and best practices Standardising technologies and application systems software is a daunting task for a large organisation (even harder for a multinational) with many business units and departments, but the cost of diversity is high. Situations where individual business units develop their own computer systems to perform roughly the same functions (accounting, human resources and payroll, procurement and logistics) arise when there is autonomy on ICT matters at the business unit level. Taking for example an Enterprise Resource Planning (ERP) where typical entry costs are in the tens of millions of dollars, multiple solutions developed and implemented several times over are a major cost to the organisation. Moreover, this also makes it difficult to exchange data between Business Units or to consolidate data at the corporate level. There are many sources for Best Practices (better referred to as proven practices) and these are inexpensive to acquire. However, many people working in ICT will argue that the disciplined approaches of Total Quality Management, and practices such as the Information Technology Infrastructure Library (ITIL)1 and COBIT2 are “expensive” and should not be adopted. Executives should consider whether how likely it is that a
First produced by the UK Government Central Computing and Telecommunications Agency (http://www.ogc.gov.uk/index.asp?id=2261) Control Objectives for Information Technology (http://www.isaca.org)
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group of technical people can really do better by reinventing these practices in their environment. The introduction of such methodologies requires an initial investment and much effort to achieve. Their benefits will not be immediate. The argument that they are expensive is invariably based on a reluctance to change and a lack of awareness of the costs and risks associated with poor processes – this will be discussed again in Chapter 8. Enterprise wide contracts ICT vendors produce price lists. These are usually negotiable and volume purchases can lead to attractive discounts. These must be assiduously negotiated. Salami-slice procurement where a few items are purchased at a time does not benefit from such benefits and has the significant added (but rarely counted) cost of processing purchase orders and the subsequent invoices and payments. Rationalization and consolidation The proliferation of ICT facilities across an organisation (computer rooms, telephone exchanges, communications links, etc) is commonplace and tends to reflect the history of an organisation. In addition, many organisations have accumulated equipment and software which may not be used by anyone and should be promptly disposed of. Good asset management can be used to identify such situations. Such an approach is demonstrably expensive to maintain and operate due to the loss of economies of scale, duplication of purchases and activities, etc. The cost of networking has dropped dramatically in the last ten years, and it is now feasible to rationalise such facilities and consolidate them to a smaller number. For computer rooms, the cost reductions that can be achieved by their consolidation are in the range 25 to 35 %, as this makes more efficient use of space, personnel, diagnostic tools and automation. It also provides a more robust base for contingency planning and outsourcing.
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“Good enough” and no better service levels It is human nature to want the best possible if it is affordable (and sometimes when it is extravagant). As shown earlier, the increased cost of quality of service escalates rapidly, as does that of providing continuous cover on a 7*24 basis. How does one know if the current level of service is too good for the organisation’s needs? If service levels are formally described in Service Agreements or Service Level Agreements, these can be reviewed to determine if the cost reductions that could be achieved by lowering such service levels are compatible with the organisation’s needs. For example, an availability target of 99.99 (50 minutes total downtime in a year) could be appropriate for military, intelligence, police and other emergency services but may be excessive for other government departments. Change control A method for ensuring that the idea of “good enough” is given more weight than the Mindless Pursuit of Perfection, change control is a procedure for ensuring that frivolous changes to infrastructure, technology or applications are not progressed. This is discussed in some more detail in the chapter dealing with the operational aspects of ICT.
IS outSourcIng exPenSIve? Fully expect ICT staff to say it is, certainly more expensive than what they do in-house because outsourcers need to advertise and market their services, employ lawyers and make a profit. All of this is true but the “more expensive” statement should only be believed if there is good knowledge of the total cost of ownership supported by systematic benchmarking against published information and independent audit reports that define quality of service, process maturity and other tangible metrics. Outsourcing is the subject of a separate chapter in this book. It suffices to say that ICT outsourcing is a competitive business with annual reve-
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nues of around 100 billion US dollars. This shows that there are both many providers of outsourcing services and a large number of clients who consider that outsourcing is worthwhile.
Among the many case studies of the successful outsourcing of ICT – there have been some unsuccessful exercises too – is that of DuPont de Nemours (http://www.dupont.com). A large multinational with around 75,000 networked computers around the world, it signed a contract in June 1997 to outsource is networking and computing operations to Computer Science Corporation and its software development to Andersen. This represented at the time the largest outsourcing contract of this kind: 4.2 billion US dollars over a ten year period. Interviews in various newspapers with the Chief Information Officer of Dupont reveal that as a result of a programme of consolidation, rationalisation and standardisation, followed by outsourcing, the company reduced its total cost of ICT from 1.2 billion US dollars per year to 600 million.
ActIon PoIntS Find out if there are indications that your organisation is spending more than it needs to on ICT – but you can expect cries from the ICT function that they are “not spending enough”. Find out if the expenditures incurred on ICT are well aligned with the business objectives of the organisation – what’s the value of a World Class infrastructure if the computer systems are inadequate to support business activities or management decisions or if the workforce does not have skills to exploit them?
C h a p t e r
Financial aspects of ICT Benefits1
The value of information is hard to measure. Only managerial competence outside the ICT function can determine if ICT adds value.
An extract of this Chapter was published in Darwin Magazine (www.darwinmag. com) in September 2004
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Key queStIonS And cHAPter SuMMAry • • • • Why is it so hard to define the benefits of investing in ICT? How can benefits be identified and quantified? Are there any formal techniques for evaluating benefits? What are the problems surrounding benefits?
Having suggested that the cost of ICT is not always well known, benefits are even harder to evaluate and demonstrate. This creates a difficult situation for executives, as technologists will advocate to invest in “newer, faster, better, cheaper” technologies without showing specifically how the proposal to spend will contribute to the organisation’s results – regardless if it is a commercial company, a not-for-profit organisation or a government department. Executives who do not validate the benefits derived from ICT could be said to be gambling with their company’s money, rather than making prudent investments. Such validation should take place twice: at the time of considering a proposal for new systems or facilities and then again, some time after the completion of the project, this time to determine whether the promised benefits did materialise. Assessing benefits is hard to do, as they need to be expressed in units that relate to the activities of the organisation such as waste reduction, risk reduction, cost avoidance, etc. The GIGA Group (ICT industry specialists) advocates an approach that works well to put a value on such benefits
If the introduction of ICT makes something better than it was, it’s because it makes a difference. If it makes a difference it can be described If it can be described, it can be observed If it can be observed it can be measured If it can be measured it can be quantified in financial terms
However, the assessment of benefits at the time of justifying an ICT investment is only a vision of what is expected. The factors that will unlock the benefits of investing in ICT require executive action as these actions are always beyond the reach and authority of ICT managers.
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tHe Ict beneFItS PArAdox In the Information Age, knowledge work, knowledge management, intellectual capital and other such topics are talked about all the time. Unlike tangible assets such as buildings, machinery, furniture and money, data and information do not appear as assets in financial accounts with the result that information tends not to be treated as a resource. Immature and senile organisations rarely treat information as a resource and have fundamentally opposite views of the role of ICT, even though this represents a substantial expense.
Immature organizations ICT is fun Must have the latest toy Results – what results?
Senile organizations Tomorrow will be just like today Entitled to exist “forever” Resistant to change
When information is a resource (as is the case in finance, insurance, marketing, situation analysis, government and others), is the situation where the value of the resources cannot be quantified sustainable? Measuring the value of data, information, knowledge and other not-sotangible items is not that different from measuring pain: there are no agreed units of measurement or consistent tools to determine its level. The difficulty of measuring value is real but not insurmountable. This chapter discusses options to assess and present the benefits of investing in ICT. It also shows that investing in ICT requires an act of faith and that a measure of risk taking (gambling) on the part of executives is needed to succeed. One option, practiced in the not-for-profit sector is to accept ICT as “the cost of doing business” where there is little choice but to continue to invest. Stated bluntly, Return on Investment does not really matter. Maintaining or increasing budgets does.
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This may appear to be an attractive approach, but the sums of money involved are large –the entry price for an Enterprise Resource Planning (ERP) system is 10 million US dollars and it may end up costing ten times as much (it has happened). Sooner or later somebody (a board or governing body) will ask uncomfortable questions. Unless good answers are provided this body could take dramatic action in the shape of major budget cuts, replacing the CIO and/or their boss and possibly outsourcing the ICT function.
IdentIFyIng And quAntIFyIng beneFItS reLAted to Ict Benefits can arise in four distinct categories, each requiring different methods for assessing and measuring benefits: • • • • Improved efficiency and improved effectiveness Improved levels of service Knowledge work Innovation
Improved efficiency, productivity and improved effectiveness There is a major difference between efficiency (doing things right) and effectiveness (doing the right things). Using ICT for processes that do not add business value may increase efficiency but be a pointless exercise. Example: People who had little to do in an office would play with a deck of cards and play 12 games of Solitaire in one hour. With a computer that includes this game (it comes with the basic software!), efficiency has improved dramatically – now they can play 50 games in one hour. Improving effectiveness implies optimising (this implies changing) work processes to ensure that they add business value. Benefits of this kind include • • Fewer process stages, fewer staff for a given workload and lower overheads; Reduction or elimination of low value activities (for example reduced volume of printing and copying);
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Reduction in the number of process errors requiring subsequent corrective action; Reduced duplications and overlaps
Because these deal with essentially tangible resources (staff costs, consumables, office space), these benefits are relatively easy to estimate in financial accounting terms. Improved levels of service These can be dramatically changed by ICT, particularly in customer service and in electronic commerce. ICT is used extensively to provide the following benefits: • • • • Fast response to provide the right information first time round, every time; Increased availability of service to clients regardless of time and distance; Provision of relevant diagnostics, advice and recommendations; Provision of customer support and communications;
example: Online book retailer Amazon.com is totally reliant on its ICT capabilities and that of its supply chain partners (suppliers, transport logistics, credit card handling). Their system design and databases allow them to provide all four of the above benefits as they operate 7 days a week, 24 hours a day at six global locations (USA, Canada, UK, France, Germany and Japan) in a highly consistent manner. Their search engine correlates individual queries with those of other individuals to provide lists of recommendations “other people also bought…” and keeps track of your interests that are used to create e-mail notices when new books or items that may be of interest to you are available. Their extensive self-help sections allow orders to be modified and tracked and provide lists of how to deal with specific issues.
Some of these benefits – for example those associated with online customer support based on ICT can be rigorously estimated because the alternatives are not to provide them (zero cost, zero benefit, doubtful future if another retailer does it) or to provide them through a call centre (many staff, high cost). However, putting a financial value on softer features is harder and requires an act of faith on the part of executives because these benefits can only be measured indirectly – how many more books were ultimately sold
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because they were recommended after a search for another book? Intangible benefits can be real eno. When estimating such benefits, there is a risk that they will not materialise, and this needs to be assessed. Knowledge work In the two previous categories, ICT is close to the centre of the action – the people who do the work follow the machine. In knowledge work, the reverse is true: people manipulating data and information to extract previously unseen meaning use ICT as a tool. Typical knowledge work applications include: • • • Business Intelligence and situation analysis Data mining and Discovery Improved decisions based on relevant, timely and accurate information
None of these are commodities and, the last one has disappointed executives who have been promised over the years that “Decision Support Software” and “Executive Information Systems” were just around the corner. They still are. We intuitively know that: • • • • Quality information reduces uncertainty Reduced uncertainty improves decisions Improved decisions lead to more effective actions Effective actions give better results.
There should be little argument that these las four points make sense. This makes quality information a valuable resource and raises the problem of finding a way to put a financial value on knowledge-rich components such as “thought leadership” and “creativity”.
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Whatever answers are found, they will not be uniform across areas of activity. Technology plays a minor role in the creation of value through knowledge and many of the tools used are in fact commodities in the ICT marketplace. It is knowledge that makes a difference. Innovation There are many opportunities to innovate in the Information Age – and the “dot com bubble” of the early 2000s was an indicator of the degree to which enterpreneurs were willing to take risks to lead in new areas of activity and business. New information-based products and services appear all the time and that those who succeed do extremely well out of it – the people who established the Google search engine became billionaires in a much shorter time than industrial age innovators. The evaluation of value and benefits is, like beauty, in the eye of the beholder. Highly speculative and uncertain, they involve an act of faith on the part of the investor. This should not be a game of chance and while the stakes may be high the potential rewards are simply enormous. Which area of benefit will be the most suitable for any particular organisation depends on its culture, its ability to adopt, and adapt to change, its ability and willingness to take risks and finally, the nature of the environment in which it operates.
tecHnIqueS For evALuAtIng beneFItS Traditional processes to evaluate ICT benefits focus on tangible benefits and are not flexible. Looking for Return on Investment in traditional financial terms will most likely be a disappointing exercise and this approach may well prevent potentially highly valuable ICT initiatives from getting approval. There are several proprietary techniques developed by consultancy companies working in this field. They fall in three major categories: purely financial methods, qualitative methods and statistical methods. They are laborious to implement and the chosen technique must fit the organisation’s culture and way of doing things. These methodologies include:
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Applied Information Economics (AIE) http://www.hubbardresearch. com developed by Hubbard Decision Research. Their website describes AIE as a scientific and theoretically sound quantitative method for addressing the investment dilemmas of ICT by using a “Clarify, Measure, Optimize” approach to assessing investment alternatives even when there are “intangibles”. AIE assigns units of measurement to intangibles such as customer satisfaction and strategic alignment, then applies various tools from actuarial science, portfolio theory and statistics to calculate the value of information. The Balanced Scorecard (BSC) http://www.balancedscorecard.org/, originally developed by R. Kaplan (of Harvard Business School) and D. Norton in 1992, as a partly qualitative, partly quantitative management and measurement system, the BSC provides descriptions of what companies should measure in order to balance a purely financial perspective. BSC makes explicit direct links between business strategy and financial performance by monitoring four areas of activity. Standard financial performance indicators are balanced by measuring customer relationships, operational excellence the organisation’s ability to learn and improve. Total Economic Impact™ (TEI) http://www.forrester.com, originally developed by the Giga Group, now part of Forrester Research, TEI brings together costs, benefits, flexibility and risk analysis to demonstrate and quantify the economic impact of an ICT implementation. Economic Value Sourced (EVS) developed by the META Group, is based on the principle that there are only four ways in which ICT creates value for an organisation: by increasing revenue, improving productivity, decreasing cycle time and decreasing risk. EVS extends the use of financial valuation tools as Economic Value Added (EVA), Internal Rate of Return (IRR) and Return on Investment (ROI) to define the contribution of ICT in economic terms, including the value of time and risk in the process. EVS practitioners advise that organisations take a risk-management approach to high-profile projects. Portfolio management: This approach is designed to allow organisations to manage their ICT assets and projects as they would a portfolio of other investments, with the CIO or another senior-level executive acting as a fund manager. Howard Rubin (of Rubin Systems and the Meta Group) stated that “The organisation has to be wired with the mind-set that tech-
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nology is an investment that has to be worked as frequently as the financial markets”.. Looking at expected value, rather than focusing on cost, organisations should manage its ICT portfolio, looking at the amount, size, age, performance and risk of each investment.
executIve dILeMMA: quIcK SPend Government departments and other public service organisations operate on the basis that the budget must be fully spent because their accounting rules prevent them from carrying over funds to future years and believe that having a budget surplus would lead to budget reductions in future. A public service organisation had budgeted a substantial amount of money for an infrastructure renewal project., This got delayed because of changes to the requirements and also because the employees of the vendor involved went on strike for two months. The Chief Executive needs to find a way to get the organisation to spend x million but do it wisely enough not to be criticised by their auditors for having squandered the money. ICT is a convenient way to spend substantial sums of money. How do you ensure that these x million are spent sensibly rather than wasted (as would be the case, for example, when replacing personal computers that are only a year old and buying high resolution flat screens and colour laser printers)?
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tHe ProbLeM WItH Ict beneFItS1 Twelve problems combine to make difficult the definition and assessment of ICT benefits.
12. No post-implementation benefit audits 1. What is value? 11. No benefits without risk 2. Assigning value to information 3. Poor business - IT dialog 4. Technology is necessary but not sufficient 5. Technology alone does not deliver benefits 10. Who is accountabile for benefits? 9. Benefits go outside the IT function 8. Benefits are in the future 7. Benefits are speculative
6. Benefits are conditional
Problem # 1: Knowing what value is in the Information Age The traditional answer to how is value created? is …“through the value chain”. This answer reflects the industrial age model of the production line and may not be unsuitable for the Information Age. Besides, the concept of a value chain does not fit well with much of the work of non-profit and government organisations. Traditional techniques for examining economic value look at transactions around goods, services and revenue and leave out two important sources of value in the Information Age: knowledge and intangible value. “Knowledge” is about exchanges of strategic information, planning, processes and technology know-how, collaborative design, policy development, communities of practice and other activities where most what of is exchanged consists of information in electronic form and possibly documents. “Intangible value” is about benefits that go beyond an actual service and that are not accounted for in traditional financial measures – such as belonging to a community, enhanced reputation, happier and more motivated employees. The fact that they are not accounted for does not mean that such benefits are not real.
An extract of this section was published online by Darwinmag in September 2004 (www.darwinmag.com)
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Problem # 2: Assigning value to information Traditional accounting rarely includes data and information among reported assets. This reflects the industrial age and it will become increasingly important to assign value to the information held by all kinds organisations, as this takes a more important role in their activities. There are situations where data and information are assigned a monetary value that reflects its importance to those receiving it. News agencies have practiced this for a long time. Some oil companies include in their balance sheets as assets survey data collected for future detailed exploration and exploitation. Another example is music in digital format. Traditionally, the price of a disc included the physical carrier (CD, case, booklet). The emergence of file sharing (Napster and Kazaa among others) violated intellectual property and was challenged in the courts. This led to a new (and legal) market for downloading music online. These downloads must be paid for. More examples include online services (Britannica (the encyclopedia), Oxford Analytica, Lexis-Nexis) all of whom charge for access to information in electronic form. These charges reflect market pricing. Problem # 3: There is a language problem between ICT and finance people A further barrier to understanding the value of ICT investments arises from the different perspectives and terminologies used by ICT people, finance and other executives. ICT managers are content to concentrate on project schedules, technical products, resources and budgets. This is met with incomprehension by executives, particularly finance officers, concerned with cost, revenue, cash flow, the cost of capital and overheads. It is not unusual for the result to be a lack of understanding and communications that is prejudicial to the organisation. When dialog is ineffective, executives will not have the ability to identify technology opportunities and enhance business effectiveness. The ICT manager will be relegated to the role of service provider with no strategic impact (and little credibility). Problem # 4: ICT is necessary but not sufficient for business success The word “business” is used in a generic way – commercial companies operating for profit have no problem with this terminology while not-forprofit, government and international organisations often feel this term is inappropriate.
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It is easy to use ICT to deal with pedestrian problems (document creation, accounting and other structured tasks). This does not result in major benefits. Focusing on these uses can turn an organisation into a pillar of salt and an example of mediocrity or incompetence. However, it is hard to create a new business model. The corporate graveyard is full of naïve people who thought that it was easy to change a corporate culture. Problem # 5: ICT does not deliver value (by itself) Technology is neutral and can be put to good use, misused or abused. Benefits will emerge when management and staff apply ICT to achieve business effectiveness. This should be taken to mean conducting work processes in a manner that leads to doing the right things and doing them the right way. ICT can play a major role in both. Problem # 6: The benefits of ICT are conditional However good the technology and successful the project that puts it in place, ICT will not deliver benefits unless other factors have been enabled by executives: • • • Managing the organisational change that ICT enables; Training staff and managers to exploit ICT; Enabling an appropriate level of creativity.
These are beyond the area of influence of the ICT function and the only limit to what is possible is defined by an organisation’s management culture and ability to absorb change. Vendors make benefits appear easy to achieve – colourful slides and slick presentations describe the (nearly magical) things their technologies can achieve. However, it is not the vendors’ business to care about their clients’ ability to derive benefits. Problem #7: The benefits are unproven Adopting ICT solutions and facilities that someone else has already successfully implemented gives hope that it can be implemented successfully (but the benefits remain conditional). Behaving as a follower or a laggard rather than as a leader does reduce risk. However, for those who wish to create a new business model or introduce innovation, can they know if this “new thing” will work? They cannot. If something is new and unproven there are risks: that the technology is immature, that another vendor will come with a better product, that the vendor will abandon the product or go out of business, that a competitor will beat them to it.
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There is no right answer, except perhaps the motto of the British special operations unit, the Special Air Service: “who dares wins”. In other words, when there is a choice, who wants to be a loser or work towards achieving mediocrity? Problem # 8: The benefits of ICT are all in the future This is true for most investments. ICT projects have relatively long lead times (major projects are rarely completed within the originally estimated budget and timescale). Benefits will start to accrue when the information systems and facilities are fully operational and everyone who uses them is able to exploit them to good advantage. Until then, all you have are expenditures… Problem # 9: The benefits of ICT don’t go to those who invest In budgetary terms, the major part of ICT expenditures is incurred by an ICT function. If and when value is derived and benefits are gained, these do not appear in the ICT function but elsewhere in the organisation. This makes it difficult to put together an organisation-wide case for investing in ICT unless there is good dialog and coordination with the potential beneficiaries of the investments. Experience shows that benefits do not emerge immediately after implementation. There are many instances where massive but unexpected benefits emerged five or more years after the implementation of a computer system. However this was the case only when the people working with the system were allowed to think creatively about its potential.
In the early 1990s, the Swiss state pension organisation (AVS) embarked on an ambitious ICT project. This project aimed at a total migration from working with paper documents (the offices had several floors of filing systems) to working with stored images of all the documents and no paper. This was a major project that took several years to complete. The benefits that had been identified for this system concentrated on the office space that would be liberated and the improved ability to track the status of all the transactions in progress. Several years after its implementation, other benefits became apparent, notably a reduction in personnel absences due to sickness, presumably the result of not having to work with old, dusty and mouldy paper documents. It was subsequently discovered that the personnel found the use of the system and the workflow processes with other colleagues a much more stimulating work environment than dealing with large stacks of pending paperwork and were much more motivated than in the past.
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Problem #10: Who is accountable for benefits? A proposal for investment that does not have an owner prepared to to be accountable for the benefits to be gained should be considered as weak, if not suspect. It is not sufficient for a project sponsor to say that “we simply must have this or we will go out of business” and expect it to be accepted in place of a business case. It is true that benefits are conditional, in the future and speculative, but this should not be an excuse. While benefits may be uncertain, this uncertainty can be bounded with lower and upper limits (a discussion of this approach can be found in the book Waltzing with bears)1: If the sponsor cannot estimate benefits in a range from worst and best case, there is too much uncertainty and the investment becomes a gamble. However, it should not difficult to identify what the worst case might be – if it is zero benefits then the project is doubtful in the first place. The most likely outcome – the peak in the curve should have a probability of at least 25% to be achieved for a realistic investment.
Size of benefits ($, €, £, ¥…)
Problem #11: Uncomfortable correlations Research in information economics over the last twenty years has identified two facts: #11a. There is a strong correlation between reward and risk There are several successful case studies of “wise use of ICT” to create new business models. All of these involved considerable investments and high risk.
Waltzing with bears, by Tom DeMarco and Timothy Lister, 2003, Dorset House Publishing
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Online book (and more) retailer. While there are other online book retailers, Amazon is a leader and its ICT is innovative. Online auction house. It now operates internationally and has been innovative in not only online auce-Bay tion procedures but also in payments in partnership with PayPal. Initially an innovative and fast search engine, Google Google developed an original advertising model that has become very profitable. UK chain of supermarkets with e-services ranging Tesco from customer loyalty schemes (to support data mining) to online shopping for groceries. Online operation for private customers – computers Dell are specified online and made to order. Dominant player in the personal computer market Federal Express First to introduce online tracking of consignments Amazon.com The conditionality discussed in Problem #6 is critical to success and is not related to technology. #11b. There is a low correlation between ICT expenditures and business results This is the basic premise of the book “The Squandered Computer” by Paul Strassman, first published in 1998, validated since by other researchers and authors. The decisions and actions needed to gain maximum value out of ICT investments are organisationally difficult to implement because they require changes to the status-quo, a political activity that potential “winners” will support and “losers” will oppose. For many people ICT is fascinating, even addictive. This is evidenced by the way glossy magazines, akin to fashion magazines, present options for add-on gadgets (flat panel screens, DVD players and recorders, sound cards, wireless mouse and keyboard, video cameras, high resolution colour printers) which may be great toys in the home but would not necessarily contribute to business value. The opposite is often true as they become distractions from the main purpose of an organisation.
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ICT managers who like technology are likely to encourage their organisation to indulge in the latest gadget – their individual price is usually small and it is only when a large number of them needs to be supported that costs are noticed. Problem # 12: Lack of post-implementation benefit audits The time elapsed between presenting a business case to invest in ICT, implementation and subsequent digestion by an organisation is long, measured in years for any sophisticated system. After all the money has been spent, it is good practice to validate whether the benefits that were claimed to justify the investment in the original business case have actually been achieved, if only to serve as a “lessons learned” exercise. When such post-implementation benefits audits are conducted, they tend to reveal that many benefits were not thought of at the time of preparing the business case. However, researchers in the USA have found that less than half the organisations making major ICT investments conduct such benefit audits. These emerge when the people using these systems are allowed to use their knowledge and experience to make creative use of the systems’ capabilities, particularly when these support knowledge work or can be applied to areas not initially considered.
AnotHer executIve dILeMMA: tecHnoLogy MIgrAtIon And tecHnoLogy oPPortunIty It’s generally accepted that information technologies evolve quickly and that the ICT industry thrives on obsolescence. A major manufacturing organisation has a mature, well maintained centralised inventory system for all of their materials covering all of their plants at several worldwide.
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This system is used primarily by the foremen and procurement people at the various plants who are “experts” in the use of the system and well versed in the way in which information can be extracted and reports created. However, the system is now over 20 years old and runs on a mainframe. The user interface is user-hostile. The annual running costs for this system are in the order of 15 million dollars a year. The Chief Operations Manager at headquarters has been receiving invitations from vendors to be shown the latest architectures for a potential replacement system – an “integrated and seamless web-enabled Linuxbased enterprise server” (this kind of terminology is typical). The procurement cost of such a system is initially estimated at 40 million dollars. The Chief Operations Manager decides to raise this possibility with the Chief Finance Officer and the Chief Executive – and they raised many questions he did not expect: • • • • What are the business benefits of changing architectures and systems now? What happens if we wait another couple of years? Should we wait for the next technological miracle before migrating? Are we capable of integrating these new technologies and methods of work into our current framework and operations?
At roughly the same time, the marketing manager was enthused by the latest set of products for Customer Relationship Management – a system that would allow the company to integrate all of their customer data, including volume of business, trends, prices paid, contracts in place, key contacts and much more into a single system. Moreover this system would facilitate a proactive approach to client relationships – and because the system was so new, it would give them a first mover advantage – to be one step ahead of the competition. The price of the new system: the vendor estimated it could be done for 7 million dollars, but the internal costs of migrating all the customer data and populating the databases of the new system was not included in this price. One small wrinkle: the system was so new that there were only two installations of it in use and these were in another country.
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What should the Chief Executive do? Here are some questions to consider: • • • • What are the risks of being a first mover? Would the benefits of the new CRM system be large enough to take these risks? What would be the consequences if their main competitor succeeds in installing such a system before they do? Are there any alternatives to this particular product – and if so, have then been explored?
ActIon PoIntS Do not accept “intangible benefits” as an excuse for not developing a business case for investments in ICT. Similarly, do not accept statements such as: • This project is aligned with our business objectives – without being specific of what this alignment consists of; • This is a long term investment – which means that there will be no significant impact in the forseeable future and that by then the executives would have forgotten who the project champion was…; • This project is part of corporate activity consolidation or equivalent consultant-speak which actually means very little (if anything); • This project will lead to optimum resource performance which could mean that we shall know what we get out of this investment after we have completed it. Recognise that there are no benefits without risk and that their speculative nature requires an act of faith on the part of the executive. Validate these acts of faith by conducting post-implementation benefit audits. Be suspicious of proposals that do not put boundaries (worst case, best case, most likely outcome) on benefits. They may imply that the uncertainty is too high or that the sponsor has not thought enough about the business case.
C h a p t e r
ICT strategies that work
What is the use of running if you are not on the right road? Claimed to be a German proverb
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Key queStIonS And cHAPter SuMMAry • What is the purpose of an ICT strategy, and is it important to have one? • What is needed for a strategy to be implemented successfully and support business results? • What should an ICT strategy contain?
There are three possible approaches to planning its deployment • Improvise as you go along • An IKIWISI approach (I’ll know it when I see it) • Develop a strategy that can be discussed and communicated, as well as revised in the light of experience Given the impact that ICT can have on the activities of an organisation, the sums of money involved and the irreversible dependency that ICT creates, the last of the three is the one that makes most sense. If only this was enough to have a strategy that works! Assuming that the strategy is well aligned with the business objectives of the organisation, without effective governance of ICT and successful execution, even the best strategy will not succeed. Governance is the responsibility of executives and should not be abdicated to the ICT function. Execution is discussed in the chapters that follow.
SettIng tHe Scene For An Ict StrAtegy Organisations carry out two sets of activities to meet their business objectives: Tactical activities, to do with action and the execution of business processes through operations, risk management and compliance with policies, regulations and legislation. Strategic activities are focused on preparing for “tomorrow”, i.e. planning, defining priorities, risk assessment and alignment. A workable strategy requires asking many questions that have uncertain answers because of the non-linear, unpredictable nature of our world. Therefore, a strategy should be seen as the equivalent of a rough and incomplete map of uncharted territory.
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If only this was enough to have a strategy that works! Assuming that the strategy is well aligned with the business objectives of the organisation, without effective governance of ICT and successful execution, even the best strategy will not succeed. Dogmatic assumptions about what can and cannot be changed, inflexible plans and rigid budgets also work against having an effective strategy.
tHe roLe And IMPortAnce oF An Ict StrAtegy An ICT strategy is different from a technical strategy. The latter deals with architectures, products and computer room practices. While important in its own right, this is the domain of the Chief Information Officer and/or the service providers responsible for delivery. An ICT strategy should support the objectives of a business strategy. Business strategies consist of a mixture of four distinct business “games”: • • • • Cost reduction – for example through forced budget cuts or outsourcing; Process redesign and re-engineering, adoption of Total Quality Management; Restructuring – as a result of acquisitions, mergers, divestitures or leveraged buy-outs; Creativity – by focusing on differentiation, new products and new services.
ICT has a part to play in all of them, but in quite different ways: In process redesign and re-engineering mode, ICT would provide new systems that reflect modified workflows and increased automation. In restructuring, ICT undergoes major changes. Following an acquisition or a merger, it is necessary to integrate the best features and data of the systems of the parties involved – invariably a major and complex project that must succeed to allow the new structure to operate effectively.
(artwork by Gennady Obuchov)
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In creative mode, the most challenging, ICT plays the role of enabler, creator and change driver by creating awareness of opportunities with a significant technology content. By making explicit the mix of business objectives the relationship between the business strategy and the ICT strategy can be seen as the equivalent of a couple dancing tango: they are close and move in harmony – both partners can initiate moves but one partner (business strategy) leads.
gettIng to grIPS WItH An Ict StrAtegy Q.1: What exactly is an ICT strategy? A.1: It is a collection of policies and activities designed to reach defined targets from a given starting point or baseline. Q.2: Is an ICT strategy really necessary? A.2: It is good to recall the Japanese proverb that “a vision without action is only a daydream while action without a vision is a nightmare”. However, not every organisation has an explicit ICT strategy. Some of them rely on IKIWISI (I’ll know it when I see it) which, with luck, might work. Others say that as technology changes all the time and expenditures in ICT are inevitable (the “cost of doing business”), why bother to go through the effort and expense of establishing a strategy? Others engage consultants (Q.4) to produce a strategy which may be implemented or perhaps only partly implemented. This allows the organisation to say to its stakeholders that “of course we have an ICT strategy”. Q.3: If an ICT strategy is worth having, what should its purpose be? A.3: The answer needs to take into account three facts about ICT: Fact # 1: ICT can have a major impact on an organisation, its activities and its people. Fact # 2: ICT demands substantial sums of money. Fact # 3: ICT investments and operations bring with them change and risk.
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Therefore the purpose of an effective ICT strategy is to document and share the balancing act of meeting business objectives by investing in ICT while maintaining an ability to function with acceptable levels of risk (inherent in the strategy) and friction (resulting from changes to the statusquo). Q. 4: Why not get a consultant to prepare an ICT strategy? Consultants can bring to bear experience, methodologies and insights to help prepare a strategy. The emphasis should be on the “help”, not on “prepare”. Consultants will leave behind a well drafted report and move to another assignment. They will not be responsible for the implementation of the strategy nor for its results.
FActorS tHAt MAKe An Ict StrAtegy SucceSSFuL
Putting together an ICT strategy is a manageable and interesting task. However, having compiled a strategy, publishing it and getting praise for it, is not sufficient for its successful implementation, one that will result in observable business benefits. This will only occur if three factors converge for this purpose: good execution, good alignment and good governance.
Only the first, execution, is the responsibility of the ICT function and related service providers. The other two require executive participation. Alignment is the process through which investments in ICT are made in areas that deliver business value. In the tango dancers analogy, alignment represents how well the dancers match each other’s steps. Governance is the process through which those who define policy guide those who follow policy. Returning to the tango dancers, governance is the process of choosing the tunes for the dancers to dance to.
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Execution, the ways in which the components of the strategy are delivered to the organisation and its people. In the analogy this represents the dancers’ ability and experience. A valuable executive guide to strategic planning can be found in the COBIT Guidelines, presented in Chapter 2.
Doing what adds value cannot be achieved without understanding: • • • • The strategic business objectives of the organisation; The baseline upon which the strategy will be developed; The technical, financial, organisational and cultural constraints of the environment for which the strategy is designed; How the organisation determines and measures the value associated with data and information;
This understanding must be fostered and guided by business executives. The CIO Chief Information Officer (CIO) alone cannot be an effective judge of what ICT investments will provide benefits and opportunities to the organisation as a whole. Critical Success Factors (CSF) and Key Performance Indicators (KPI) should be used to validate alignment issues. Such CSFs and KPIs will be specific for each organisation. Examples of Critical Success Factors for alignment The strategy: 1. Focuses on using ICT to enhance the organisation’s operations and management and support its business objectives (from cost reductions to developing of new products or services); 2. Focuses on providing information resources and capabilities to meet the identified and emerging needs of the organisation; 3. Is integrated with the organisation’s governance and leadership mechanisms; 4. Includes policies to ensure that the organisation’s employees and others who use the ICT systems and facilities make effective use of the information resources provided.
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Performance Indicators These are used to monitor the effectiveness of a strategy. The following are typical examples: a. Increased usefulness of management information; b. Improved stakeholder satisfaction (internal and external stakeholders); c. Increased ICT initiatives for business process improvement; d. Improved cost-efficiency of ICT processes; e. Improved staff morale and productivity;
As in the case of alignment, granting full autonomy to the CIO for choices and decisions that have major impact on an organisation gives the CIO power that could be misused when there is a lack of executive awareness of the potential consequences. The practices that make ICT governance effective, include: • • • • • • • Approval of strategic, business and operating plans for ICT Oversight of the organisation’s information assets portfolio; Evaluation of benefits and identification of who will be accountable for delivering them; Approval of funding that enables the ICT strategy and its components to be delivered; Enterprise-wide standards for technologies and applications and definition of the limits of business units, departments and geographically dispersed units autonomy on ICT matters; Criteria for the use of outsourcing and the extent to which it is used; Accountabilities for content and information management (quality, editorial policy, definition of access rights and conditions, etc), technology assessment, cross-organisation coordination, development of detailed policies; Appropriate use policies that define how the organisation’s ICT resources may be used for purposes other than those directly related to work activities (examples: personal use of e-mail, Internet access, telephones); Information security policies covering the availability, confidentiality and integrity of the organisation’s data, documents and information;
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Arrangements for monitoring for compliance with policies; Training programs to ensure that managers and staff have appropriate knowledge of ICT tools and techniques to extract value from the organisation’s data and information as well as awareness of relevant policies;
Governance must be focused on the use of power – the ability to change the status-quo – and not on politics - the acquisition of power. When executives delegate governance responsibilities, the ICT governance body ends up as a large committee of limited authority. This arrangement does not work because effective governance needs to decide on what is best for the organisation and challenge the belief that certain things cannot be changed.
Execution must match the quality needs of the organisation for the delivery of ICT projects and operational services. Chapter 5 has shown that a higher quality than necessary has important financial implications. Conversely, when service quality is insufficient the result will be a degree of inconvenience, even paralysis. For anyone engaged in e-business (eBay, Amazon, Dell, etc.) this could be disastrous. What is “good enough” will be different from one organisation to another and needs to be given careful consideration.
PrerequISIteS And MInIMuM contentS oF An Ict StrAtegy There are no standards or best practices for the contents of an ICT Strategy. What works well is the production of a concise document, built incrementally and revised on a regular basis. The minimum contents of an ICT strategy are: • • • • • • Objectives linked to business strategy and targets; The baseline including known constraints and legacies; Assessment of the technical and business risks of the strategy; Assumptions underlying the strategy ICT initiatives and their relation to a portfolio of information assets Technical architectures and standards
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• • • •
Sourcing Estimated cost of implementing the strategy (± 30% or other available figure) Description of expected benefits (± 30 to 50%) Critical Success Factors for the strategy
Targets and objectives linked to business strategy A concise description of the purpose of proposed changes to information systems and facilities indicating how these link to the overall business strategy and the role these changes will play in achieving specific business targets and objectives. Ideally, each of the proposed changes and their related projects should have a sponsor (or owner or champion – the terminology varies from one place to another). The baseline including known constraints and legacies ICT strategies begin with a history: over the years, organisations have built computer systems, data definitions, databases, on a variety of technical platforms. Each of them implies constraints and legacies. Data definitions and database technologies can be migrated to new technical architectures through conversion, cleansing and other complex processes. This often turns out to be an implementation obstacle and the source of unplanned expenditures. Lack of knowledge of how these legacies will affect the implementation of new systems is a major handicap. The organisation’s culture and the availability of skills are non-technical constraints to the implementation of a strategy. Resistance to change is natural and should be expected and if the magnitude of change leads to major changes (relocation, downsizing, the need for new skills), these constraints need to be addressed at an early stage to avoid significant friction and other problems later on. Assessment of the technical and business risks of the strategy Given that there is no reward without risk, strategic decisions involving ICT should be made after considering the risks and rewards of what is being proposed. Risks fall in two categories:
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Technical risks: These revolve around not knowing the answers to: • • • • Will the proposed project work? Will the vendor remain in business long enough to support the project or product? Do we have the expertise required to implement and support this project? Will the new technologies be compatible with what we already have?
Business risks: • • Is the project truly aligned with the organisation’s needs and priorities? Is the organisation capable of absorbing the changes that will result?
Assumptions underlying the strategy A strategy must make explicit what the organisation “knows it does not know” – the assumptions made in preparing the ICT strategy. Executives should question and discuss these assumptions before committing funds to the implementation of the strategy. Checking the validity of these assumptions is part of the risk assessment and management process. Portfolio of initiatives and how these relate to an existing portfolio of information assets A well structured ICT strategy will group the proposed initiatives in a number of categories, focusing on specific targets and objectives – the following categories are typical of an ICT strategy for the early 2000s: 1. Knowledge work This provide a perspective of the role of knowledge work in the organisation by defining how ICT will be used to allow an organisation to exploit data and information to support business intelligence, decision support, data mining and discovery, executive information and similar activities.
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2. Process support and automation The processes of an organisation could be grouped in a number of categories, for example: • • • Mission-related processes (directly related to the organisation’s line of business) Logistics support (procurement, supply chain, distribution, publication, etc.) Administrative support (finance and accounting, HR, etc.)
The strategy should highlight the major changes envisaged and their rationale. This section should indicate the percentage of the ICT expenditure proposed for each category with appropriate explanations if these expenditures are upside down (more on administration than on systems related to the mission of the organisation). 3. Information Sharing and Web presence Discussion of the proposed future use of mechanisms to share information internally (the workforce and management) and externally (clients, suppliers, vendors). This includes the organisation’s presence on the World Wide Web, Intranets and Extranets. This section should also clarify the ownership issues of information on the organisation’s Websites and Intranet, including editorial controls and quality assurance. 4. Data, Documents and Information: Quality and Security Increased emphasis on data and information places demands on the organisation to ensure that these are of appropriate quality, that they can be accessed only by those authorised to do so, and created and modified only with appropriate controls and authorities. This is becoming increasingly important because of legal requirements and increases in cybercrime and fraud. The strategy should make it clear who is accountable for delivering the relevant policies and address compliance issues. 5. Dispersed business units, global networking and country offices Networking is critical in the operational infrastructure of most large organisations as it brings together regional offices and dispersed business units into a knowledge network. Clear policies concerning autonomy and accountability for ICT, development, deployment, training, support, architectures and connectivity are a critical part of an ICT strategy.
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6. ICT components of emergency response - including Business Continuity The concept of “emergency response” deals with the organisation’s ability to continue to operate if affected by an event that seriously disrupts its operations (natural disasters, disruption to utilities such as power supply, terrorism, civil disorder at any of the organisation’s locations). This is dealt with through comprehensive, documented and tested arrangements for disaster recovery and business continuity – the strategy should focus on the ICT component of these. 7. Technical architectures and standards The promulgation of enterprise-wide technical architectures and standards for operating systems, applications software, configuration and change control practices and other related items. These have a major impact in the Total Cost of Ownership of ICT. 8. Resourcing operational work When technology support is needed 24 hours a day, 7 days a week, with disaster recovery arrangements that actually work and business continuity/ crisis management plans, the strategy should review the future organisation of the ICT function and explore possible changes in structure, staff numbers, skills profiles and the scope for hybrid arrangements mixing staff, contractors and outsourcing. 9. Capacity building, awareness and training programs The measures that an organisation deploys to ensure that the workforce and management have the necessary skills to exploit the tools, systems and facilities delivered through ICT. These should include the mechanisms that ensure adequate awareness of ICT related policies, in particular appropriate use, privacy and confidentiality and security. The strategy should make it clear who in the organisation is accountable for these activities. 10. Estimated cost of implementing the strategy (± 30% or other available figure) Estimating the cost of future ICT implementations is fraught with inaccuracies and unknowns, but an uncosted strategy has little business value and is little more than a wish list. Plausible estimates are important
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and can be improved as decisions on implementation priorities approach. It is prudent to validate such cost estimates through the use of ICT advisory services or informal contacts with executives in other organisations. This is only possible if the proposed implementation is not the first of its kind, in which case the final cost will only be known after the project is completed… 11. Description of expected benefits (± 30 to 50%) A strategy that does not attempt to put value on the expected benefits should be regarded as a catalog of opportunities and an invitation to gamble on the outcome of investing in such opportunities. The more speculative the proposed investment the more likely that the estimate of the benefits will be an act of faith, but this is true for most ICT investments. Notwithstanding, benefits should be estimated to the same level of accuracy as costs, indicating boundaries such as worst case, best case and most likely outcome. 12. Critical Success Factors for the strategy The most important CSF is executive commitment to the ICT strategy. It is not reasonable to expect that the Chief Information Officer and the ICT function (or outsourcers) should decide on investment priorities, their timing and also manage the impact these projects and investments will have on the organisation, its personnel, clients, vendors and other stakeholders.
executIve dILeMMA A well known international not-for-profit organisation engaged a consultancy company to help them develop an ICT strategy. The consultant’s report that resulted was, as expected, a well drafted professional document which outlined a strategy that would cost close to 100 million US dollars over a period of two years. The report also clearly and critically described the starting point for this strategy, albeit in delicately phrased and with statements hidden in their lengthy report, among them:
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The fast track approach will bring disruption and budget constraints, and there is a general lack of trust within the organisation that the CIO can roll out effective ICT systems and on the availability of competent staff to work with the new systems. To increase data-quality and integrity, reduce maintenance costs and improve security, the organisation needs to abandon the present diffused and uncoordinated computing and database configuration. There are too many applications developed by individual offices and headquarters units, to compensate for shortcomings of existing corporate systems. These software applications have been developed over the last 10 years. Generally they have inadequate functionality, are poorly integrated and are showing serious signs of reaching the end of their economic and/or technical life. Across its network of offices, the organisation has 16 different corporate systems for its resource management functions. Each of these systems has its own history and constituency.
Would you approve the expenditure and proceed with this strategy? NB – this dilemma is based on a real case. Three years on, the strategy is still being implemented. One of the central components of this strategy was an Enterprise Resource Management System using one of the major ERP software packages. It emerged that knowledge about the strategy did not reach everyone, as one business unit implemented their own (different and incompatible) solution at a cost of 5 million US dollars. As a senior executive what lessons can you draw from this situation?
ActIon PoIntS Ensure that the business objectives of your organisation are known and understood by those responsible for ICT strategy. Strengthen ICT governance mechanisms to enable ICT to deliver the appropriate quality of projects and services with acceptable track record and costs. Focus the work of the ICT governance body on alignment and value issues. Demand that ICT strategies be regularly updated and that they reflect the input of all constitutent parts of the organisation.
C h a p t e r
ICT service delivery processes: resources, quality and risk
If it looks simple, it is because you have not looked close enough.
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Key queStIonS And cHAPter SuMMAry • • • • Are ICT processes different from other processes? What are the typical processes that support ICT activities? Is process management an art or a science? What are the risks associated with ICT service delivery processes
ICT, like most critical infrastructures - electricity, water, telephone – becomes invisible when everything works as intended. Disruptions to services are noticed immediately and cause, as a minimum considerable inconvenience. Ensuring that ICT service delivery provides a consistent level of quality requires discipline. How much structure and discipline is required for a given organisation is determined by the potential impact of service delivery disruptions on the operations of the organisation. When ICT services become unavailable (downtime) organisations incur losses because of their inability to operate. Surveys conducted in the United States identified that such losses range from the tens of thousands of US dollars an hour (46% of respondents) to over one million US dollars an hour (8% of respondents) and it is therefore not a trivial matter. There are many best practices that can be used to manage service delivery and not putting them into practice is a self-defeating game.
deFInItIon And IMPortAnce oF ProceSSeS A process is a sequence of operations or events intended to deliver an expected outcome. Processes can be natural such as having a baby or be designed, this chapter discusses designed processes. A process may consist of a number of procedures. Procedures are activities, tasks, steps, calculations and decisions that produce a desired result when executed in the proper sequence. Procedures deliver repeatable results if input conditions don’t change. Process Management is the application of knowledge, skills and tools to define, measure, control and improve processes to meet requirements in an effective and efficient manner. When ICT plays a critical role, services quality should be good enough for an organisation to perform its business. Poorly managed ICT service delivery processes may prove catastrophic in the operation of critical infrastructures, continuous and automated manufacturing, financial ser-
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vices and e-business. Even if not catastrophic, the reputation of an organisation could suffer if incidents affecting their ICT operations become public knowledge because of fraud, sabotage or hacker attacks. Responsibility for the implementation and management of ICT service delivery processes rests with the Chief Information Officer regardless of whether the services are conducted in-house or outsourced to a third party.
Are Ict processes different from non-Ict processes?
The best answer is “definitely maybe”. ICT processes combine technical matters, contracts with several parties, managing people and other organisational issues including politics. There are at least four factors that conspire to make them different: Skills: Many people believe that they “know about ICT” because they know how to use a personal computer and have some familiarity with how it works. This is a dangerous delusion that encourages a belief that everything in ICT is “simple” and that anyone can do it. It also creates a belief that it can be done “quickly”. This may be true for a small network but is not the case for corporate or enterprise-wide ICT. Size, scale and complexity: These combine to become the enemy of manageability. It is not uncommon to find wireless networks (using WiFi) in many homes connecting two or three computers on this network. This is no big deal (until things stop working). Managing a corporate network with hundreds or thousands of computers is quite a different story and the consequences of not doing it well can be very disruptive. Virus infections, for example, have shut down corporate networks, including those of some banks, for several days. Rate of desired change: in ICT processes, changes are required all the time. Rapid change and responding to expectations require a strong management discipline to maintain the outputs at the right level of quality. Timescales: in the world of ICT these are always expected to be short. Data centre activities such as backups usually take place in the middle of night to avoid causing disruption to day-to-day activities. The resolution of operational incidents such as e-mail problems is expected to be instantaneous. The number of processes involved in the management of ICT is large. For example, the Control Objectives for Information Technology (COBIT)
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guidelines propose 34 processes with over 384 functional recommendations. The four categories of processes covered by COBIT are presented at the end of Chapter 2. There are other guidelines for ICT processes, notably the Information Technology Infrastructure Library (ITIL)1, initially produced in the late 1980s by the UK Government’s Central Computing and Telecommunications Agency. Maintained up to date and available as a series of modestly priced books, they contain tried and tested recommendations for ICT operational practices. Both COBIT and the ITIL are conceived to minimise risk to the organisation. Typical enterprise risks associated with ICT processes of insufficient maturity or quality include: • • • Activities supposed to happen every day, such as data backups are not carried out systematically and the backups may not be there when needed; Hackers or other malicious characters penetrate a network to corrupt or steal data; A lack of knowledge of the threats and vulnerabilities in service delivery processes that result in inadequate protective measures (see also Chapter 10);
tHe Art And ScIence oF ProceSS MAnAgeMent Just as it is generally accepted that electrical power and the telephone’s dial tone are there every time they are needed, people using ICT should not be concerned with what is behind their computer screen. However, the need for high performance in ICT – systems and networks that work all the time, effective protection against virus and worm software, responsive and knowledgeable help desks, etc., has become inescapable. Downtime brings everyone out screaming immediately. A visit to a Help Desk will reveal that problems occur all the time. Some problems are quickly resolved but others can shut down networks and desktops for considerable periods of time. This was the case when the
Produced by the UK government and obtainable from http://www.ogc.gov.uk/index. asp?id=2261
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worms Nimda, Blaster and SobigF infected thousands of networks worldwide in a very short of time. Restoring things to normal requires a thorough cleanup of every infected computer. As the figure shows, the service delivery organisation may be an in-house group and/or a provider of outsourced services. On one side of the service delivery organisation are the end users, with whom there may be a formal service delivery agreement (also known as Service Level Agreement). On the other side are the vendors and service providers on whom the delivery of services depends. Good processes help to eliminate systematic problems and also to contain the effects of problems when these arise by identifying what needs to be done, by whom and how. Service Agreements It is good practice in service delivery to use formal service agreements to define the terms and conditions under which services will be provided. The complexity and legal strengths of such agreements are greater when dealing with a commercial service provider than when dealing with an in-house service provider. Such agreements are designed to define the roles and responsibilities of all the parties entering into the agreement (those using ICT and their service providers), the financial arrangements for service provision (paid
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for from a central budget, charged to user departments) and the mechanisms for reviewing performance and amending the terms of the agreement. It is usual to include sections on penalties and other arrangements when the agreed service levels failed to be delivered. Performance criteria include measurable parameters such as service availability, response time and where it is measured, the definition of maintenance windows and problem resolution targets. These definitions should be unambiguous: a service availability of 99.8% is quite a different matter in each of the following: • • Monday to Friday, prime time (08:00 to 18:00) Seven days a week, over two consecutive working shifts (08:00 to 24:00) Seven days a week, twenty-four hours a day
In-house service providers will have budgetary constraints and if required to deliver high quality without adequate funding will end up diverting resources from other activities such as end user support or, most frequently, innovation and development. Outsourcing service providers work within a contractually agreed framework and changes to specifications are treated as amendments to the contract. Performance assessment Processes, by being structured, are measurable. Executives should see this as an opportunity to determine how ICT processes contribute to business value, the extent to which they represent appropriate quality and value for money and assess the organisation’s exposure to risk. The most common techniques used for performance assessments are audits and benchmarks. As discussed in Chapter 2, audits fall in various categories:
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• • • • •
Management audit to determine process compliance with the COBIT guidelines, process maturity and the degree to which key performance indicators are used; In-depth management audits using the guidelines of the Institute of Internal Auditors or equivalent professional body; Audits based on compliance with the international standards for Total Quality Management (ISO 9001) and the Code of Practice for the Management of Information Security (ISO 17799); Audits for compliance with specific national legislation, ranging for example from the U.K.’s Health and Safety at work act to the USA’s Sarbanes-Oxley Act; Investigations, including digital forensics (the equivalent of criminal investigations in the electronic world), in the event of suspected fraud or other criminal offence committed using ICT.
Benchmarks use comparative data compiled by any of a number of specialist services on the cost performance of specific ICT processes and activities to determine if a particular service is delivering value for money. The use of benchmarks encourages the ICT organisation to be cost conscious and to actively manage the cost of service provision. Without benchmarking this may not always be the case… Without formal and regular performance assessments, it is possible that an organisation is spending more than it needs to in ICT without a worthwhile return on such expenditures.
ServIce deLIvery ProceSSeS And tHeIr rISKS The Information Technology Infrastructure Library mentioned earlier discusses best practices for the processes considered most important for service delivery. Here, the processes are listed in terms of their visibility to end users. The help desk should be the first point of contact for the resolution of incidents with ICT services. A help desk would normally use a computer system to record information on all incidents reported, who reported them, how it was resolved and other such details. Linked to an inventory system, this information can be analysed to provide insights into the most commonly reported incidents and point to
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Help desk Incident and problem management Security management Contingency planning Software control Change management Service level management Contract and cost management Availability management Storage and media management Capacity management
software errors and faulty equipment as recurrent causes, indicate who are the most frequent callers (this can indicate users who may not have the skills to use the systems and facilities provided to them) and other valuable management information. Such reports are most valuable when shared with executives as some of the remedial actions required may be outside the sphere of influence of the ICT function. The main risks associated with help desk processes of insufficient maturity are: • • The inability to measure the performance of ICT as seen by those using the services and the lack of management awareness of the quality of service delivered to the organisation; The emergence of unofficial centres of end user support that bypass the help desk. This peer support reduces the productivity of the people involved, as this is not their job responsibility (however, formally assigning “experts” to business units and departments to provide immediate support, combined with appropriate training and a proactive approach can work well).
Problem management is the process through which diagnosed, known or reported incidents are dealt with. Repeated incidents that have the same underlying cause become problems. The risks of inadequate incident and problem management processes are: • Incidents that are unsatisfactorily resolved, in terms of accuracy of solution and speed of dealing with the problem, result in considerable time loss to end users and lost productivity to the organisation;
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The inability to solve problems affecting critical systems and facilities can prevent an organisation from conducting its business activities and need the invocation of contingency plans (discussed in a separate chapter).
For example technical problems affecting an ambulance dispatching system can have serious consequences, including loss of life if the problem persists beyond a certain time limit (as was the case in the early 1990s with the London Ambulance Service). Such time limits need to be defined on a case-by-case basis and are one of the triggers for invoking a contingency plan. Security management implements an organisation’s security policies and practices and its functions include the management of access rights to computer systems and facilities, monitor compliance with security policies and maintain vigilance with regards to the potential misuse and abuse of corporate information assets. The main risks of inadequate security management are • • The abuse of access rights, data modification, fraud, introduction of malicious software and sabotage. Lack of compliance with specific national legislation (like the EU Data Protection Directive). Such failures may have repercusions with regulatory bodies.
Contingency planning is the preparation, development, documentation and testing of ICT capabilities that can be invoked in the event major problems occur to provide an adequate level of functionality. The result of such contingency planning is a Disaster Recovery plan for ICT systems and facilities. How such a plan is designed is discussed in Chapter 13. Senior management must actively participate in contingency planning, disaster recovery and business continuity planning and also in the testing and execution of these plans to increase the probability that these plans will work when invoked. What would an insurance company say if an organisation cannot adequately demonstrate that its contingency planning was properly documented and tested? The single largest risk of immature contingency planning is that such plans will not work when they are invoked. This is usually the result of • • Not keeping the various plans up to date to reflect changes in staff, computer systems and requirements, all of which change over time; Inadequate or non-existant testing;
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Insufficient training and awareness provided to key players in the implementation of such plans.
Software controls and distribution is the process through which an organisation controls the issue and maintenance of software to comply with the terms and conditions of software licences and to avoid support and compatibility problems when different versions of programs are used across the organisation. Software releases take place at two levels – package releases are typical of new systems and have the advantage of being followed by a period of stability. Such releases are treated as a project and are accompanied by briefings and training of the end users that will be affected by such releases. Critical releases are needed to deal with high priority problems. If these are not installed very quickly, the exposure to risk of the organisation as a whole could be high. Critical releases can be a vendor’s temporary solution to known vulnerabilities in operating systems such as for example Windows or database products such as Oracle. They can also be solutions to problems found in custom-made software by a group of developers. In both cases such releases may contain new errors – critical releases seldom benefit from extensive testing due to the critical nature of the problem. The risks of not managing software controls and distribution through a mature process are: • • • • Lack of compliance with the terms and conditions of software licences (for example more copies in use than the license allows); Unsynchronised releases of new versions of software across various parts of the organisation; Bypassing proper controls for critical releases for the resolution of problems; Creating a bureaucracy to manage software distribution
Change control is the process through which changes are evaluated and approved, and through which their implementation is controlled. The need for changes in ICT arises from the need to fix known problems (problem management), to introduce new items (hardware or software), to upgrade components, to respond to new business or legislative requirements or to introduce a new service. The key component of change management is the Request for Change which should be followed by several stages: evaluation (impact, cost, risk, urgency), approval, scheduling and validation.
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The risks of a change management system that is not mature enough are: • • • • Delays in implementing changes, particularly if the change management system is paper based and involves bottlenecks (particularly in the approval stage); Failed implementations due to side effects that were not properly considered before the change; ICT staff may be tempted to bypass the process leading to changes that are not documented or known to others and creating complications should the change lead to problems at a later date; Resistance to a unified Change Management system from different parts of an ICT organisation due to the different views of staff.
Configuration management is a process designed to give direct control over all ICT assets and to use this control to ensure that ICT services provide value for money. Configuration management requires a complete inventory or portfolio of information assets at a level of detail that balances the amount of information collected and the resources needed to do so. Effective configuration management requires that all information assets are included and that these are regularly verified to ensure that these correspond to the records held in the configuration management documentation. The risks associated with weak configuration management are • • That staff may bypass the process either for speed of implementing an urgent change or to deliberately cause problems (sabotage); Not having staff available to implement emergency changes outside normal office hours.
Service level management is as much a discipline as it is a process, and relies on having defined Service Level requirements for specific systems and facilities. These agreements are entered into by representatives of the service provider (in-house or outsourcer) and those of end user groups. This requires the service provider (the ICT function or an external provider) to establish a complete catalog of services and the cost of provision. The ICT function should also have mechanisms for collecting information on service performance, validate it against the requirements of the agreement and take remedial action when it does not. The risks associated with not having service level management at an appropriate level of maturity are:
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Inadequate or no performance indicators related to the needs of the organisation and an inability to review the performance of ICT services objectively; The inability to manage a successful relationship between an ICT service provider and the users of these services in an organisation.
Contract and cost management are firmly integrated in the management of an ICT infrastructure and ensure that there is adequate contractual cover for essential services from vendors (maintenance) and third parties (telecommunications and outsourcing). Cost management also enables executives to know the full cost of ICT to the organisation, identify opportunities for financial improvements and use this information to make end users aware of these costs and how costs are affected by changes in Service Level requirements. It also provides the basis on which these costs can be recovered from user departments. The risks of immature contract and cost management processes include: • • • Failure to comply with conditions of contract; Failure to renew contracts before they expire; Lack of knowledge of the cost of ICT activities and services
Availability management involves activities and architecture designs that enable systems and facilities to be used whenever required. Service interruptions must be infrequent (achieved through building redundancy and resiliency into the architecture) and problems must be quickly resolved. This may require special arrangements with vendors to ensure that their response time to a problem is adequately fast (high availability operations usually allow the vendors to monitor the performance of their equipment through a telecommunications link and have contracts specifying a one or two hour intervention time in response to critical problems). The risks of having immature processes to manage availability are: • • • • Unplanned service interruptions with unknown resolution time; Inability to retain good process management staff; Inability to respond effectively during emergencies with a tendency to improvise; Inability to depend on vendors to intervene quickly enough when problems occur.
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Storage and media management is a process related to both availability management and contingency planning. Since the entry into force of the Sarbanes-Oxley Act, it has become part of the mechanisms required for compliance. This operational process is also used to put into practice the organisation’s policies for the retention of data and documents in electronic form. The creation and maintenance of comprehensive libraries of all software, databases and data and keeping copies on appropriate media (magnetic memory, magnetic tapes, optical discs and other) is a fundamental step for the support of disaster recovery plans, and is mission critical to a successful recovery. The risks of inadequate storage and media management are: • • • Inability to recover data from backup copies ranging from a set of files to the failure of a disaster recovery plan; Outdated, unreadable media (for example magnetic tapes, which have a limited service life) and unreadable data if for any reason the application that created it is no longer available on backup mechanisms; Inability to comply with legislative or corporate requirements for the preservation of data and documents in electronic form.
Capacity management is the process through which users’ requirements for transaction volumes, turnaround times and response times are met. Too little capacity creates bottlenecks and an inability to deal with peak demands while too much implies under-utilised resources and higher cost than otherwise required. Capacity planning should be a part of the ICT function’s overall forward planning with adequate budget and staff provision to meet expected requirements in processing power, storage and network capacity and external telecommunications links. The risks of poor capacity planning are: • • • • Under-capacity due to an inability to project future demands on networks and applications; Cost of providing capacity well in excess of what is required; Poor technical performance of networks, Internet access and computer systems usually manifested as long response time for transactions; End user frustration arising from poor network and system performance;
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Processes and procedures
Every process consists of a number of procedures. For example: Process: Data backup – perform a complete backup of all the data in a computer room at 2 am every night of the year. Procedures for the backup/restore process in this example • • • • Define the rota of computer room operators (and their alternates) responsible for overseeing the backup process; Select the appropriate number of blank tape cartridges to be used each day; When the backup is complete, label the cartridges, place them in a container and transport them to a fire-proof room in a specific offsite building; Every Saturday, select a backup tape at random and verify that it can be read and used for restoring the data, etc., etc.
The selection of the appropriate standards and best practices is the responsibility of the service provider regardless of whether this is an outsourcer or a Chief Information Officer. While the use of such standards and best practices is not mandatory, when none of the above are applied, it would be prudent to arrange to conduct an independent technical audit of the ICT facility in question.
PeoPLe ISSueS Processes and how they are deployed depend entirely on people. An enthusiastic technical person fascinated by trying new things may not be the best choice to manage processes: process people need to be systematic, meticulous, patient and effective problem solvers. Creative and curious people may get easily bored with the structured nature of process management and are unsuited for long-term assignments in process tasks. However they make terrific troubleshooters. Good process people also need to be motivated and flexible, as in ICT such work requires shift work and on-call availability to provide continuous coverage (24*7) every day of the year.
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executIve dILeMMA: tHe cHAotIc dAtA centre The data centre of Organisation xYZ is run by Michael, a very clever individual whose primary skill is in computing programming and who has spent most of his working life in the same organisation. In an effort to reduce operational costs, Michael devotes all of his working time and a good part of his spare time to do things as cheaply as possible. The photograph shows some of the results: a cheap but very fragile operation where problems were the order of the day. However, in this executive dilemma, Michael was regarded by many as a “genius” and therefore an indispensible individual who did not accept criticism from anyone. Moreover, Michael never saw the point of attending conferences of discussing operational performance with his peers. Whenever the people responsible for service delivery are skeptical of the value of standards (ISO 9001), best practices (ITIL and COBIT) and insist that adopting such practices would be expensive and require more staff, it would be prudent to get a second opinion.
No diagram or records Sticky labels (many missing) Ordinary twine
Spaghetti cabling From an operational data centre (really)
Given that executives rarely, if ever, visit the data centre on which their organisation relies for service delivery, what would they find if they decided to conduct an unannounced visit?
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ActIon PoIntS If your ICT service provider, in-house or outsourced, is certified to comply with ISO 9001 and is regularly audited, you are doing well. If not ISO 9001 certified, but the performance of your systems, networks, help desk and contingency planning is generally considered as acceptable, you are doing well and may wish to consider conducting a process level assessment based on the COBIT guidelines. If your in-house ICT organisation does not use (or comply with) ISO 9001, the Information Technology Infrastructure Library, COBIT, or equivalent guidelines, ask why this is the case – is it likely that your ICT people can do better without such established best practices than with them? If neither of the first two situations apply and the answers to the third question is not satisfactory, it would be appropriate for you to take action, starting with an in-depth diagnostics followed by an action plan to avoid unpleasant surprises in the future.
C h a p t e r
Managing ICT projects for success, quality and reduced risk
Everything takes longer and costs more Known as the Cheops Principle
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Key queStIonS And cHAPter SuMMAry • • • • • • What exactly is a project? What is the impact of quality requirements on projects? Can projects be divided into distinct stages? Why do projects – particularly ICT projects - go wrong? Is project management an art or a science? What can an executive do to reduce the risks inherent in ICT projects?
ICT projects have a less than brilliant track record. A cynic once said that the basic formula for such projects is r = 2*2*½ (the Results you get take twice as long and cost twice as much as you planned for and are only one half of what you expected). Regrettable as it is, this formula continues to be regularly validated by experience. Many projects are successfully completed, and this is not because of luck. The combination of technical complexity, optimism and the lack of effective (and experienced) project management constitutes a lethal mix that will reduce the chances of success of an ICT project. Executives are the ultimate sponsors of such projects and, as such, have a critical role to play to ensure that projects are properly managed, that major events – changes, delays and other disruptions – are evaluated and controlled. Equally important for executives is to be satisfied that project risks are sensibly managed.
WHAt exActLy IS A Project? Projects are one time events consisting of multiple linked tasks with well defined objectives and quality criteria, performed by teams of people within a desired time and budget framework. The membership of these teams may be internal (employees), external (consultants, vendors, contractors and many others) or hybrid. Projects can be categorised in many ways. Two particularly appropriate categories for ICT projects are 1. The nature of the project 2. The size of the project. The nature of a computer systems project is described by a point defined by the three parameters shown in the figure.
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The degree of integration describes the degree to which a computer system cooperates with other systems, exchanging data and being part of a specific workflow. Complexity is an indication of how much work it will take to build the software. This complexity is used to estimate the resources that will be required to develop a system (the Function Point Analysis, developed by IBM is an example of such estimating techniques). The type of system indicates how much readily available software or components may be brought into the project during the development stage. This can be virtually none (for a one-of-a-kind system) to standard software available as Open Source or as a commercial package. The latter are referred to as COTS (Commercial Off the Shelf) software. The cost, timescale and risk of the project increase with the distance from the point where the three axis converge. Project duration and cost can also be used to categorise computer projects:
Small Time required Budget range Number of people days-weeks < 10,000 $ <5 Medium < one year < 1 M$ 5 – 25 Large 1 to 3 years 1 to 100 M$ 25 - 250 Very large > 3 years > 100 M$ small army
Small projects – quick and involving modest resources – sometimes just one person (up to ten thousand dollars or Euro); a small number of hardware and software upgrades; moves, additions and changes (MACs) that reflect the dynamic nature of any organisation; fixes to known software problems.
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The risks associated with such small projects are mainly end-user frustration as a result of not meeting their expectations and delays. Delays in the delivery of software are a common occurrence for reasons discussed later in this Chapter. Medium-size projects – with timescales of less than a year and a budget that could reach around a million dollars or Euro include cabling projects, major data centre enhancements, and the development of software for a specific application, typically with a low degree of integration with other enterprise or corporate systems. The risks of medium size projects include, in addition to those of small projects • • • The creation of “information islands” using incompatible definitions of data or technical architectures that do not fit well with that of the organisation as a whole; The introduction of unauthorised functions, malicious software or backdoor access to systems. This can lead to fraud, sabotage and/or blackmail; The possibility that the product or vendor chosen may no longer be available by the time the project is completed (mergers, acquisitions, bankruptcy, etc should never be excluded from a project’s risk analysis); Causing organisational slow-down or paralysis in the event of a failed implementation.
In mid-July 2004, the peak of the holiday season, the SNCF - French National railways completed a medium size project to implement new networking software to upgrade the connection of their seat reservation system to 4,000 points of sale. This failed in service and it took three days to restore normal operations, having inconvenienced several hundred thousand travellers and “gained” extensive negative publicity.
Large projects – these have timescales of three to five years and a budget up to one hundred millions of dollars or Euro. Such projects include building a new data centre or the consolidation of a number of operational data centres at this new location. Large software projects include enterprise software for an organisation with thousands of employees, such as an Enterprise Resource Planning system using a package that is customised for a specific organisation.
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Typical implementation times are in the 3 to 5 years range, although some of these projects can take over ten years to complete. In addition to the risks previously highlighted, the main risk associated with large scale projects is that of failure leading to the abandonment of the project and the consequential loss of large sums of money. Very large projects are those that extend over a period of many years, anywhere between three and ten, and involve sums of money in the tens to hundreds of millions (dollars or Euros) and teams of several hundred people. Very large projects are the riskiest of all because of their scope and complexity and also because there will be many changes in the requirements and technologies during the time it takes to implement them. It is not uncommon for products to be withdrawn or for vendors to be taken over by another company that decides to replace the product in question by another one. These situations have the potential of causing considerable disruption to the project.
One of the ICT projects known to be in poor shape in 2004 is the US government’s Business Systems Modernization program for the Internal Revenue Service (IRS) an 8 billion dollar plan is running very late (one component was delivered three years behind schedule) and costs are escalating rapidly by hundreds of millions of dollars.
FActS About Ict ProjectS ICT projects, particularly in software, do not enjoy a good track record – cost and timescale overruns, unmet expectations and other problems are common. Fact # 1: Every project has to have a sponsor. The project sponsor is the initiator of the project and also its advocate and spokesperson. In many cases the project sponsor is also responsible for funding the project. In this capacity the project sponsor believes (or hopes) that the value of the result of the project will be worth its cost and risk. In the perfect world, the project sponsor would also be accountable for the delivery of the benefits that were used to justify the project. The project sponsor should play a visible role as the project evolves, by chairing review meetings, leading “recognition events” when major de-
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liverables are completed or a member of the team has an important event in her/his life (promotion, marriage). The project sponsor also has the ultimate decision authority concerning the project. Project sponsors who abdicate responsibility for ensuring that the project is progressing and that it will meet the sponsor’s requirements will get what they deserve. Projects that do not have a sponsor (or when the sponsor is not an individual but a committee) have higher risk, their benefits may not materialise and are a potential drain of resources. Fact # 2: All projects are calculated risks. Any project, regardless of its size, complexity or importance, can fail. Failure to recognise this possibility creates a problem to those working on the project as in many organisational cultures they will attempt to cover up bad news. By the time it becomes apparent that the project is in trouble, large sums of money would have been spent and by then, any hope of recovering any part of these expenditures would have been lost. Risk management is a discipline that can make a difference. Many organisations are nor ready (or not willing) to adopt it as risk management will challenge certain cultural aspects (for example not allowing risks to be made explicit or by labeling a person who has bad news about a project’s status as “not a team player”). Fact # 3: There are several shades of project failure. Among them: a. Successful completion of a project but with significant cost and time overruns;
An not-for-profit organisation of some 10,000 staff decided to implement a new ERP to replace a number of legacy systems. The organisation believed that its needs and operations are unique and that no commercial package could be adapted to meet their procedures and business rules. When the project first started, it had been estimated that it would take two years and 8 million dollars to deliver a made-to-measure system using internal resources with some assistance from a vendor. The project was completed to great acclaim and recognition (the project manager was promoted). However it took ten years and somewhere near 100 million dollars and a large external team to complete. This situation is by no means unique and many more examples of this kind abound.
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b. Completion of a project which, as delivered, does not meet the expectations of the project sponsor. These unmet expectations may be functional or take the form of cost and time overruns; c. The project is abandoned before completion having incurred significant expenditures between the launch of the project and its abandonment. The 2003 CHAOS1 report published by the Standish Group states that 15% of projects were abandoned before completion and that only 34% of all the 15,000 projects covered by their review were considered by their sponsors as unqualified successes. The report also shows that the project success rate is directly related to the size of the project (expressed in project budget): Project budget Less than 750,000 US Dollars Between 750,000 and 3 million US Dollars Between 3 and 6 million US Dollars Between 6 and 10 million US Dollars Over 10 million US Dollars Success rate 46% 32% 23% 11% 2%
Success is defined as completing the project on time, within budget and delivering the expected functionality. d. The project is completed and turns out to be a total disaster. While this is a case that made the news, there are many others that are quietly buried and not talked about ...
In 1999, NASA the Mars Climate Orbiter. Because of inadequate project controls and communications, the Orbiter was transmitting distance data in metric units while the earth station operations were working in imperial units. The craft approached Mars’s atmosphere too low and too fast and was never heard of again. The cost of this misadventure: 125 million dollars.
Fact # 4: No project ever develops as planned. While this may be manageable for small and medium size projects, large and very large projects are invariably complex and the plans developed for them are never good enough to be implemented as a series of planned tasks.
The Standish Group’s website and more information about the CHAOS report are at http://www.standish.com
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ICT projects take place in an environment with many hard to forecast variables – changes in requirements grow in number as the duration of the project lengthens. Other headaches are changes in the membership of the project team, changes in vendor products and even the demise of the vendor. When the change in the project team is the resignation of the project manager, this creates a major disruption. The project sponsor should consider three scenarios: a) the project manager has been made an offer that cannot be refused and has a valid reason for leaving the project; b) the project manager is the first to know that a major problem will hit a project and departure from the project should be seen as self-preservation; c) the project manager recognises that she/he does not have the skills and experience to deliver the project and wants to disappear before being found out.
An not-for-profit organisation of some 2000 staff decided to implement a new ERP to replace a number of legacy systems. A year after deciding to use product X, a recently arrived senior executive decided to put the project on hold in order to conduct a review, dismissing the consultants working on the project and engaging new consultants. During this time, the organisation continued to pay several million dollars in software licences for (the unused) product X. The project was restarted two years later with a new team of consultants. At this point the project manager resigned and a new one had to be found. The projected budget for completion of this project has grown dramatically and the project remains years away from completion...
The project manager and the project sponsor need to recognise the inevitability of change and ensure that the planning process is designed to accommodate change and then work towards minimising the impact and risk associated with such changes. Fact # 5: Size matters Small projects have a higher rate of successful completion than very large projects. Various studies, including that of the Standish Group indicate that less than 30 % of very large projects are ever completed. The difficulties associated with very large projects are related to the number of people that must work together and to the complex inter-relationships between parts of the project, the people working on them, vendors and other suppliers and the time taken by the project.
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ICT projects extending over a period of several years must be organized to deal with two specific problems: • People turnover, normal in the ICT industry with typical rates of 10 to 15% changing jobs every year. This requires new workers to be briefed and integrated into a team. This can be a delicate situation when the new person is the replacement of a previous project manager; Changes, sometimes dramatic, in the requirements for a new system – perhaps because of a reorganisation or as a result of mergers and acquisitions.
Fact # 6: Estimates are rarely robust enough The ICT industry and those who work in this field are mainly optimists. Nothing is too difficult and in their enthusiasm to see projects started and new technology put in place, they provide budget and time estimates and that prove to be inadequate. There are several reasons for this: One is that there is little dialog between ICT people and their financial colleagues. Budgets and cost accounting tend to be seen by ICT people as necessary evils. Concepts such as life cycle costs and the total cost of ownership are not understood by the financial community and as a result project budgets are not as thought through as they ought to be. Another reason is the widespread belief (or hope) that Fact # 4 is not true, and therefore, there is not enough risk analysis and contingency planning. In software projects, there is an additional problem: formal estimating techniques are not consistently applied. Vendors are better at estimating software projects than in-house ICT groups. The idea that a cost and duration estimate when the system requirements are only defined at the conceptual level are good enough to budget for a project, persists despite the experience that proves that this is never the case. Real costs will be at least 50% higher than this first estimate. Similar optimism affects the estimate of timescales where there is a tendency of believing that the estimate for the earliest possible delivery date will be the actual date. One of the most respected writers on software projects, Tom Demarco1, describes this approach as Testosterone Based
Waltzing with bears, Tom DeMarco and Timothy Lister, 2003. Dorset House Publishing Co.
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Estimating. The concept of boundaries (earliest possible, latest possible and most likely delivery dates) is not used often enough. Fact # 7: Expectations sometimes fall in the Impossible Region A consequence of Testosterone Base Estimating is the expectation that major ICT projects can be delivered “quickly” – even quicker than practically possible without making concessions for scope, quality or cost. Similarly, when a project is running behind schedule, it is often thought that putting more people to work on the project will shorten the timescale for delivery.
Diagram from Waltzing with Bears, by Tom DeMarco and Timothy Lister
This is sometimes true – additional resources can make all the difference at a time when a project is running late and it is essential to bring it back to the planned schedule. It comes at a significantly increased cost and involves the headache of briefing new people and integrating them into a functioning team. There are however, limits to this and every project has an Impossible Region – a delivery timescale that cannot be achieved regardless of how many resources are thrown at the project or what its final cost will be. The analogy sometimes used in courses on the management of major projects is that of making nine women pregnant at the same time in the hope that this will result in a baby delivered in one month. Fact # 8: It is cheaper and better to kill a no-longer-viable project than to let it continue Recognition of this fact is the driving force for the large percentage of major projects that are abandoned before completion. Not everyone has the courage to admit this, and vast sums of money have been spent on systems known not to meet requirements that changed since the project was launched or projects that took so long that the technology on which they are based is obsolete.
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quALIty: tHe Project SPonSor’S dILeMMA Imagine if this notice, found in a shoe repair shop were to be placed in a software development environment… The pressures for “quick” are always there. In many situations a quick solution would be appropriate even if it had some errors in it – for example a simple database that would be used infrequently and only in the short term by a small group of people. The pressures for “cheap” are also always there, and increase when a project is showing signs of running late and the project sponsor is unwilling or unable to make more resources available (and hopes that the project will not enter into the Impossible Region). When there is pressure for Quick and for Cheap the loser is always Quality because there will be pressure to postpone or avoid debugging and documenting the work, peer review and testing. The political realities of managements’ commitment to fixed deadlines and budgets cannot and should not be underestimated – some of these deadlines may have been announced to the press or others and become “political imperatives”. When the project involves systems with a critical role in the day-to-day work of an organisation it is not a good idea to compromise on quality. The project manager and project sponsor will need all the possible negotiating and advocacy skills to protect the organisation from itself.
the main stages in a project’s life
The experienced cynic’s view of the nine stages of a project is summarised in the box. While not always the case, there is some truth in it. The discipline of project management divides the lifecycle of a project into four phases: • • • • Initialisation Setting-up Implementation Completion
1. Wild enthusiasm 2. Optimism 3. Cool objectivity 4. Quiet confusion 5. Partial disengagement 6. Complete disillusion or panic 7. Search for the guilty 8. Punishment of the innocent 9. Reward of those who were not involved
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Risk management should be an inseparable discipline in all of these stages. STAGE 1: The initialisation phase covers all the activities that must be carried out prior to the actual start of a project and include, as a minimum the preparation of a proposal which must include a feasibility assessment and definitions of: • • • • • Who sponsors the project; Who funds the project; An overall description of justification for the project; What to buy, what to make and what to outsource; All known constraints and inhibitors – the list should be comprehensive and realistic and include timescales, budget, technical legacies, people issues (expertise, track record), organisation, and infrastructure matters; Dependencies that may impact on the proposed project such as other current projects, culture, communication, partners, contractors; Risk factors related to the proposed project (peoples’ skills, experience, the organisation’s decision making style and process, the degree to which there is a common understanding of the project goals) Critical success factors for the project; Legal matters such as the ownership of intellectual property (for custom software), need for confidentiality and non-disclosure during the project development; Technical and economic feasibility and any other information that will make the difference between success and failure.
• • • •
At this stage it is appropriate to issue a Request for Information (RFI) to determine how many vendors have products that appear to meet this general specification of requirements or a Request for Proposals (RFP) if a reasonably detailed specification of requirements can be produced. Producing a good RFP is itself a substantial project and must be done in such a way that it avoids the waste of time, effort and resources that might arise from an unclear, incomplete or incorrect specification. For a vendor a formal response to an RFP also represents a significant project undertaken in the knowledge that only one vendor can end up getting a contract. Dealing with a vendor’s proposal in response to an RFP requires the definition of clear evaluation criteria and a methodology that reduces bias in decision making. The technique of Weighted Ranking by Levels
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(WRBL). This and other tools have been compiled in a companion volume to this book entitled “The Executive Toolkit”1. The final part of this stage is the negotiation and signing of contracts and the development of detailed project plan that identifies the activities to be performed by the vendor and by the client(s). STAGE 2: Setting up a project follows executive approval to go ahead and starts with the signature of a contract to deliver the project or being given the “GO” if the project will be resourced internally. Best practices include formalising several component parts of the project to ensure clarity of purpose and communications. These include as top level activities: • Project Organisation Making the appointment of a project manager and the project team and assigning the percentage of time that they shall devote to the project (from 20% for a small, non-critical project that can be done concurrently with other activities to 100% for any substantial or critical project). In addition, suitable arrangements for accommodation, tools and related facilities need to made at this time. For large and very large projects and for projects of any size that have a major impact on an organisation, a Project Review Board (or group, task force, committee if these names are more appropriate in a given environment) should be established. Decision making process and delegated authorities Defining the scope of authority of the project manager and the project team members concerning expenditures, changes of scope, technologies, products, etc., and defining who can authorise changes (and how) other than those delegated. Such definitions should cater for arrangements that enable urgent decisions in non-delegated areas to be handled effectively. The project manager remains responsible for all activities of the project, including those delegated to members of the project team or contracted with external parties Review Management Defining how, who and how frequently the Project Review Board or equivalent body will meet with the project manager /project team to
The Executive Toolkit by Ed Gelbstein and Elöd Polgar, Diplo publications, 2005 (www.diplomacy.edu)
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review the progress of the project as well as the authorities of this person or group. Particularly important for major projects, this group should have the authority to decide whether a project should be terminated or, at the very least, be responsible for requesting such a decision from the Executive. STAGE 3: Project implementation is the collection of activities and resources that transform a plan into deliverables. Almost entirely the responsibility of the project team and any vendors, contractors or other parties involved, project management activities include: • Progress management (tracking and recording the evolution of the work against a project plan). This is a key the main purpose of which is to identify early signs of trouble in a project and deal with deviations from the plan by managing changes to it through a formal Change Control process and maintaining the project plan up to date. Project plans must be kept up to date to show all changes to the project and be shared among the project team, the sponsor and other executives, notably those members of a project review group to be of real value. It is acknowledged that there are organisational cultures where voicing bad news, whether slippages or technical problems, is considered akin to treason. This goes against the principles of risk management and does not help project success. Change management The need for changes to a project plan will be driven by many different factors – for example: - Changes in requirements identified during the development of the project; - Changes in technical products (versions of software, new hardware, vendors going out of business or ceasing to support a product); - Changes in the constitution of the project team and the need to brief new members and integrate them into the team; - Delay in completing a task that prevents another from being started; - Lack of funds that obliges the project to be put in suspense during its execution; - and a multitude of other reasons
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A Change Control process is used to formalise, document and keep a record of the approval of all changes that take place during the implementation of a project. This can be paper based or electronic and at the very least it should document. - Who has the authority to request changes; - Who requested the change; - The purpose of the change; - An analysis of the impact of the change; - An analysis of the risk associated with the proposed change; - The likely cost and duration of implementing the proposed change; - Who can authorise (or deny) the change; - How the proposed change will be implemented and validated The project manager should have the authority to decide on proposed changes (Yes, No, Not now). In case of disagreement between the requester and the project manager, the matter should be raised to the Project Review Board which would be chaired by the project sponsor. Overriding the project manager’s decisions on a frequent basis is a recipe for trouble as it implies that there is no confidence in her/his ability to conduct and deliver the project or to safeguard the interests of the organisation. • Project reviews These are essential and can be either scheduled events or called at the initiative of the sponsor or the project manager. The purpose of these project reviews is to - Share the project schedule and its evolving versions - Report on the actual vs planned status and actions to be taken if they diverge - Identify all changes to the project environment since the last review – and emerging risks or situations that need to be addressed - Ensure there is agreement on the purpose of the tasks that need to be carried out and how they should be done – documented with resources, timescales, deliverables
STAGE 4: Project completion is the time when all the project activities have been done and the outcome is ready to be included in the portfolio of information assets in use by an organisation. Typical tasks associated with a project’s completion are extensive testing: technical testing for performance, security features, data exchanges, in-
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tegration with other technologies and systems and end user testing to validate that the ergonomics of the system are consistent with the skills and ability of the people who will use it. When the project relates to a computer system that will involve confidential and financial transactions, it is also good practice to conduct an audit that the appropriate controls have been correctly implemented. Introducing a new system into operation can be done in two ways - Big Bang or phased: The concept of the Big Bang is a courageous approach to the implementation of large, complex software systems – waiting until all the development has been completed before releasing the system to an operational environment. This requires massive efforts in testing, transferring data to the new system from older systems, training, preparing for the support of the people who will use it and a critical period of transition from the old to the new. The opposite approach of phased implementations is favoured by a substantial majority of the people working in the software industry, who advocate that systems should be broken down into usable portions that can be implemented in no more than two years. Moreover, when the new system is a replacement of an old system, parallel running - keeping the old system operational until there is a sufficient level of confidence that the new system is performing well, is a way to reduce risk. Like all risk management activities (except hoping for good luck), it involves additional costs.
tHe MoSt coMMon reASonS WHy ProjectS go Wrong One difference between ICT projects and other projects, such as the construction of a bridge or the launching of a satellite is that in the event of failure the latter projects are investigated and a report on the cause of failure is produced. In the computer industry some failures get public attention because of their impact and visibility but it is not unusual to cover up failures whenever possible, minimise them and when this is not possible, provide “rational explanations”. The most common reasons for projects to go wrong can be grouped in two categories of different natures:
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Complexity Complexity Complexity can be easily understood to be a cause for project failure. This does not need to be the case, as many complex projects are successfully completed and measures that can be taken to reduce the risk of project failure are discussed here.
Complexity is the enemy of manageability and simplicity a virtue that characterises most creative and effective inventions. The KISS principle (Keep It Short and Simple) is as well known as it is ignored. Some of the many things that conspire against simplicity in ICT projects are: a) A lack of understanding of the requirements of the end product (this could be as much on the part of the sponsor as on the part of the people responsible for implementing the project); b) Changing requirements, inevitable as a project evolves, can lead to increased complexity if their impact on the remainder of the project is not evaluated as part of a Change Control process. The number of changes will be greater when the project lasts a long time and many such changes will be essential. The project sponsor and the project manager should be aware that such changes are loved by vendors, consultants and programmers; c) The Mindless Pursuit of Perfection, where developers and implementers seek to build an ICT system that caters for every conceivable situation, however rare they might be. d) Creativity over practicality: relates to the pursuit of technical perfection, seeking the most elegant solution to a particular problem after an adequate solution has been found, regardless of the time and effort it takes; e) Love of experimenting. ICT is an innovative industry and new products, silver bullets and magic solutions are annonunced all the time.
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Known as the bleeding edge, technical people are tempted to be among the first to try. Of course, if it does not work as promised, or the vendor withdraws the product, or the vendor goes out of business, it’s just bad luck… f) Sloppy implementation, justified by the need to meet tight timescales, with the promise that “it can be fixed in the next project stage”. While most things can be fixed later, the cost and added complexity of fixing sloppy implementations some time in the future are potentially large. For example placing a door in the wrong place in a house under construction is much easier to correct before the walls around it are built than after the wall has been built, plastered and painted. g) Going for a Big Bang approach with a large new system or upgrade. While often there is no choice but to go for a big bang approach, this requires superior planning and coordination for hundreds, if not thousands of activities and is therefore a higher risk approach than that of implementing things in more manageable packages that are integrated one by one. Optimism While it is wonderful to work in a stimulating and optimistic environment there are situations where too much optimism is a liability. Large projects are well served by balancing optimism with experience. Optimistic approaches to the following situations may occasionally work out but, as a rule, they don’t: i) Appointing a project manager for a large and complex project who does not have solid experience of managing comparable, albeit smaller, projects. This is, not uncommon as the convenience of having someone who is readily available but inexperienced displaces risk to some future time. Learning on the job puts the whole project at risk and the learning curve is steep; ii) Accepting the view that certain tasks are of the “easy – no problem!” kind without having first requested time to think about the issue; iii) Implausible estimates based on enthusiasm and optimism which invariably lead to missed deadlines, cost overruns and inadequate testing;
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iv) Belief in Magic: whenever a project gets to the situation that this “new tool”, “team member”, “product” will fix the problems that the project is facing and put it back on course. Anything of this kind should ring loud alarm bells in the sponsor’s mind.
tHe Art And ScIence oF Project MAnAgeMent Project Management has been treated as a science for many years. There are many courses, books, software programs and tools to train people in project management methodologies and in methods for measuring progress (and also measure deviations from the targets set for the project). No two projects are ever the same and project managers can expect to be confronted with situations that require experience, common sense, intuition, creativity and negotiation skills to resolve – which make project management an art as well as a science. Formal project management aims to maximise the probability of the successful completion of the project, meeting the planned targets for results, timescales and costs. When done properly, it also includes the identification, mitigating and management of the risks to which a project is exposed. Chapter 10 is dedicated to this topic.
The Central Computing and Telecommunications Agency of the UK Government (CCTA) produced “CRAMM” methodology (CCTA’s Risk Assessment and Management Methodology) which has been widely adopted as a tool for software projects. This tool, now available in several languages is available from www.cramm.com
The skills needed to be successful in projects are many and include • • • • • • • • • Business management; Risk assessment and management; Project management practices and tools including documentation; Issue management and change management; Quality management; Contract management and related payments; People management (including project teams, vendors, contractors and clients); Financial management; Review and meeting management;
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Successful “project people” need to be good organisers, effective decision makers, good communicators and have superior interpersonal skills. They must also be able to deal with change.
ActIon PoIntS Nobody wishes to be associated with a failed project, particularly one involving large sums of money and risk to their organisation. What can executives do to manage and contain risk to avoid the pain and embarrassment of a failed project? A good approach is to think of a project as if it was a patient in an intensive care - continuous monitoring of vital signs is required to increase the chances of survival. This requires a consolidated view of the project through its lifecycle by all the parties concerned – the sponsor, senior management, project teams, end users and others. Consistency, good communications, even when it is a matter of conveying bad news make a big difference. Here are a few approaches known to work well. These may well help both before and during the project implementation: 1. Avoid overambitious or unrealistic project goals and objectives and remember there is always a choice to be made between Quick, Quality and Cheap; 2. Resource the project sensibly, starting with the right kind of project manager, project team and other parties involved. The “right kind” must be, as a very minimum competent, experienced and empowered; 3. Ensure that formal project management methodologies are used and that all changes to the project are documented as it goes forward; 4. Make certain that the project sponsor and other executives are involved and informed on the evolution of the project; 5. Help the project manager keep a tight control on changes in requirements and discourage frequent changes altogether; 6. Recognise that project delays and cost overruns are likely and help the project team to keep both of these to a minimum; 7. Ensure that, if your organisational culture allows for it, risk management is applied to all projects. If your organisation does not believe
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in the value of risk management or it is contrary to its culture and behaviour, you will have to rely on luck. 8. When things go wrong with a project, blamestorming is unhelpful. Executives should be sensitive to warning signs and take appropriate action before it is too late even if such action may cause distress if it involves replacing one or more members of the project team or even the project manager. delivery processes may prove catastrophic in the operation of critical infrastructures, continuous and automated manufacturing, financial ser
C h a p t e r
Understanding and managing ICT risks
Risk management prepares you against a problem that has not yet happened Problem management is what you do when the problem occurs Crisis management is what you have to do when you cannot solve the problem
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Key queStIonS And cHAPter SuMMAry • What exactly is risk and what are the factors that determine it? • What is the scope of risks associated with ICT? • Why should an executive be concerned with ICT-related risk management? • What are the steps needed to manage risk?
Living and working in an imperfect world, things never work as planned. Risk management is the discipline through which the effects of unplanned events can be mitigated. ICT bring with them additional components of risk: threats and vulnerabilities that can have a certain impact on the activities of an organisation. Countermeasures are put in place to remove or reduce these threats and vulnerabilities, and what remains is a residual risk, i.e. that the countermeasures are not sufficient to remove a threat or a vulnerability, or that an unexpected (even unthinkable) event occurs. Understanding threats and vulnerabilities and implementing good countermeasures are essential components of risk management strategies. These strategies start with risk evasion, a “do nothing” approach in which an organisation relies only on good luck and extend to complex arrangements of risk containment, mitigation and transfer involving other parties such as insurance companies and outsourcing service providers.
MAnAgIng rISKS Risk is part of daily life and most people recognise that harm, loss and danger are real and could actually happen to them. Cautious people buy health and property insurance and also wisely hesitate to undertake activities involving long ladders and climbing on roofs or tall trees and make arrangements to look after their children should something bad happen to them. In addition, cautious people do not attempt to fix things they do not understand, like plumbing (those who have a go, must accept the consequences). Then, there are thrill seekers who go bungee jumping, parachute from planes, go mountain climbing and other activities that they believe can be achieved without harm. Finally, there are those who do things without thinking about risk. Statistics are not in favour of poor preparation. Many of those who don’t succeed get mentioned in books such as the Darwin Awards and the Chronicles of Human Stupidity.
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How many of the people in these categories behave the same way in their workplace? When it comes to ICT it would appear that the cautious group may be in a minority and the rest may just be unaware of their role in managing enterprise risk.
MurPHy’S LAW IS ALIve And WeLL Edward Murphy, an U.S. Air Force captain, said in 1949 that
ANYTHING THAN CAN GO WRONG WILL DO SO
This is now known as “Murphy’s Law” and various versions of itcan be found on notice boards all over the world, in hospitals, police stations, garages and offices. Its many variants and corollaries, as well as its long lasting popularity indicate that it is felt to be true. Among its corollaries, the following are popular and, so far, also valid: Corollary #1: Anything that could not possibly go wrong is only waiting for the opportunity. Corollary #2: When things go wrong, they do it in such a way that it causes the maximum damage. Corollary #3: There is nothing ever so bad that it could not possibly get worse. Murphy’s Law and its corollaries provide a good background for a definition of risk Risk is the possibility of something harmful that has not yet happened. The difference between risk, a problem and a crisis can be illustrated with an example: Risk Problem Crisis Losing key staff to a competitor There is a shortage of qualified staff and much competition for them Despite every effort made, a suitable replacement could not be found
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When nothing is done about risks, the result is a surprise. Surprises are NEVER good news.
the three components of risk and the role of countermeasures
Risk is determined by three components: Threats, Vulnerabilities and Impact. A threat is a potentially adverse event with a non-zero probability of occurrence. In the case of a computer centre located in the basement of a building close to a river, flooding is a threat. An A to Z of typical threats found in ICT systems and facilities includes the following – and there is scope for expanding the list…
A vulnerability is anything that could be exploited by a threat to cause damage. Vulnerabilities are always under the control of the organisation facing the risk. In the example of the computer centre, the vulnerability consists of having the computer room in a basement, as this will be the first place to flood should the river break its banks. There are many types of vulnerabilities – technical, human, operational, things that have not been properly tested and more. These will be discussed in more detail below. Impact is the outcome of a threat and a vulnerability coming together, expressed in terms of disruption and cost.
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Countermeasures These are all the actions that are taken to avoid or reduce threats, vulnerabilities and impact. In terms of the example of the computer room and the river, one possible countermeasure would be to relocate the facility to a place where the threat of flooding is much lower – away from rivers and the sea. However, some threats are much harder to deal with by an individual organisation, for example that of civil disorder or that of a terrorist attack in a particular city. Vulnerabilities are much more manageable in terms of finding and implementing countermeasures, but on condition that appropriate effort is put into identifying these vulnerabilities and reviewing the situation on a regular basis. A computer room without access controls that can be monitored is a typical example of a vulnerability. Another example would be Antivirus software not kept up to date. The countermeasures needed to address these vulnerabilities are relatively simple but require action to be implemented. The potential impact of an event is of prime importance in deciding the extent to which countermeasures will be put in place – very few countermeasures can be implemented without cost.
exposure or residual risk
When all is said and done, and countermeasures designed and applied, there will remain a residual risk, also described as an exposure. This exposure will always have a non-zero probability and the degree of residual risk that can be accepted depends on the criticality of the facilities to be protected and the impact of an undesirable event occurring.
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tHe MAIn AreAS oF Ict rISK Six distinct areas of risk will be considered in this chapter. Four of them are derived from the Control Objectives for Information Technology (COBIT): Weak governance Projects Operations Lack of audit (COBIT Planning and Organisation) (COBIT Acquisition and implementation) (COBIT Service delivery) (COBIT Monitoring)
and the remaining two are: non-compliance (with legislation, contracts and policies) and people issues.
risks related to weak governance
A typical list of such risks would include, as a minimum: • • • • • • Unrealistic ICT strategies, poorly aligned with business needs; Inadequate policies relating to the use and protection of information assets; Duplication of activities resulting in diverse and incompatible solutions; Inadequate organisational knowledge of ICT costs and benefits; Inability of the workforce to properly exploit the systems and facilities; Inadequate budgets to implement and operate ICT with adequate countermeasures.
Each one of these can lead to unproductive expenditures, systems that fail to meet the information needs of the organisation and in underfunded and under-resourced ICT services which may be unsustainable. The latter syndrome is called SMRC - “Saving Money Regardless of Cost”. While it is important to contain the cost of ICT, there are better ways of doing this than to resort to budgetary anorexia.
risks related to Ict projects
A previous chapter discussed the poor track record of ICT project delivery. The areas of risk that contribute to this include: • • • Insufficient or inaccurate specification of requirements; Poor estimates of project duration, project cost and expected benefits; Runaway projects as a result of ineffective Change Control;
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• • • • • •
Projects that are abandoned before completion; Insufficient controls built into the software that fail to meet audit requirements; Inability to detect unwanted or undocumented functionality (e.g. a logical bomb); Immature technologies or vendors that do not survive in the marketplace; Weak controls during systems tests as well as during data conversion and transfer; Incomplete documentation and insufficient testing.
Failure to address these items invariably results in increased costs, inadequate computer systems and, in the case of systems testing and data conversion a prime opportunity to commit fraud. Logical bombs are also used to sabotage and blackmail organisations.
risks related to Ict operations
Even the best technologies from the finest vendors will be at risk if the day-to-day activities required to operate them are not carried out without due care and attention being given to risk management. A list of typical activities that create exposures include: • • • • • • • • • • Service levels that are not high enough to meet the organisation’s needs; Weaknesses in the physical security of the computer room/ data centre; Weaknesses in the logical security for providing access to systems and networks, including identity management and authentication; Data centre processes that are not mature enough (see COBIT, Chapter 2); Lack of proper planning and change management for major upgrades; Insufficient technical capacity (not enough processing power, storage capacity, bandwidth); Technologies and software that are not supported by their vendors (a typical situation when they are fairly old and have not been upgraded to current versions); Incomplete, untested or non-existent contingency plans; Untrained or incompetent data centre and technical support personnel; Ineffective help desk and end user support facilities.
A complete list would be quite a bit longer. These exposures are not uncommon and are the main cause of service disruption and for the invocation of disaster recovery and other contingency plans.
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risks related to the lack of Ict audits1
Audits can provide an independent assessment of the ICT related exposures facing an organisation and validate the controls put in place to reduce such risks. In the absence of appropriate ICT audits, the following exposures may be significant: • • • • • No clear understanding of ICT expenditures; Inability to benchmark ICT performance and costs; Persistence of systematic errors and problems; Inability to detect unusual transactions (likely indicators of fraud); Inability to identify ICT misuse and abuse by individuals with privileged rights (e.g. System administrators, Database administrators);
Organisations must comply with national and regional legislation on many matters, including privacy, data protection, health and safety and work, the accuracy of financial reports and more. They also need to take steps that their workforce complies with internal policies and codes of conduct. In addition, organisations have responsibilities to third parties and these require compliance with the terms and conditions of contracts and licences and to all situations where third parties may have recourse to the law to seek compensation or damages for the misuse of data.
People play a key role in any organisation. The main areas of risk relating to them include: • • • • • • The provision of access rights to computer systems and networks to non-employees, including vendors, customers, maintenance personnel, consultants, contractors, interns; Dishonest, malicious or disgruntled employees; Industrial espionage; Infiltration by organised crime; Abuse through social engineering; Lack of awareness of essential information security and related issues.
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WHAt Are tHe StePS needed to MAnAge rISK? There are two distinct stages in dealing with risk: • • Understanding the possible risks; Doing something about them: identifying and implementing countermeasures;
Things that we can think of as potentially harmful may never happen (in plain language this is called luck) but luck cannot be counted on as statistics are against it. While the previous section listed some areas of potential exposure, the process for understanding risks needs to be customised for every organisation. The process involves two steps: discovery (or identification) and evaluation. Discovery requires being open minded and candid about the things that can occur to harm a process, project or activity. There are many techniques that can be used to identify risks and brainstorming is a favourite one. Successful brainstorming requires a mixture of experience (after all, risk is managed by people), good communications that allow risk to be discussed openly as some risks require saying things that may conflict with organisational culture, for example: • • “Tony is incompetent – the project will fail is he is made project manager” when Tony happens to be the Chief Executive’s nephew; “There is no way that this project can be completed by the end of this year and besides the budget is totally inadequate”;
To populate the list of risks, it is good to assume that every problem experienced in the past is a future risk. In addition, the brainstorming group should look for what they don’t know – the subject of every question to which the answer is “I don’t know” is a risk. Similarly, the assumptions being made in looking for risks should be challenged – for example “there is no way that one of our employees could act dishonestly” may not be valid. There are tools that can be used to support and extend the brainstorming process. The “Five Whys” technique is an extension of the natural curiosity of a three year old in which questions are asked to identify the root
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cause of potential events, problems or risks. By asking “why” – five times is usually enough – layers of symptoms can be removed to arrive at the root cause of a problem. Another useful technique is the “fishbone diagram”, originally created to support quality management. The example illustrates the early stage of development of a diagram tracing back all the factors that might enable fraud using ICT to take place. Used to complement brainstorming, these diagrams provide a good basis for group discussion and interaction allowing these diagrams to be developed and completed and lead to the establishment of a comprehensive list of risks that can lead to particular outcomes.
Following a couple of branches of this tree, first the policy branch: if the organisation does not have a policy to limit data access on a need to know basis as part of its appropriate use policy, if there is no policy for monitoring access to systems and keeping appropriate logs for critical transactions and there is no policy specifying what action will be taken in the event of non-compliance, the possibility of fraud has been facilitated. Looking at the process branch, if the process for terminating access rights for a person leaving the organisation (on retirement or to another job elsewhere) is not properly carried out, there will be people who have legitimate user IDs, passwords and whatever other mechanisms to ensure identity management while no longer being entitled to such rights. Another factor that makes fraud possible and not-so-difficult.
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Once identified, risks should be evaluated, i.e. the estimation of the probability of a risk manifesting itself. Those not convinced of the value of risk management will, at this point, argue that the probabilities of risks cannot be determined. While these numbers cannot be accurately known, boundaries and reasonable estimates can be derived by looking at history, statistics and trends and then discussing best and worst case numbers and agreeing on a “most likely” value. If someone says that “the project office could be hit by a meteorite”, this is possible and global statistics can be used to show that the probability of such an event is several orders of magnitude lower that the probability that the project manager will resign midway through a project. For every activity there are one or more events that can be described as showstoppers. If this event occurs it will result in an undesirable outcome which could include events with disastrous consequences. For example, an organisation that is working on an innovative product or service and planning to be the first in the marketplace discovers, two thirds of the way through the project, that a competitor has beaten them to it with a superior product. The best choice left to them is to abandon the project and write off the expenditures incurred this far. The root cause of this risk was the incorrect assumption that they could be the first in the marketplace and ignoring possible competition. The owner of this assumption, usually the project sponsor, may have not been thorough enough in the risk discovery stage. Unthinkable risks – those that could have fatal consequences for an organisation – may be unthinkable but are not impossible. Organisations where cultural issues prevent such risks from being articulated make risk management very hard, if not impossible.
doing something about risks
Having identified and prioritised risks, their management in practice calls for two sets of activities: risk management strategies and risk monitoring.
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Risk management strategies Worrying about a problem does not solve it. Doing something about it might. This statement is the basis of the five possible risk management strategies: avoid, contain, mitigate, evasion, transfer. Risk avoidance implies not pursuing an activity – a person will avoid the risks involved in parachute jumping simply by not jumping. This strategy also foregoes any benefits that pursuing the activity may have delivered – thrill and pride in the case of the parachute, business benefits in pursuing innovative projects to be first in the marketplace. Risk containment is about having sufficient reserves of money, time and people to cover the outcome of the combined risks should these materialise. This is what organisations do when they cover, from their reserves, the cost of an undesirable event – credit card fraud, for example. Risk mitigation is the collection of measures taken to reduce the emergence of a risk and reduce the cost of containment. All the activities relating to risk mitigation are carried out in advance of the materialisation of a potential risk factor – examples include: • • • Implementation of security policies and measures, background checks on employees; Preparation and testing of contingency plans; etc.
Risk evasion consists of crossing your fingers and hope the risk factors don’t materialise and in practice they don’t. The success of this strategy, although much used, is not supported by statistics. Risk transfer occurs when one or more risks are contractually shared between two or more parties, insurance and outsourcing being typical examples of risk transfer. This works well if there is complete clarity in the roles and responsibilities of the parties involved and a formal agreement on the consequences of failing to meet the contractual obligations. Risk containment, mitigation and transfer all cost money and this should be taken into account in the budget preparation process. Monitoring for transitions Each risk factor will have one or more indicators that it is materialising or has occurred – for example an intrusion detection system in the net-
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work security perimeter is an indicator that one or more people are testing the electronic defences of the organisation. The earlier such transition indicators are seen, the greater the opportunity to implement problem resolution and mitigation activities. The only problem with this is that early indicators may be full of “false positives”, i.e. not a manifestation of the risk occurring but something that looked as if it might. The manifestation of a risk leads to a problem, and while some problems can be solved and closed without too much difficulty – for example, the project manager for a large software development was suddenly taken ill at a time critical to the project. Fortunately, the second in command in the development team is fully briefed and quite capable of taking over for an indefinite period of time as the team has sufficient resilience to be reconfigured to take care of this. Other problems rapidly escalate into a crisis – they cannot be solved and become highly disruptive and visible.
tHe executIve’S roLe In MAnAgIng rISK The purpose of taking risks in the corporate world is to extend an organisation’s capabilities and build an advantage. Are any other risks worth taking? In today’s dynamics uncertainty dominates all activities and opportunities abound for those who are able to spot them. There are no benefits without risk – as if that was the case, they would have been delivered long ago. The success or failure of pursuing an opportunity depends on its timing and whether or not it will be successful will be defined by the degree of risk taking and the ability to manage these risks of those who go forward. Avoiding risk is of course possible but at the expense of giving up opportunities and the benefits they may bring.
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Risk management, when treated as a discipline, brings forward three benefits: • • • It makes exposures to risk and other uncertainties explicit; It can be used to put limits on uncertainties but focusing on the worst case, best case and most likely outcomes for events and projects; It increases the probability of success in exploiting opportunities.
These benefits are underpinned by two underlying assumptions: One, that keeping quiet about risks and uncertainties will not make them go away and two, that the alternative to risk management is to rely on “luck”. Murphy’s law is definitely against anyone wishing to pursue this path. The deep integration of ICT in the activities of organisations prevents the Chief Information Officer and other ICT people from managing all the risks associated with ICT by themselves – for example: • Policies on what constitutes misuse and abuse of ICT resources must have the approval of the Human Resources function and possibly the Legal department; Business Continuity planning involves all functions of an organisation; Projects for new computer systems require a business sponsor – normally the person who will be the beneficiary of the outcome and, ideally, accountable for achieving the benefits on which the case for investing was made; A senior person in the organisation, perhaps the Chief Executive who made a statement to the media about a specific deadline which is unlikely to be achieved and everyone else in the organisation needs to engage in a best effort to avoid embarrassment (even if the project fails, as was the case with the London Ambulance Service LASCAS system some years ago).
Risk management may not always be compatible with certain organisational cultures: Organisations that thrive on a “can do” attitude are stimulating environments to work in, particularly when there is a good dose of common sense to balance enthusiasm and optimism with experience. Where this is achieved, it is OK to be uncertain.
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Where this balance does not exist, being uncertain is not acceptable (although being wrong often is). These organisations will promote a loser by stating that “Joe Bloggs made a superhuman effort to deliver” even when proper risk analysis would have shown that Joe Bloggs never had a chance to deliver because of the risks involved in whatever he had to do… In other organisations, there is a tendency to shoot the messenger if bad news need to be delivered. Here the person raising concerns about risks will be told things such as: Why must you always be so negative? Don’t say something is a problem unless you can prove it… Don’t’ say something is a problem unless you have a solution for it… Don’t say something is a problem unless you want it to become your responsibility… In organisations that are unduly “careful” and risk averse, risk management is largely irrelevant because the policy of risk avoidance is the most likely to be pursued and it is politically incorrect to voice concerns about risks.
ActIon PoIntS Brainstorm potential risks to identify them, assess them and take appropriate actions. If risk has not been well managed, consider applying the benevolent rule that “Once is a mistake. Twice is a coincidence. Thrice is either carelessness or incompetence”, then act accordingly. Clearly there will be situations where a mistake should be dealt with before a “coincidence” occurs. Recognise that there is a real risk of loss of business and money as a result of shortcomings in information systems and the internal controls built into them.
C h a p t e r
Information insecurity: external risks
Fidarsi è bene. Non fidarsi è meglio. (It is good to trust. It is better not to trust.) Roman proverb
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Key queStIonS And cHAPter SuMMAry • What makes information security a hot topic that requires executive attention? • What are the specific non-technical issues of information security? • Can information security be outsourced? • Is your organisation adequately prepared to deal with abuse and crime through ICT?
The need to protect information assets from unauthorised use, misuse and abuse has grown as a result of reliance on interconnected networks, mainly the Internet to carry out transactions with customers, vendors, partners, and with an increasingly mobile workforce. Cyberspace – the world of software and data – brings many opportunities to people intent on stealing, copying or modifying data or simply disrupt the operation of networks, systems, websites and other electronic facilities. Hackers, crackers, scammers and organised crime are all known to be active in these activities and, without managing the security of its information assets, an organisation is exposed not only to loss but also to operational disruption. There are many tools and products to strengthen information security and there is an international standard – the ISO 17799 “Code of Practice for the management of information security”. These are however, not enough. Executive action is needed to create an organisational environment where these can be deployed and used effectively.
IMPortAnce oF InForMAtIon SecurIty Why should executives be concerned with information security? After all this is a technical issue and the ICT department is taking care of this. Right? In the not too distant past, all of these questions would have had a simple answer: security was not a major issue dealt with by technical people. What has changed in the last few years to require executive awareness and support are: • • The sharp increase in the number of security incidents; the proliferation of devices connected to networks – notebook computers and personal digital assistants with wireless connections owned by the organisation but used away from its premises;
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• • • •
product vulnerabilities, exploited by hackers and others with malicious intent; working from home connected to corporate networks which can be shared with family members and others; the many people other than staff given access to corporate networks and systems: contractors, consultants, vendors, clients and other stakeholders; providers of outsourced services, particularly software development done in another country (“offshoring”)
What is a security incident? Anything that affects the availability, confidentiality and integrity of information. This may be the result of malicious code (virus, worm, trojan horse, logical bomb), coordinated attacks (Denial of Service and e-mail avalanches), vulnerabilities in software, weaknesses in the defences put in place and the Insider Threat: deliberate action by people with legitimate access rights to computer systems and to data. The results of a security incident could lead to data and information being: • Disclosed to unauthorized parties (insider trading and market manipulation) • Stolen (theft of intellectual property and subsequent exploitation) • Modified with intent to commit fraud, embarrass or paralyse an organisation • Forged – impersonating an employee in e-mail or other transactions, spoof websites Computer networks and systems may be: • Poisoned by injecting malicious software (virus, worm) • Hijacked and misused by a remote individual (trojan horse, superuser rights) • Sabotaged (logical bomb)
Availability is the ability to access information systems and facilities when so required; Integrity is the degree to which it can be assured that when data (including software) is created or modified, this is done by a person who has a legitimate right and the proper authorisation to do so; confidentiality is the requirement that data is made available only to those who have the right to access it.
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Depending on their intent and severity, the outcome of a security incident can range from a nuisance such as the infection of hundreds or thousands of computers that will take time and effort to restore to a clean state, to the modification, disclosure or theft of information, fraud, blackmail, sabotage and organisational paralysis. Some of the nasty things against which protection is needed
Information security nasties Virus and worms Trojan horse Back doors Logical bomb Denial of service attacks and e-mail deluge Sniffing/breaking user ID and passwords Abuse of superuser rights Social engineering Ease of protection Easy Easy to medium Hard Hard Hard Medium Hard Medium to hard
When security is not good enough information assets are at risk. This matters because in the Information Age money is just another information asset – interbank transfers take place through electronic messages. Treasury and accounting functions handle information, not cash. Not all attackers are teenagers hacking for fun and not all hackers may be outsiders. From a corporate perspective, the potential attackers to consider are many: Malicious insiders, the enemy within. They are particularly dangerous because they have knowledge, legitimate access rights and possibly the motivation to act. See Chapter 12. External attackers who exploit the tools and techniques provided to staff with remote access to systems and facilities. The chart shows how the sophistication of attack mechanisms and tools has grown over the years.
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Becoming a competent hacker is easier than ever before as the tools and know-how are readily available either free of charge or for a small charge. It should be a matter of concern that major hacker conferences count their participants by the thousands, while conferences for information security professionals conferences attract, at best, a few hundred. This imbalance suggests that hackers are better at sharing experiences and information (usually about their successes) than corporate defenders (who would be disclosing their failures). Hacktivists, people with a “cause” who use information security attacks to gain visibility and the attention of the media; Organised crime, with vast resources to put to play and operate for financial gain and there is no doubt that computer crime pays. The Association of Fraud Examiners of the USA estimates that the average computer crime involves sums in excess of 2 million dollars; Industrial and other spies, who also have vast resources to put to play; Military, intelligence services (from anywhere in the world) and cyber-terrorists (assumed to exist). In an attack situation they may favour targets such as critical infrastructures such as electricity, water, air traffic control, fuel distribution, central banks and emergency services. However, the possibility that other organisations could be attacked cannot be excluded.
ISSueS For executIveS The ICT function is responsible for implementing measures to implement suitable tools (such as firewalls, virus detection and intrusion detection tools, authentication, etc) and ensure that the vulnerabilities of comput-
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er systems are known, understood and dealt with accordingly. A good CIO will focus on the implementation of technical protective measures but this is not enough. Every ICT vulnerability is the equivalent of an unlocked door waiting for somebody to try to open it. It should be noted that while a Finance Director is expected to sign the financial statements of an organisation and have them audited, the CIO and other senior ICT people do not have to sign anything, for example a statement regarding the security of computer systems, networks and data and ICT audits. The Gartner Group, an ICT industry research and advice company, reported in 2004 that the combination of the number of security breaches and the need to protect data has put security at the top of the list of issues of concern to business executives. Many aspects of preparation, response and validation require executive participation to be effective as the security chain needs to be strong – this chain is meant as a reminder of the importance of all the parties exercising their areas of responsibility.
Issue # 1: How much security? Security must never be an afterthought. A fact of corporate life is that security implies costs and inconvenience. Because of this the question of “How much security should be put in place and how much cost and inconvenience are appropriate” in a specific environment is entirely legitimate. The answer should be given by executives and not the Chief Information Officer or other technical person: the result of delegation will be either an incomplete answer and, possibly, inappropriate solutions based on a “mindless pursuit of perfection”. Costs need to be incurred to acquire equipment, software, facilities and employ people to manage them. It is possible to outsource the operational aspects of security in the same way that physical security is outsourced to companies who specialise in this. The lifecycle costs of security also
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include those of validation tests (usually involving third parties), consultancy and audits. Each security measure results in inconvenience – physical and logical access controls, the need to remember multiple passwords and/or carry a special device (e.g. a smart card), restrictions on what can and cannot be done (sending or receiving attachments to an e-mail). When the inconvenience associated with such measures becomes too much, people will seek shortcuts to make life easier. This is why it is common to find Post-It™ notes on computer screens showing passwords, a practice that makes security measures useless. The identification of security needs, the definition of what information assets to protect and to what degree must be driven by the activities of an organisation and the impact that an incident could have on its operations, performance and reputation. The sophistication of the protective measures (always reflected in their cost and complexity) needs to be balanced against the residual risk that an organisation is able to consider acceptable as 100% security cannot be achieved. Residual risk is a measure of the extent to which the value of the information assets the threats against them the vulnerabilities of the systems, networks, etc through which they can be accessed the effectiveness of countermeasures put in place
combine to increase the robustness with which a security incident can be dealt with. There are no absolute scales for ranking residual risk. However, taking an arbitrary scale from zero to ten (zero = absolute minimum residual risk), emergency services, the military organisations involved in e-commerce, financial institutions, etc would normally be expected to seek levels of residual risk between just over zero to no more than three.
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Critical infrastructures would be found at the three to five level while government departments and others where continuous operations are less critical can accept higher levels of residual risk. The process through which the parameters that determine the level of protection to be sought is known as Business Impact Analysis (BIA). Such analysis is a component of a disaster recovery and business continuity planning (Chapter 13). Many steps have been taken in the last few years to facilitate the management of information security, notably the international standard ISO 17799, “Code of Practice for the Management of information security”. This short and readily understandable code of practice confirms that technology plays a partial but important, role in the management of security.
The ten sections of ISO 17799: “Code of Practice for the Management of Information Security 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Develop and implement security policies Put in place a security organisation Maintain an information asset classification Address personnel issues of security Implement physical and environmental security Ensure adequate network and computer operations Implement system and network access controls Build security into systems development Have disaster recovery and resumption plans Comply with legislation and best practices
Issue # 2: Security policies and awareness programs Policies and the awareness programs designed to support them remove “I did not know” as an excuse for breaching security. Security policy templates are available from many sources and can be readily adapted to meet any specific needs. A typical list of the topics covered in a good security policy includes: • • • • Acceptable personal use of corporate resources (equipment, systems, data); Rules for downloads and for the installation of software; Rules for the corporate and personal use of electronic mail including attachments; Rules for the corporate use of mobile computing and networking;
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• • • • •
Creation, change and management of passwords or other authentication mechanisms; Rules for granting access to computer systems, data and other resources; Database administration, superuser rights and related activity logs; Segregation of duties for critical activities relating to systems, databases and data; Employer’s right to monitor the activities of individuals with access to systems and data;
These policies must be written in a concise and easy to understand style. They must comply with national legislation and be communicated to all parties involved. It is usual practice to ask individuals to sign a statement that they have received the policies, understood them and agree to comply with them. Information security policies will only be as good as the degree to which people comply with them. It is good practice to include a statement in the policies concerning the right of the employer to monitor activities and the actions that might be taken in the event of non- compliance. Building awareness of security issues across an organisation is the only way to overcome the misuse of social engineering.
“Social Engineering” is often used to bypass security. This involves the abuse of good will that some people will exhibit when asked nicely to be helpful and the unaware will happily lend access to a networked computer to a complete stranger, provide a password over the phone to somebody pretending to call from the help desk, and provide other information in response to a question.
Issue # 3: Clear accountability for information security There is the story about a job that had to be done. Four characters were around, their names: Anybody, Somebody, Everybody and Nobody. What happened was that… “Everybody knew that the job had to be done and thought that Somebody would do it. Anybody could have done it but in the end, Nobody did it.” To avoid this situation, ISO 17799 recommends having a security organisation in which responsibilities are clearly assigned. One person with the title of “security officer” will not be enough other than in very small organisations as the responsibilities for information security are large and distributed an organisation:
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Security of the ICT infrastructure – including physical and logical access, anti-virus and similar software, installation of patches to address known vulnerabilities, authentication mechanisms, firewall configuration and other technical activities. These may be the responsibility of an in-house ICT function (centralised or not) or that of an external service provider when operational ICT activities are outsourced. Security of data and databases – against the corruption or unauthorised modification of data, against misuse of data by individuals not be entitled to access certain types of data, etc. This should be the responsibility of data and database administrators who may report outside the ICT function. Access rights to computer systems and facilities – to ensure that these are used on a “need to do” and “need to know” basis. Such access rights would normally be assigned by the systems’ owners and include a definition of which system functions and data may be granted to an employee, depending on the latter’s role in the organisation. For example in a bank, an employee may only have access to the account information of clients at a particular branch assigned to this particular employee. Identity management – complements the access rights in the previous paragraph by establishing the means to ensure that the people who access a computer system are in fact who they claim to be and not somebody else who has acquired a valid ID/ password or other access mechanisms. Equally important is the assignment of “superuser rights” – such as a senior level system administrator, as these rights give unlimited access to functionality and data and can represent a major exposure if mismanaged or abused. The assignment of such rights and their subsequent management should be the responsibility of a very senior functional manager (HR, Finance, etc) and most definitely not reside in the ICT function or with an outsourcer. Issue # 4: Malicious insiders (see also Chapter 12) There are two types of malicious insider: the electronic type, consisting of software installed by a hacker, vendor, contractor, consultant, employee or anyone else who at some time had something to do with a computer system or network and who built in a facility to gain access at a later time. This can take the form of a backdoor, a trojan horse, a user ID and password not known to or controlled by a system administrator, an unknown superuser and other creative means.
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Combating this type of insider requires much effort, including independent reviews of computer programs, specialised audits and systematic testing to uncover such features. Not easy and not always successful when these elements are planted by experts. The other type of malicious insider is a person with access to computer systems, networks and facilities. The definition of an “insider” has become more complex than it used to be as it now includes interns, consultants, contractors, outsourcers and sometimes clients or other stakeholders. An often forgotten “insider” is the person who has left the organisation but whose access rights have not been removed. This happens when the separation procedures of the HR department do not include notification and instructions to the ICT function and other system access rights owners to remove these people rights at a given date or when the ICT function is busy and postpones these tasks until “mañana”. As insiders already work within the security perimeter, firewalls and other such techniques are not relevant amd a malicious insider will act with premeditation. A smart insider will not give obvious signs that an attack is planned and there are many instances of fraud where such activity took place over a considerable period of time. Others, behaving with anger, arrogance or stupidity will give ample indications that should be taken as a warning. Such warnings could be dissatisfaction or poor morale evidenced in conversations or e-mail messages and also access (or attempted access) to databases or computer systems they are not supposed to have access to. The UK government’s national security agency, MI5, provided a set of guidelines for managing the “insider” threat – these are at http://mi5.gov.uk/ print/Page58.html
Implementation and response
Issue # 5: The organisation’s metabolic rate Information security incidents, external or internal, take place dynamically. Malicious code such as the BigF or Blaster worms, infected millions of computers in just one day. Denial of Service attacks, even when announced in advance, happen quickly and do not always follow a predictable pattern. Some attacks are the result of known problems for which preventive measures exist, for example vulnerabilities in products for which the vendor
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provides the mechanism to remove such vulnerability. Prevention is always better than such cure but cannot always be implemented quickly enough. Sophisticated attackers perform attacks in novel ways, creating an unknown problem. In these situations, if the attack is slow as evidenced by intrusion detections showing attempts to penetrate a network or a system, an organisation may be able to respond to the attack through technical measures. When the attack is fast and its techniques constitute an unknown problem, there is a real threat to the target organisation. How well it is able to respond depends on its culture’s metabolic rate. An organisation with a fast metabolic rate is able to deploy additional staff or expert advice at short notice, purchase and install additional equipment and software with minimal delay and generally allow individuals to act with a good level of empowerment. Organisations with a slow metabolic rate cannot do any of these things quickly. Purchase orders may require approval by a contracts committee, engaging a consultant may only be done with the formal approval of the Chief Executive, there may not be budgetary flexibility to engage in unplanned expenditures, etc. These are barriers to good information security. Issue # 6: Ability to act when the worst happens The proverb “expect the worst and you will never be disappointed” is not always practiced in corporate life for any of many reasons – not enough time, not enough staff, not a sufficiently high priority, too expensive and organisational culture. There are organisations for which the risk of becoming paralysed by a natural disaster, civil disorder or terrorism or by an ICT disaster, is not
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considered serious enough to invest in appropriate measures to ensure continuity. An ability to act effectively and mitigate the risk of such events contains three major components: • • • A disaster recovery plan A business continuity plan A crisis management plan
The disaster recovery is the responsibility of the CIO. Such a plan should be documented, kept up to date to reflect changes in the ICT infrastructure and facilities and regularly tested to be of any value the day it needs to be invoked. One important part of such a disaster recovery plan is the existence of an Emergency Response Team and its appropriate backup. This team should be contactable at all times and be fully versed in their roles and responsibilities whenever the disaster recovery plan is invoked. Disaster recovery plans aim to restore at least partial ICT facilities in a short period of time that can range from an hour or less in the case of highly critical systems to a few days. The shorter the recovery period, the higher the cost of implementing disaster recovery capabilities. In extreme cases, when the recovery period is very short, it requires a fully duplicated ICT facility at a different location operating in hot standby. The executive’s role in disaster recovery is to ensure that adequate resources (financial and human) are made available for this activity and that such plans and their tests are independently audited. Business Continuity builds upon a disaster recovery plan to enable an organisation to continue its activities after a disaster of any kind. This involves having suitable arrangements for alternative office accommodation, the nomination of critical functions that must be recovered first and the individuals responsible for doing so. An inability to provide adequate business continuity may prove catastrophic for an organisation, not only commercially but also in terms of its reputation and public image. Crisis management is an executive responsibility that cannot be delegated to the ICT function which is primarily about communications with staff and other stakeholders in a “war room” environment, as well as dealing with the media.
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Security arrangements that are not tested or validated may turn out to be less effective than hoped for and independent validation is the mechanism that executives can adopt to increase their confidence that their information assets are adequately protected. Issue # 7: How far should validation be taken? A scenario where there is no validation relies on the CIO (or most senior security person) stating that “everything is fine”. This is a courageous approach as it may prove untrue when the time comes. An improvement can be obtained when the CIO and other computer system owners produce a signed statement recording all known vulnerabilities and their assessment of the threats faced by these systems, although this is not yet common practice. The introduction of the Sarbanes - 0xley Act in the USA, making directors personally responsible for the accuracy of corporate information, is likely to increase the need for transparency and accountability for information. Ethical hackers are information security specialists with a reputation for integrity and who work for respectable, well established companies. Ethical hackers can test the security arrangements of an organisation, or at least specific computer systems. Such tests usually involve breaking into systems to retrieve an agreed data file. There are informal claims that ethical hackers are successful in more than 80% of cases but companies engaged in this kind of work favour non-disclosure. Security consultants are engaged to review the arrangements made for information security. They can be expected to be familiar with best practices across many organisations and to provide advice on opportunities for improvement. By the time they concluded their activities, ethical hackers and security consultants are likely to know more about the security arrangements of an organisations that the people working in it, and therefore trust becomes a fundamental issue. Certification of Information Security professionals and practitioners. There is a growing trend towards certification schemes such as those provided by the International Information Systems Security Certification Consortium (ISC)2 (www.isc2.org) a not-for-profit organisation that provides two levels of certification: CISSP, for information systems [IS] se-
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curity professionals; and SSCP, for information systems security practitioners. Other organisations, usually commercial, offer certification schemes for compliance with ISO 17799, based on comprehensive audits of the implementation of the ten sections of this Code of Practice and on the British Standard BS 7799 Part II. Issue # 8: Digital forensics Security incidents are common events, but most of them tend to have little impact on the operational activities of an organisation. They include intercepted viruses and worms, multiple attempts to logon to a system using an incorrect ID or password, etc. From time to time, such incidents will cause real disruption or result in unauthorised activities or fraud. Investigating such events requires knowledge of digital forensics which, being relatively new and influenced by national legislation as to what constitutes acceptable evidence, does not yet have many practitioners. Organisations can invest in specialised software to monitor and track activities in information systems to provide material for review after an incident and to collect evidence. Such products are complex and hard to use effectively without extensive training. The use of such software raises an ethical question – should the people working in the organisation be advised that their use of systems and facilities is monitored? The current choice for such investigations remains working with consultants and, when appropriate calling on law enforcement agencies, in order to ensure that the evidence acquired can be used as evidence in a court of law. Issue # 9: Dialog between executives, technical staff and the auditors Although last in this list, but important, is the need for effective dialog between executives, technical staff and auditors on matters concerning information security before something goes wrong. The absence of such dialog, will result in a lack of clarity as to who is responsible for what, what could be interpreted as dereliction of duty and a focus on blamestorming.
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ActIon PoIntS The successful management of information security requires components that only executives can put in place: policies, monitoring and compliance. The ICT function will be handicapped if these are not in place or are not effective and will be unable to protect the organisation’s information assets. Encourage the ICT function to adopt the international standard ISO 17799 and to seek independent validation of their information security arrangements through audits and ethical hacks. Also ensure that the skills available within the ICT function are appropriate and up to date to successfully manage information security. Information security should be everybody’s concern and executives should ensure there is adequate awareness of these issues across the organisation as a whole.
C h a p t e r
Information Insecurity: The insider threat
Hiding in plain view: Place a tree in a forest – it becomes invisible. Place a rock in a quarry – it becomes invisible. Place a dishonest person within an organisation…becomes invisible.
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Key queStIonS And cHAPter SuMMAry • Which abusive, fraudulent and criminal activities that could affect an organisation would be easier to commit from the inside? • How difficult is it to acquire the knowledge needed to perform fraudulent and criminal activities using information systems and technology? • Who is an insider in a modern corporation and what could motivate an insider to act in a fraudulent or criminal manner? • What steps can an organisation take to protect itself from such acts? • What are the problems and limitations that such protection needs to address?
The answer to the question, “Which abusive, fraudulent and criminal activities that could adversely affect an organisation would be easier to commit from the inside?” is an easy one: ALL oF tHeM. The Association of Chartered Fraud Examiners and many other bodies have highlighted the fact that fraud and other forms of electronic misconduct are taking place in organisations and are often undetected. While most forms of electronic misconduct are variants of well established schemes, the combination of access rights to computer systems, knowledge and opportunity, coupled with the perception that computer crime is hard to detect, there are grounds to deal with these matters in a stricter manner than hitherto, particularly in financial institutions and in critical infrastructures (electricity, water, air traffic control, etc) due to the risks of infiltration by organised crime or by agents of terrorist organisations.
eLectronIc MISconduct: AbuSe, FrAud And crIMe tHrougH Ict Abuse of IT resources in the workplace arises when these are used for purposes unrelated to an individual’s work. Such abuse ranges from using corporate e-mail for personal matters to producing during working hours translations or developing software unrelated to the employer. Abuse is most likely to occur where there are no formal, clear policies on what constitutes appropriate personal use and where employees know that there is little or no monitoring and no sanctions if the policies are breached.
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Computer crime, which includes fraud, involves breaking one or more laws through the use of ICT. This is commonplace, not difficult to commit, hard to trace and harder to prove. Activities that can be described as computer crime can be grouped in three categories limited by the creativity of the perpetrators. The lists here are not comprehensive: Theft and espionage • • • • • Financial gain through improper manipulation of systems (payroll, pension, annual leave, procurement, treasury, non-legitimate invoices); Gaining access to networks and/or systems without authorization to extract information; Intercepting data flowing through a network (also known as network sniffing); Unauthorised transmission of data or information to a third party that has no right to it; Unauthorised disclosure of information (documents, data, software code, etc); Unauthorised modification, theft or corruption of data and software; Damage to ICT infrastructures and software; Introduction of malicious code into computer systems and networks (spyware, virus, worm, logical bomb, trojan horse and other such programs); Facilitating or organising a denial of service attack; Abuse of social engineering to obtain access to networks and systems; Impersonation, including e-mail and website spoofing; Aiding and abetting fraud or illegal activities; The introduction of undocumented functions in system software that could be used to provide access to systems bypassing normal access controls or cause the system to malfunction at a desired time; Taking over control of a computer assigned to (or owned by) a person with legitimate access rights.
Sabotage • • • • • • • • •
While the above may appear difficult to the uninitiated, the truth is that the skills and tools needed to do them are easy to learn and acquire. The community of hackers and other players is organised to share informa-
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tion and tools and many websites specialise in this. They are available in many countries and in many languages. Not all hackers have criminal intent and many work as security experts and consultants. To learn the tools and techniques to be a hacker, there are also books, articles, CDROMs and software on how to act like a hacker. Knowing how to be a hacker is not an offence. Only being caught doing something illegal is, and then only if it can be proven in a court of law. Less easy is learning how to think like a hacker, as this requires creativity (which can be learned) and a certain willingness to take risks by disregarding policies, rules, regulations and legislation. The expression that “you need a thief to catch a thief” also applies to cyberspace. In addition, hacker conferences bring together large numbers of likeminded people, ranging from the anti-social element to the intelligence, defence and police community who go there to learn and recruit. One of the largest and best established of such conferences is the annual Defcon event in Las Vegas.
The digital world makes many things “invisible” and many forms of cybercrime, if done subtly, can be committed over long periods of time without anyone being aware of them. The Association of Certified Fraud Examiners estimates that 85% of such crimes are committed by insiders – and confirms that these insiders are well informed and smart individuals.
Who is an insider?
Clearly the employees of an organisation are insiders. But this is the beginning of a long list of people who, for various reasons, are given access to networks, data and systems: Temporary employees – sometimes supplied by an agency, interns (such as university students doing summer work related to their studies), contractors working on a project for the organisation, consultants and external auditors engaged for specific tasks that require them to spend time within the organisation.
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Then, there are security personnel, building maintenance and cleaners who have access to the organisation’s premises at various times and maintenance technicians from various ICT vendors who have access to computer rooms. Another challenge to organisations with valuable information assets (such as financial transactions) is that of organized crime: Computer crime is easier and less risky than going into a bank with machine guns. Organized crime is aware of this and also of the fact that the security defences of an organisation are more effective from outside than from the inside. A plausible scenario would identify smart young people, whose studies in a prestigious academic establishment are sponsored (such studies would include computer science) and encouraged to join target organisations. Once on the inside, this person becomes the equivalent of the Illiad’s Trojan horse, waiting for the right opportunity. The final category are visitors with good social engineering skills. In theory, such visitors are somebody’s responsibility in the organisation, but some are willingly taken to visit a computer room and, depending on the security culture of an organisation, they may be allowed unescorted access to office buildings. A polite, suitably dressed person can take advantage of the basic human inclination to be helpful to gain a considerable amount of confidential information through friendly dialog and sharp observation. Experience shows that it is not difficult to persuade an office worker to lend their computer to such a visitor on the grounds of some “urgent need” and when the level of security awareness is low, the worker will not log out of the systems being used and thus give a stranger access to the network from within the security perimeter.
How is extrusion done?
In a series of articles published in Computerworld in the early part of 2004, Danny Lieberman, of the company OSI-Open Solutions, Israel, introduced the concept of “extrusion” as the counterpart to intrusion. In the first of these articles he retells the old joke about the cement factory from which every day, a worker leaves at closing time with a wheelbarrow of sand. After a month of this, the guard finally says to the work-
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er, “I know you’re stealing something; I just can’t figure out what it is.” The worker replies, “I’m stealing wheelbarrows.” Extrusion is the unauthorized transfer of your assets in broad daylight. Doing this could be as easy as 123… and the stages involved are shown below:
Infiltration is not always difficult – it is determined by the extent to which checks about individuals are conducted prior to employing them and giving them access rights to networks and computer systems. Several activities relating to infiltration should be seen as cause for concern, in particular: • Background checks and references are not carried out uniformly – they may be quite extensive for the appointment of a new employee but minimal or even non-existent for getting temporary assistance from an agency, from a vendor or from an outsourcer; Lack of awareness by insiders of the need for confidentiality with regards to network and systems access, systems documentation, passwords and other tools. This includes the practice of logging out of all systems and locking a workstation before leaving the office – even if for a very short break; The practice of allowing visitors unescorted access to offices and computer rooms.
Exploration can also be simple to conduct through social engineering. Its objective is to gain a good understanding of what systems exist, who has access to them, how they are secured, who has documentation on
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them and gather other information that would in due course allow a person with intent to access and/or take control of such systems. The practice of allowing remote access to systems to certain people creates an opportunity for a hacker to gain access to these systems by taking over control of the mobile or home computer of a targeted authorised user – this is basic. While the computers on the corporate network may be adequately protected by software and hardware, this is not always the case for home computers which may not have the latest version of all corrections (patches) to software, not fully uptodate antivirus software and more importantly no tools to detect spy code (that could capture the key strokes needed to log in to a system) or trojan horse software that allows a hacker to use the computer as their own without the knowledge of the owner. Once a hacker has established a base of operations within the network (which could be from outside the premises), it becomes possible to plan and covertly execute any of the activities listed in this section, with a good chance that such activities will remain invisible unless discovered by chance or by a whistle blower. Exporting data out of an organisation has become easier because of the ever decreasing size of media – a memory stick with a capacity of up to 1 gigabyte measures roughly 6 cm in length, 1 cm in width and 6 mm in thickness (and is inexpensive). In organisations where insiders can access the internet, it is also possible to exploit what is known as a “reverse HTTP channel” in which the insider’s computer is acting as a server instead of as a client, and this can be used to transfer substantial amounts of data invisibly.
tHe MotIvAtorS tHAt drIve tHe InSIder tHreAt Lack of awareness (or stupidity) The most common and dangerous insider threat comes from people with good intentions but no understanding of the consequences of their actions. Common instances of their actions are password sharing, giving someone else the information needed to access a network and one or more
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computer systems. A frequently found form of password sharing consists of writing this information on a Post-It™ note and placing it in a visible place, such as the edge of the screen. This makes it easy for an opportunist to impersonate them. Social engineering, already discussed, exploits peoples’ willingness to be helpful. Emotion In a living organism such as an organisation not every worker will be happy all the time. Well adjusted individuals accept this as the rougher side of one’s working life. Others, however, may be driven to “punish” those who make them unhappy, and the potential invisibility that can be gained through ICT, makes it attractive. With a minimal amount of technical skill it is possible to send anonymous e-mail messages (by creating a fictitious name on a free web-based service such as Yahoo mail) with the intention to harass, offend or malign a target. If a person is able to gain access to a colleague’s computer left logged on and not locked, this can be used to cause trouble for the individual by sending messages that would appear to come from this individual. More technically skilled people will be able to introduce software into a network or computer application (and ICT personnel are in an excellent position to do so) to disrupt the network and/or corrupt data. Such software is referred to as a logical bomb. There are many other possible forms of sabotage…
executIve dILeMMA: SuSPIcIon oF A MALIcIouS InSIder A highly successful company in the financial sector conducted studies towards the re-engineering of their business operations. This would result in streamlined services with a reduction in the workforce and therefore cost. The re-engineering would involve the outsourcing of the ICT function. At about the some time, the Chief Finance Officer had a feeling (but no evidence) that someone in the organisation was acting to commit (or had committed) fraud.
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Because of the proposed re-engineering there were many disgruntled employees that could cause damage to the company through sabotage and using this to create a crisis of confidence by alerting the press, leading to a loss of reputation from its high level position in the marketplace. In the absence of evidence, how should an executive approach the situation and, if the company does not have the appropriate level of expertise in e-fraud, what options do they have?
The assumption that every organisation has a (small) percentage of dishonest staff is confirmed by experience. It is generally hard to tell where appropriate use of corporate resources ends and dishonesty begins. For the purpose of this discussion, “gain” is meant to represent substantial financial amounts. All categories of fraud fall in this category, and collusion with third parties is not uncommon.
examples of malicious insider actions There are hundreds of recent examples of malicious insider actions. The following three are fairly typical of such activities: A 24 year old employee of America Online Inc., was arrested in the United States of America on federal charges of stealing 92 million e-mail addresses that were sold to spammers. An employee of Teledata Communications (Long Island, NY, United States of America) stole 30,000 consumer credit reports listing mortgage information, credit card numbers and many other personal details. A disgruntled employee of the Queensland (Australia) Water Authority released 1 million litres of raw sewage into the grounds of the Marriott Resort. Tried and sentenced on 46 charges of hacking, the person was given a sentence of two years in prison.
executIve dILeMMA: WHAt SHALL We do About SuSAn? Susan, a trusted employee who has been with a major healthcare services firm for 15 years had an argument with a supervisor and was forced to leave the company under less than pleasant circumstances. Shortly afterwards, her former colleagues and others complain that their passwords on certain corporate systems, including the e-mail system are no longer working. It is known that Susan had knowledge of those systems, including default or known passwords, and there are suspicions
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that she has used that knowledge to access components of those systems. In an effort to resolve the situation, IT management issues an urgent request for employees to change their system passwords. Some respond appropriately and change their passwords; others ignore the request. So far, three issues have emerged: • • The organisation’s policy regarding removing employees’ access rights to systems when they leave is not being followed. The same is true for the policy requiring employees to change passwords regularly; The organisation appears to allow the use of corporate applications that rely on default or hard-coded passwords at the system level. This means that critical application functionality will fail if the passwords are changed and this is a major vulnerability. Should there be a policy restricting systems from using hard-coded passwords or requiring implementation teams to change default passwords prior to going live with systems. What should such a policy look like? The decision to shut down compromised systems or disconnect them from the Internet must be considered. Who should be the party responsible for making that decision, and does it address the impact of that decision on business?
Because Susan had gained illicit access to the e-mail system, the potential exists that other applications may have also been compromised, for example the firm’s online subscriber information database. Some of these applications may have default passwords that are crucial to their operations. If Susan knows these default passwords, she also may know other employees’ passwords to these applications. As a response to this potential issue, programmers and vendors for the potentially compromised applications are contacted. They report that changing certain passwords on some systems is possible; however, it will take a month or more to make necessary programming changes and conduct remedial testing. The one-month time frame will affect the availability of the applications—perhaps even requiring that they be taken offline, which would necessitate a public explanation. This time frame will require adjusting the priorities of the current IT staff, thereby affecting the timeline of other projects currently underway. Meanwhile, system and security administrators have put extra resources into determining how Susan is accessing Internet systems, but have lit-
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tle to show for their efforts. Some of the organisation’s information systems are configured to log activity; others are not. However, even those systems that log information are only logging certain events, for example, failed logins. They offer nothing in this situation because the ex-employee is not failing to log in; she knows passwords and she knows the system’s “back doors.” She knows where the system’s holes are, which means she could change security configurations on the systems and no one would know. This raises the following additional issues: • • There are no implemented policies for logging security events on all systems or for accountability with regard to monitoring those systems. Without knowing which systems have been compromised, the organisation cannot learn whether data has been modified, stolen or deleted, or whether sensitive or critical information, such as customer data or information regarding business partners, has been compromised.
Five days have elapsed since the first security breach was discovered. Susan is still accessing corporate systems and changing employee passwords. She has hijacked the e-mail account of a current employee and uses it to send an internal e-mail to management. This e-mail, appearing to come from a current employee, complains that the ex-employee was “let go” unfairly and “did nothing wrong.” The issues under discussion have become broader in tone, and more urgent: Activating the business continuity or disaster recovery plans is considered. The decision to contact law enforcement is considered, as well as the public relations ramifications of taking that step. What might these be? Susan sends another e-mail to selected company managers, this one containing an agenda. It reveals that for some time she was frustrated by the firm’s lack of security and that “no one listened” to her attempts to address it. Now, she has their attention. The e-mail further reveals that she is in possession of patient healthcare histories and intends to disclose the information to the public, just to show how insecure the company’s environment is. At this juncture, the scenario could move in several directions. However, the point has been made that the well-being of the organisation has been
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placed in grave jeopardy by the actions of one person who may have limited but critical knowledge of the system and perhaps only ordinary computer skills. This scenario is genuine (the names of the parties and the industry have been changed) and it could be played again anywhere and anytime. Key issues arising from this dilemma: • • • • • • • • Would the digital security program currently in place have the resources to find the necessary answers, and do so in a timely and organized fashion? Would prior decisions made by executive management about digital security empower or hinder those responsible for digital security as they sought to find solutions? What would it cost to address this scenario? What would shutting down a busy website for 24 hours cost in terms of lost revenue, not to mention the damage to the organisation’s public image? What are the legal ramifications of having sensitive private information publicly released? What would it cost to have system administrators spend hundreds of hours investigating the incident and rebuilding compromised systems? What would it cost to have administrators and senior management spend dozens or hundreds of hours in meetings during and after the incident? What would it cost to have the public, government and media relations departments spend hundreds of hours working on damage control plans and collateral materials intended to restore decreased customer and shareholder confidence? How much will the stock price drop, and how long will it take to rebound? Worst of all, what if such an attack happens again before the organisation has a new program in place?
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PrePArIng For ProtectIng AgAInSt InSIder tHreAtS What can an organisation do to manage the risk of computer crime? There are four stages of action that come under different areas of management.
Stage 1: CULTURE AND DETERRENCE: policies and compliance Organisational culture defines the level of deterrence. Organisations that accept that appropriate personal use can be taken to mean generous, and those where there is a high degree of tolerance for “flexibility and initiative” when these are used to benefit the person rather than the organisation, will find it difficult to establish credible policies and compliance rules. Ideally, every organisation should have clearly formulated and widely communicated policies on at least the following: 1. Appropriate official and personal use of the organisation’s ICT assets: Covering the computer systems of the organisation and facilities such as office software, internet access, electronic mail (corporate and personal), telephones, etc., these policies must make it clear what is permitted and what is considered to be inappropriate, indicating the owner’s right to monitor activities and the actions that might be taken if such policies are breached. It is common practice to require employees, contractors and others given access to ICT assets to acknowledge receipt of the policy and to agree to abide by its terms.
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2. Authentication These are the mechanisms through which an end user is identified and accepted by computer systems. The most common practice requires users to provide something they know: a “user name” and a “password”. Other, stronger, mechanisms may include something they have (like an USB key or smart card) or something they are (fingerprint or eye scan). Authentication policies specify the level of protection given to systems and data. These are implemented through one or more techniques in order to prevent the disclosure and/or sharing of anything that may facilitate access to systems by unauthorised persons. When passwords are used, there is a need for password rules (minimum length, composition, not to be written down or disclosed to others, frequency of change). Passwords should also be regularly changed without cycling or repeating passwords. 3. Access rights to organisation’s systems and data This policy defines an organisation’s philosophy to access to systems and data. The two most common positions are: “Limited access to specific systems, otherwise access to everything else” and “Access on a Need to Know basis and to nothing else”. The first is typical of organisations with relaxed attitudes to security. The second is found in security conscious organisations. The need to know approach has implications on the design of systems and databases by requiring classification (into public, restricted, confidential, etc) and segregation of data to ensure people only have access to the data strictly required to perform a particular function. Organisations should also make distinctions between access rights for staff, employees with temporary contracts, interns, contractors and consultants. If these distinctions are not made, the protection of systems and data may be considerably weakened. 4. Fraud and impropriety A formal policy that specifies what is considered to be appropriate use of the data, computer systems and facilities of an organisation. This policy describes in appropriate detail activities that are considered to be an offence and as such be the subject of investigation and disciplinary action. For example: Is an unauthorised alteration of an annual leave record fraud? Is removing a CDROM with copies of the organisation’s data an offence? Is allowing unauthorised access to personnel data an offence?
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The preparation of such a policy can be assisted by consulting recent legislation ranging from the UK’s Computer Misuse Act to the Council of Europe Convention on Cybercrime and the European Union Directive on Data Protection. 5. Recognition of computer crime in audit strategies and methodologies Computer crime has become a major concern to most organisations. Organisations that do not have audit strategies and methodologies that cover computer crime, in particular expertise and tools in digital forensics, will be in a weak position to detect and investigate fraud, let alone ensuring that business processes contain the necessary controls to prevent it. 6. Monitoring for compliance with policies In the absence of monitoring and compliance, the value of policies is reduced to removing the excuse “nobody told me” when someone commits an infraction. Monitoring and compliance policies are delicate matters as they come into conflict with employees’ rights to privacy and confidentiality. Such policies will differ significantly from one organisation to another, ranging from “do nothing” to very tight monitoring of all. 7. Personal references and validation of credentials In the modern enterprise, employees represent just a proportion of the workforce with growing reliance on temporary staff, agency staff and contractors, consultants and vendors all of whom are provided with access to computer. Having provided a person with a valid user ID and access rights, it is possible to work on the assumption that everyone is a well intentioned person who would not consider harming the organisation or acting improperly for personal gain or satisfaction. This is unduly optimistic. The UK Government’s MI5 (Security Service) provides some useful guidelines in their website on dealing with “Managing Staff Securely – The “Insider” threat”. Moreover, in some areas of activity regulations require that all staff, regardless of whether they are permanent or temporary, be verified to be “fit and proper” to perform their assigned role in the organisation. Such regulations need to be researched and complied with for every sector for which such regulations have been formulated.
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Stage 2: PREVENTION - Building protection features into systems The best time to include system features to prevent abuse, fraud and other computer crimes is at their design stage. Admittedly, many systems consist of commercial, off the shelf software (COTS) or packages that are customised for a specific organisation. Here there is less that can be done to prevent the introduction of undocumented functions, but there is much that can be done to ensure these products are correctly configured and have suitable safeguards against misuse and abuse. In the case of one-of-a-kind software, specifically designed for one organisation, it is particularly important to ensure that adequate attention has been given to this aspect of design and that the implementation of protection features has been independently validated. Computer operations (at the desktop, server and computer room level) need to cater for facilities to prevent computer crime. The following are the main areas to address to prevent computer crime through design: a. System design safeguards and controls System specifications focus on what a computer system should do. Well developed specifications also include definitions of functions and processes that are not allowed, particularly to prevent fraudulent transactions, and requirements for transaction logs that identify what records where changed, when and by whom. b. Back doors, logical bombs Malicious code can be introduced in computer systems at the design stage and also through subsequent maintenance, enhancements and upgrades. The problem grows when this work is done by other than staff, such as contractors perhaps off-shore, as the usual measures of validation cannot be easily applied. c. Secure logical partitions of data to support Need to Know The software used for databases must allow for data partition in a manner that supports providing data on a Need to Know basis. While the database software may include this capability, it is up to the database administrator and the system owner to define access rights by employee function and level. d. Inappropriate storage and maintenance of electronic records While safeguards may be in place for online systems, databases and data, there should also be safeguards for the copies of the data and software kept as backups and for disaster recovery purposes.
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These may not contain the latest online updates but are available as media (disks, tapes, CD or other carrier) and their unauthorised copy or removal could enable others to recreate the system and read all the data. It could also allow for the corruption or destruction of backup data and software to prevent successful recovery. Stage 3. OPERATIONS: systems administration and monitoring The measures put in place during policy preparation and system and infrastructure design will only be as good as their operational administration on a day-to-day basis. i) Access rights (definition, maintenance, termination) Every person with access to information systems and facilities needs to be granted specific access rights, in line with the organisation’s policy. These would normally include: • Access to the data network (fixed and/or wireless) • Definition of a software profile (all applications that will be enabled for this person) • Inability to modify the computer configuration and install software • Provision of a corporate e-mail account (if appropriate) Such access rights need to be documented and related to identity management and authentication. They should be updated immediately upon transfer to another job and terminated when a person leaves the organisation. ii) Segregation of duties There should be clear procedures to ensure that no one person has the ability to authorise a change (for example the creation of a new user account), implement the change and also test the change. In order to maintain adequate security, such functions should be undertaken by different people and these should be rotated on a regular basis to avoid the risk of collusion. iii) Superuser rights System administrators and database administrators are granted special access rights to systems in order to exercise their function (updates, backups, reconfiguration, etc). This is a critical process as if these rights are unlimited and unmonitored they provide exceptional opportunities to these individuals. It is also not unusual for systems developers and testers to have extensive access rights to software, including databases and when there
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is no separate and controlled test environment people other than authorised employees may have access to live operational data. This situation represents a serious risk to any organisation. This presents several complications in environments where ownership and responsibility for systems is fragmented across departments or business units without a common policy and potentially widely different control arrangements. iv) Password disclosures and social engineering When access control and authentication rely only on the use of user IDs and passwords, and particularly when there are no strict password construction rules there are several exposures, in particular those of: • Passwords that are (difficult to remember) written and visibly posted in office areas; • Passwords that are shared among employees (to cover during unauthorised absences for example) and to access systems if an employee is on vacation or on sick leave; • Passwords that are trivial and therefore easy to guess or to break using hacking software such as password breaker (these are easily available); • Repeated passwords – where the system allows the user to use the same password over and over again. A more insidious problem is that of “social engineering” where a plausible individual requests to be given access to a computer for a few minutes. Other instances of social engineering involve people pretending to be maintenance personnel requesting access to computer rooms, or obtaining User ID and passwords from naïve, unaware employees. v) Data rights (C, U, R) Authorisations for the use of data can be at any on of three levels, higher levels implicitly containing the lower ones: Top level: Creation of data – an individual can create a new record in a database (for example a new employee or a new purchase order). (This differs from superuser access insofar that the rights apply only to data, not to the software). Intermediate level: Update of data – an individual cannot create a new record but can update existing records (modifying entitlements for an existing employee or modifying a purchase order before its final processing).
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Low level: Read access only – where individuals can only access data, view it, print it and possibly copy it for separate processing (statistics, etc). Such authorisations need to be granted by the systems owner and implemented by the system administrator and/or database administrator. All such authorisations should be on a “need to know” basis, be formally logged and be the subject of formal change control. Stage 4. DETECTION: Investigations, digital forensics and further actions An organisation would have to be extremely lucky not to have to conduct an investigation of their computer systems and infrastructure after a security incident, misuse, abuse or cyber-crime. The activities needed to be prepared to conduct such work require: vi) Determining the point of access and containment The discovery of a problem of this kind can be evident in cases such as malicious code, sabotage, blackmail or unauthorised disclosures. It can also be accidental as is the case in most instances of smartly conducted fraud. Determining the point of access and containment of the problem is the essential first step in managing the situation and this requires good logs and monitoring tools. These range from firewall intrusion detection logs designed to identify external attacks and system access logs for internal users (where these exist, are kept and analysed). The number of tools available for such monitoring is growing and they range from the fairly cheap and simple to complex and sophisticated tools such as for example Zephon, from Intrusic Inc., specifically designed to deal with insider threats or eTrust 20/20 from Computer Associates specifically designed for high security environments (NB mention of these products does not constitute an endorsement). The introduction of such systems needs to comply with employee policies and appropriate legislation on the right to privacy of employees. Having located the point of access and a suspect, the next step is the containment of the problem for which there is no general answer – the organisation may wish to develop a more elaborate monitoring system to collect more evidence or take action immediately – the lat-
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ter course of action is vital for external attacks but not always suitable for internal ones. vii) Evidence preservation and custody chain Digital forensics is a relatively new discipline and there are many tools that support this work. The problem here is a legal one: how to seize, preserve and analyse evidence of abuse or crime that will be accepted in a court of law. Knowledge of the appropriate applicable legislation is a pre-requisite. There are several sources of best practices concerning the seizure and custody of evidence and recommended techniques for the analysis of information from computer systems. If these are not followed, legal action against an offender will not be possible. Legal action is not always the best recourse as it involves public disclosures and adverse publicity, particularly when the actions were the result of inadequate internal measures. viii) Evidence analysis and forensic tools Having seized and preserved evidence, analysis provides an understanding of exactly how the offences were committed and provides the material on which to prosecute or take disciplinary action.
ISSueS And LIMItAtIonS ArISIng FroM tHIS ProtectIon Digital forensics – the investigation of computer crime – is a complex discipline. The most important issues arising from it relate to: • • • • Acquiring evidence of a cybercrime in such a way that such evidence would be admitted as evidence in a court of law, and national legislation varies significantly; Ethical issues of whether a digital forensic investigation should be carried out with the knowledge and consent of the party suspected of being involved in some form of cybercrime; Who is allowed to conduct such an investigation – should this be carried out by the audit department, a law enforcement officer or a member of the I.T. department? How quickly should an investigation be conducted? It does not take an expert much time to remove traces from any improper or illegal activity, making the work of a forensic investigator that much more complex. Organisations with slow metabolic rates that spend much
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time considering the pros and cons of such actions are handicapped by design.
ActIon PoIntS Executives should ensure that there are clear and well disseminated policies, supported by consistent organisational behaviour with regards to all forms of cybercrime. This behaviour should extend from formulation of deterrence policies to sanctions and redress. Those responsible for information security should be required to learn how “bad guys” think and operate and incorporate appropriate defences against external and internal threats. Cybercrimes committed by an expert will be essentially undetectable. The role of tests, audits and security certification must be seriously considered if the organisation’s information assets are valuable.
C h a p t e r
Contingency planning for ICT
“There seems to be little enthusiasm at board level to spend the relatively small sums of money needed to head off disaster” The Financial Times, March 9, 2004 Special Report on Business Continuity
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Key queStIonS And cHAPter SuMMAry • • • • • What can cause an organisation to have an ICT disaster? What are the steps needed to reduce the impact of such a disaster? What are the options to consider? How much will this cost? What are the most likely problems to be encountered?
What happens to an organisation when its networks and computer systems become inoperable for a significant period of time – hours or days if it is merely a computing problem, weeks or months if the cause also affected buildings or a town? The last few years have seen many tragic events, some natural, others man-made. Lack of adequate contingency plans to deal with such disruptions can have catastrophic impact on an organisation ranging from a loss of credibility to going out of business. Surveys from ICT research organisations such as the Gartner Group and professional associations – for example the Business Continuity Institute – indicate that there are still many organisations in all areas of activity that do not have adequate contingency plans. For such plans to be effective at a time of crisis, it is vital that they should be kept up to date, that they are regularly tested and that everyone concerned should be fully aware of their roles and responsibilities when such plans need to be invoked.
deFInItIonS Contingency plan: the collection of processes, procedures and activities that define what to do in response to an emergency. Disaster recovery: the processes, procedures and activities that are applied to restore computing and telecommunications services after they have been (severely) disrupted. Business continuity: the processes, procedures and activities that define how an organisation will operate after an event that disrupts it. Although strictly speaking this may fall outside the field of ICT, corporate contingency plans should give particular attention to the preservation of vital records that will be needed in the reconstruction of corporate assets, including contracts, ownership rights, inventories of company assets, etc. A situation that causes an emergency may cause considerably more damage to an organisation than just financial losses due to an inability to conduct its business, including legal liabilities for being unable to meet contractual obligations, lost business, lost credibility, the possibility of increased fraud while working under emergency conditions, the costs of recovery that are not covered by insurance and many more.
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Disaster Recovery plans are focused on ICT while Business Continuity plans address the need to contact all employees and other parties, having a place for employees to continue their work, describe how they will be doing their jobs until normal working facilities have been restored, how to deal with employees, vendors and customers, etc. The purpose of developing contingency and business continuity plans is to protect an organisation from disruptions by reducing vulnerabilities, managing risks, putting in place the essential elements for survivability and the preservation of the organisation’s reputation. Ict dISASterS And tHeIr cAuSeS The cause and effect or fishbone diagram presented in the chapter on Risk Management can be used to advantage to describe the events that can cause a complete loss of ICT services as shown below (the events in the figure are not an exhaustive listing). How long does it take to have a major problem? It all depends on what an organisation does – emergency services must recover quickly as the consequences of an inability to respond to an emergency can be catastrophic. Similarly an airline depends very heavily on its seat reservation, crew scheduling and aircraft maintenance systems and cannot tolerate a long disruption and economic damage. At the other extreme, small, low-tech manufacturing enterprises could probably manage to wait several days to restore their systems without too much pain. Studies by vendors and researchers on the cost of downtime (the time during which computer systems and facilities are inoperable) indicate that this can be significant for many types of organisation and be in the range from tens of thousands to millions of dollars an hour.
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executIve dILeMMA: WHAt HAPPened to our buSIneSS contInuIty ArrAngeMentS!? A multinational financial institution with a branch in the City of London with its own trading room handled a large volume of money transfers and currency trades for its international clients. It had a small IT department which had invested in proven products from a reputable vendor. It also had fully developed and regularly tested business continuity plans. One morning, just as the working day was starting, the fire brigade came to the building to advise that there was a gas leak in the street outside the offices and that it was necessary to evacuate the building immediately. Key staff made their way to their backup offices and trading room a few hundred meters away. When they arrived they discovered that the IT systems and facilities – including fax machines – were not operational because the software upgrade that the vendor had scheduled for the night before had been postponed until that particular morning. By being unable to trade, the bank incurred significant financial losses, seriously inconvenienced several major clients and the branch office lost much of its reputation as this became more widely known through the financial services grapevine. Although business continuity was definitely part of their responsibilities, both the IT manager and the Operations manager claimed they were unaware of this change of schedule. Assume that you are the Managing Director of the branch and that the Chairman at headquarters has just phoned you to demand what actions you are going to take to remedy the situation and avoid a repetition.
tHe Four MAIn StAgeS oF deALIng WItH An eMergency When an ICT incident becomes a problem that cannot be solved quickly enough to meet the operational needs of an organisation, there are few choices available to executives:
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Wait until the problem has been fixed, although some times it will be obvious that this will take a long time – like dealing with the damage caused by a fire and the subsequent intervention of a fire brigade in a computer room; Invoke the contingency plans prepared to deal with such situations – although the Executive Dilemma just presented shows that the contingency plans may not always work as intended.
This chapter discusses the main elements of the four stages of dealing with an incident that has migrated through the stages of “problem” to that of an emergency. The relationship between the four stages is shown in the figure. Clearly, planning is a pre-requisite as, without good contingency plans, the only alternative would be to improvise and this does not work well during emergencies. Stage 1: Contingency and Business Continuity planning Good contingency plans reflect the KISS principle: Keep It Short and Simple. The development of such a plan requires four activities: 1. 2. 3. 4. Prepare for contingency planning; Business Impact Analysis (BIA) and its related risk analysis; Evaluating the recovery options that are aligned with the BIA; Developing a contingency plan (disaster recovery/ business continuity)
Supported by two subsequent activities: 5. Testing the plan; 6. Maintaining the plan. Taking as an example disruption to ICT services, organisations cater for this through two sets of measures: a Disaster Recovery plan for its ICT and a Business Continuity Plan for the critical activities that depend on ICT.
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Stage 1 – activity 1: Prepare for contingency planning The Business Continuity Institute (http://www.thebci.org) recommends that the following actions should precede the development of a workable contingency plan. • Identify a person to be the focal point for a Business Continuity Plan feasibility study and its subsequent implementation – this person should preferably not be the CIO but a business manager which broad knowledge of the organisation as a whole; Develop a concise and agreed inventory of the main processes that support the operation of the organisation (such as line of business systems, key administrative processes, communications);
Stage 1 – activity 2.1: Conduct a Business Impact Analysis A Business Impact Analysis (BIA) is used to define the criticality of the business processes identified during activity 1 and aims to obtain specific answers to five questions: Q.1 What business processes are vital to operations; Q.2 What are the key resources (people, systems, etc) needed for these processes; Q.3 How quickly must these activities be restored to avoid serious business disruption; Q.4 Are there alternative methods to conduct these processes during a period of disruption; Q.5 What happens if data related to these processes is lost. A BIA is compiled through a combination of questionnaires and interviews. Prior to such interviews, it is advisable to build awareness among business unit and department managers of the critical importance of establishing and maintaining a comprehensive and uptodate record of Business Impact Analyses. The consolidated findings of a BIA will result in a list of business processes ranked by criticality to the operations of an organisation and in indications of the timing by which a disruption will have significant impact on these operations. The final steps at this stage require the collaboration of executives and the CIO and other ICT managers to determine which ICT facilities are most critical to the organisation.
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Stage 1 – activity 2.2: Conduct a Risk Analysis Risk analysis essentially calls for the identification of vulnerabilities and threats, an understanding of the impact these could have on an organisation and the frequency with which the threat could manifest itself. Example 1: In January 1989, a British Midland Airways aircraft on route from London to Belfast developed technical problems and it was diverted to East Midlands airport. The power in one of the engines decreased on the approach and the aircraft struck trees at a relatively high speed and impacted on the M1 motorway, 900 meters from the runway. In doing so, it narrowly missed crashing on the data centre of a major UK bank. Here, the vulnerability is being located on the flight path to an important airport. The threat is that of an aircraft failing to make it to the runway. In this case, the accident occurred once, many years ago. The probability that an accident of this kind can occur again should not be assumed to be zero. In this particular example, the bank had accepted the risk. After the accident however, it took steps to mitigate the risk by splitting the data centre operations between two locations each of which could act as a backup for the other. Example 2: On 14 July 2003 a group of Greenpeace activists drove through London with a truck containing a two and a half tonne “sculpture” consisting of scrap metal from old ships being dismantled and deposited it without difficulty in front of the International Maritime Organisation’s building, close to the Houses of Parliament… It could have just as easily been a bomb. In order to conduct a risk analysis, it is necessary to define an agreed range of threats and vulnerabilities that the contingency plan should cater for and define what level of residual risk and speed of response are acceptable to the organisation. These decisions will drive the cost and complexity of any recovery plan. The list of threats would normally contain between 25 to 50 entries – the detail of which depends on each organisation and its physical location. The table below illustrates the type of threat that can disrupt an organisation’s activities through destruction, modification or loss of the use of assets.
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Source: http://www.contingencyplanningresearch.com, and Eagle Rock Company
Each threat to be considered can be assigned a value ranging from likely (something that happens more than once a week – hackers or computer viruses, for instance) to remote (where the event would occur once every ten years or more as would be the case for an earthquake in central London, UK). Stage 1 – Activity 3 - Evaluate recovery options Having thus identified what needs to be protected and recovered, the next issue to consider is the degree of urgency with which this recovery must take place. The cost of downtime, already mentioned, is a good indicator but not the only one as non-financial impact can also be severe, in particular if it affects confidence in the organisation. A Cost of Downtime survey conducted in 2001 by Eagle Rock Alliance, Ltd., indicates that of those companies that participated in the survey, • • • • 46 % said each hour of downtime would cost their companies up to 50,000 US dollars 28 % said each hour would cost between 51,000 and 250,000 US dollars 18 % said each hour would cost between 251,000 and 1 million US dollars 8% said it would cost their companies more than 1 million US dollars an hour.
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With good contingency plans, organisations can resume their activities quickly after a major disruption. For example after the collapse of the twin towers of the World Trade Centre on 11 September 2001, many financial institutions were able to continue normal operations after an interruption of around 24 hours, while many others simply went out of business due to their inability to do so. To achieve full business continuity, arrangements are complex as they include moving people, documents, and computer systems to another location at a time of major disruption, such as arising from fire, natural disasters, civil disorder or terrorist activities. Besides, at such times, staff will be very concerned with their own security and that of their families while expected to perform complex activities in often very difficult circumstances. The range of recovery options for implementing business continuity arrangements begins with “Do Nothing”, the cheapest and simplest of the arrangements, but also the most likely to lead to going out of business should disaster strike.
There may be circumstances where the use of manual backup procedures are sufficient to maintain adequate business continuities if the disaster in question does not preclude the use of an organisation’s offices or premises. Next up in sophistication and cost is the concept of a “fortress” where the premises of an organisation are highly protected against most thinkable events. An approach favoured by military and emergency services organisations, the last decade has shown that this is not always a practical proposition. Reciprocal arrangements for business continuity rely on mutual agreement between business units, departments at different locations, busi-
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ness partners or associates, etc., to make available office space, logistics support, access to telecommunications and computing services, etc. These are not really viable as it implies that someone is keeping empty data centre, communications capacity and possibly more in case it’s needed. A cold site is a business continuity (also used in Disaster Recovery) facility which is usually owned by a third party specialising in this kind of service, and is basically an empty office facility with some kind of basic facilities if fixed or an empty, transportable building, if mobile. It can also include a data centre with the capabilities to replicate the infrastructure of the organisation that needs to recover its facilities. Cold facilities are available through a contract that provides “on call” availability of the facilities. Hot sites are reasonable “copies” of the facilities that require recovery, at another location and ready to become operational very quickly. Fully equipped offices with complete copies of data, software and critical documents, a fully equipped duplicated data centre where critical systems can run without significant loss of data, etc. The time required to relocate critical personnel is the main factor that will limit the speed of recovery. It is also one of the most expensive mechanisms for business continuity. The hot site may be internal, i.e. owned by the organisation or external, typically when an outsourcing services provider is engaged to provide ICT services or other business process outsourcing. Disaster recovery is the subset of activities concerned with ICT systems and facilities. Responsibility for having adequate disaster recovery plans and facilities rests with the ICT service provider – an in-house ICT function or an outsourcer. Disaster Recovery deals with the activities required to restore ICT services in the event of disruptions extending beyond a certain time. Disaster recovery plans are also complex and must be kept uptodate with records of essential personnel, their contact numbers, alternative personnel should they be on holiday, sick or out of town for whatever other reason, full inventories and many more details. Such plans must reflect all changes to infrastructure and software as failure to do so will mean that the plan will not work when required.
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The cost of disaster recovery arrangements increases rapidly as the target time to recovery gets smaller. At their minimum, basic recovery arrangements may take 24 hours or more and involve physically transporting a complete set of media containing data and software as well as a team of technical and operations staff to a DR facility specially contracted for this purpose. At the other extreme, a fully equipped facility at another location may be operating in hot stand-by with a complete copy of all data and software, a full technical team and the ability to restore operations in hours, if not minutes. Once the basic decisions have been taken, it is possible to prepare outline budgets for various levels of response (an estimate with a ± 30% margin should be good enough to decide on which options are not financially justifiable). Stage 1 – Activity 4 – Develop the detailed contingency/ disaster/ continuity plans This is the most laborious part of planning as it requires the preparation of well written documents containing detailed processes and procedures, detailed inventories, contact lists, authorities, priorities, etc. The writing itself can be helped by the use of templates that can be customised for a specific organisation, and there are many such templates available in the market.
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The possibility of using consultants specialising in contingency planning, business continuity and disaster recovery should be considered because they can contribute their experience in working with other organisations to prepare such plans and will be able to identify threats and vulnerabilities that may not be immediately apparent to employees who may have become “prisoners of the familiar”. The really hard part of developing good plans is collecting all the information needed for the plans to be viable and ensuring that the contingency plans themselves become part of the vital records that must be accessible at all times – having a copy of the plans in an office building that is on fire is of little help. A critical part of these plans is the complete listing of all the people who need to be contacted in an emergency – name, function, telephone numbers, address (even if the person is on holiday), a list that must absolutely be kept up to date and accessible from remote locations in case the organisation’s premises cannot be accessed. This list and the associated documentation must also indicate the authorities delegated to these people throughout the duration of the emergency up to and including the recovery from it. However well it may be written, such plans are of little value if they are not tested. Such tests are complex, expensive and involve a substantial number of people but it is the only way to discover what has been forgotten, unclearly written or communicated or who has failed to understand their specific responsibilities when the plans are invoked.
Stage 1 – Activity 5 – Consider Business Interruption Insurance Many insurance companies offer products for business interruption insurance. This is designed to indemnify the insured party against the losses that would arise from not being able to operate as a result of an emergency or disaster. Such policies provide cover for the time needed to rebuild, repair or replace the damaged elements (which could include property or simply computer systems).
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Stage 2: Recognition – who can initiate the implementation of contingency plans? Executives, the CIO and other ICT managers should agree and decide on who should be responsible for declaring a situation to be an emergency that requires invoking measures that could dramatically disrupt the work of an organisation, as these may involve the presence of emergency services, the evacuation of buildings, moving key people to temporary office facilities, calling on the services of disaster recovery services providers and more. Once there are indications that the organisation is facing a disruptive situation, the Emergency Coordinator, in consultation with the parties agreed in the contingency plan should decide which parts of the plan are needed and their priorities. At this point it becomes essential to communicate these actions to all parties involved (see Stage 3 below). One of the critical elements of Stage 2 is that of notifying those parties who have vital roles to play – ranging from emergency services (fire, ambulance, police) to the providers of alternative facilities such as accommodation, communications, computer systems and services, transport, catering and more. To put the ICT component of such measures in perspective, disaster recovery service providers report that in an year without exceptional events (such as the destruction of the twin towers of the World Trade Centre in New York on 11 September 2001) approximately 1% of their clients will notify them of their intention to invoke the use of the facilities and that roughly one half of these notifications end up actually using the facilities. In the absence of clear definitions of authorities, responsibilities, who needs to be consulted and who needs to be informed, the most likely result is chaos at the least appropriate time. Stage 3: Response – taking the actions needed to deal with the emergency When the emergency is so real that contingency plans must be invoked, everyone is working under considerable stress. Nevertheless, discipline and order are vital to ensure that the planned arrangements will work as intended. The Emergency Coordinator and her/his Emergency Response team have many critical tasks to address to implement the appropriate measures of
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the plan – it may be necessary to implement only a part of the plan – for example it would not be necessary to evacuate the building if the emergency is due to fire damage to a computer room when this fire has not spread to other parts of the building and when it has been contained/ extinguished but has severely damaged the ICT facilities. Working through an emergency may require special measures that overrule security and other policies, record keeping and other administrative procedures. It is important that the people involved make a best effort to preserve whatever records are possible to ensure that the measures taken and the working processes implemented during the emergency can be subsequently audited to ensure that the occasion was not used to commit fraud or otherwise abuse the organisation. Communications also play a vital role during the response phase. Such communications include, in particular: • • • Status reporting to executives and other key stakeholders, including the workforce; Informing relatives of members of the workforce who may not be able to communicate with them directly; Dealing with the media should the event become public.
Executives should ensure that suitably qualified and experienced people are assigned to these tasks. Stage 4: Recovery – restoring normal service and operations Recovering from an emergency is in itself a major project, and this project will last until all parties concerned can agree that the organisation is back to “business as usual”. This could be a matter of hours or days when the emergency relates to ICT matters and nothing else, it could take months if not years if it is the result of a catastrophic event. During the time of response, when the organisation is making best efforts to maintain critical operational tasks, large amounts of transactions will be performed that may not be recorded in the usual way. Catching up with these transactions is a significant task which must be conducted in a manner such that it provides adequate audit trails. In many situations, data and documents will be damaged by fire and water – there are many companies that specialise in recovery, and their services are quite expensive but essential if vital documents or data have been affected.
252 CROSSING THE ExECUTIVE DIGITAL DIVIDE How much will this cost?
There are several cost components to contingency planning, business continuity and disaster recovery, and not all of them can be covered by insurance. The main components are: • Preparation of a Business Impact Analysis and its associated risk analysis (it is good practice to review this analysis on a regular basis, the frequency of which will be determined by the rate of change of business processes and the computer systems that support them; Production of the contingency plans; Provision of appropriate recovery options; Maintenance of the contingency plans to reflect changes in personnel, inventory, recovery options and, most importantly, lessons learned from the tests of such plans; Business Interruption Insurance; Testing the plan on a regular basis – in situations where there is critical dependency on the effectiveness of contingency plans two tests a year would be appropriate; Recovering from the emergency.
• • • • • •
From the perspective of ICT, i.e. the provision of effective disaster recovery capabilities against the non-insurable costs are in the range of 2 to 4 percent of the ICT budget.
SPecIFIc cHALLengeS oF contIngency PLAnnIng And buSIneSS contInuIty Contingency planning, disaster recovery and business continuity are critical activities of considerable complexity. This gives rise to three major management challenges: Amount of effort required to develop effective plans: This is very significant the first time contingency plans are prepared and requires not only major effort on the part of those preparing the plans but also from all the parties that need to be interviewed during the Business Impact Assessment phase and the communications required to brief all parties about the plans and how they will be put to work. Details are built on assumptions: Contingency plans must make assumptions about threats and their probabilities. There is always a possibility
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that these were not correctly assessed. Constant revision of the plan in the light of improved knowledge about the threats is essential. Management commitment: All the activities described in this section require considerable time and decision making from executives. When there is a feeling that such arrangements are not likely to be needed (optimism) or that they can be delegated lower down the organisation (abdication of responsibility), the processes are likely to be implemented half-heartedly and not work when required. Funding: The perennial question of containing costs and budgetary pressures work against contingency planning, disaster recovery and business continuity, and the cost of these processes should be seen as the equivalent of buying insurance. Testing: You can never be sure of what you have not tested. Testing these plans is complex, time consuming and disruptive. However the acronym TINA is appropriate: There Is No Alternative.
ActIon PoIntS Appoint a person to be in charge of contingency planning – a typical title is Emergency Coordinator – and ensure that this person has adequate backup, after all, an emergency necessitating immediate response may arise while the Emergency Coordinator is on holiday…; Actively participate in the process of Business Impact Analysis and also in the decisions that define recovery priorities and the speed with which recovery is to be achieved; Monitor the results of the tests of contingency plans and ensure that the lessons learned during these tests are discussed and reflected in the plans; Make available the financial and human resources needed to make contingency planning workable and sustainable. This is often a major issue for organisations; Recognise the importance of communications during an emergency – with the workforce, with their relatives and close ones, with vendors, clients, the media, etc., and act accordingly to ensure that poor communications do not lead to a loss of image and reputation.
C h a p t e r
ICT organisations and ICT people
I always wanted to work in computing because in this job I don’t have to talk to people Genuine quote from a former colleague
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Key queStIonS And cHAPter SuMMAry • What do ICT organisations do (or are supposed to)? • What activities lends themselves to centralisation and to outsourcing? • What are the roles and responsibilities of a Chief Information Officer – are there different kinds of CIO? • Where should the ICT function fit in the organisation? • How does one measure the performance of the ICT function? • Are ICT people really “different” from other employees? • What factors prevent CIOs from succeeding in their job? • What are the questions that executives should ask of their CIOs?
There are many tasks that need to be performed to transform commercial products and tailor made software into useful business tools. ICT organisations and their people exist to do this. While much of they do is straightforward (at least in principle) and has been discussed in previous chapters, ICT is probably the least understood by executives. Although in general ICT people are dedicated and hard working and enjoy their profession, they often complain that they are misunderstood and not given a chance to contribute to the success of the organisation, and feel they are treated as “plumbers” looking after the organisation’s nervous system but not seen as capable to contribute to strategy. There are many types of ICT people and unless they are a good fit in the corporate culture and understand the needs and constraints of a given organisations, there will be a poor relationship between them and other executives, to the detriment of the organisation as a whole.
roLeS And reSPonSIbILItIeS oF Ict orgAnISAtIonS What do ICT organisations actually do? The simple answer is that they tend to work very hard. However, not all ICT organisations perform the same activities. The things that need to be done are shown in the figure. The extent to which these activities are performed and if so, whether they are performed by the ICT function, depends on what the organisation does and one the role that ICT plays in supporting it.
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Visioning These are the activities where ICT adds to “tomorrow’s organisation” by bringing an understanding of how innovative uses of technology can make a difference. Visioning, needs to be shared between business units, departments and the ICT function to make a real contribution to strategic planning. Innovation and development This group of activities is really the world of projects. These fall in two categories: assessments and the development of new ICT systems and facilities. Assessment is the evaluation of technologies to determine their relevance and maturity. This may include a pilot project to gain a better understanding of its capabilities and demonstrate its potential. Technology assessment is most appropriate for early adopters of emerging technologies who are willing to take the risk to invest in them to gain advantage. Elsewhere this kind of technology assessment could become the equivalent of an enthusiast’s toy shop. Can technology assessment be outsourced? Yes, but only to a degree: Industry analysts study new technologies and report on their capabilities, maturity, market prospects and vendor stability. Good analysts also compare products from several vendors. However, their reports cannot replace pilot projects or the demonstration of what these technologies or products can do. Development groups the activities needed to transform a concept into working systems and facilities. Large projects are handled by dedicated teams and are progressed in a structured, formal environment. Such projects can be, and often are, outsourced. Service delivery and support operations The heart of the activities that support the day-to-day ICT activities of an organisation, this is the world of processes, total quality management and measurable performance. This activities usually represent 70 to 80% of the total ICT expenditures and, when performed with internal resourc-
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es, are likely to demand a substantial amount of the CIO’s time – at the expense of visioning activities. The activities performed to achieve service delivery and support are discussed in Chapter 8. ICT service delivery can also be outsourced and represents the oldest and largest part of the outsourcing business. Information security (Chapter 11) is part of the activities involved in service delivery and support but is not the exclusive responsibility of the ICT function. Information management Often performed outside the ICT function, these are the activities where value is added by the creation and maintenance of information assets, ranging from databases to websites. When information management is dispersed across the organisation it is important to ensure that there are appropriate mechanisms to prevent information anarchy. As a minimum these should include: • • Data administration and data standards to ensure the semantic and digital compatibility of data held and processed in various systems; Quality assurance mechanisms to protect the organisation from using data which is inaccurate, outdated or incomplete.
The way in which these tasks are carried out make the difference between success, mediocrity and failure in an organisation’s ability to derive benefits from their investments in ICT.
centrALISAtIon And outSourcIng It is possible to organize the tasks of an ICT function in several different ways and there is no single “best” way of doing this. In extreme cases, centralisation led by a strong manager becomes a dictatorship. While this is a good way to ensure that standards and policies are applied across the organisation, it can also inhibit innovation and creativity, thus causing opportunities to exploit ICT to gain business benefits to be missed.
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Decentralisation with good ICT governance enables business units and departments to focus their ICT developments and investments on core activities and enable creative thinking by those closest to these activities to create value. When decentralisation is not balanced with effective governance, the result is anarchy. This is manifested by multiple implementations of systems that perform essentially the same function, such as ending up with different accounting and personnel systems for each business unit or department. Implausible as this may sound, it does happen in the private sector as much as it does in the not-for-profit sector. In addition to the large extra risks and costs of working this way, the incompatible data definitions and variations in functionality that result make it difficult to aggregate data from such systems to provide an organisation-wide view. Another manifestation of anarchy occurs when the ICT function is dysfunctional and is unable to meet the expectations of the organisation. This results in the emergence of “unofficial” ICT groups working outside the organisation’s ICT governance mechanisms. These groups believe that they can work “faster, cheaper and better” than the official ICT function. These kind of situations require an assessment of how good the ICT function is at meeting the organisation’s needs and often a combination of first impressions, and track record is sufficient to have an adequate diagnostic. These can be complemented by another useful indicator: ICT staff turnover.
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Good ICT staff are hard working and career conscious. They rate job satisfaction as critical to their working life. They are also mobile and rarely hesitate to leave an organisation they judge to be at the lower end of the ICT organisation thermometer. A high turnover of recent recruits considered bright and with high potential is a bad sign, particularly when the turnover of staff with many years of tenure on the job is zero (other than through retirements or death). A study of organisations acknowledged to make superior use of ICT shows that they have centralised specific activities, in particular: • • • Establishment of organisation-wide policies and compliance with these policies; Definition of standards for the whole organisation for critical hardware, software platforms, desktop and groupware applications and administrative systems; Major ICT procurement, licensing and contracts.
Besides this centralisation, it is good practice to enable business units and/or functional departments to exercise a degree of autonomy for applications directly related to their core activities, encouraging sharing and reuse of solutions across other units or departments. Besides these centralised activities, many others that lend themselves to outsourcing, notably day-to-day operations of data centres, networks, end user support and other structured activities and also applications development. The decision whether to outsource such activities or not should not be left to the Chief Information Officer as this creates a serious conflict of interest as discussed in the next section of this chapter. There are two other activities that should also not be outsourced: • Business analysis, in particular the definition of information system requirements and how these are aligned with the activities of an organisation;
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The preparation of strategic plans for ICT – although the employment of consultants to assist with this task is not unusual. Emphasis is placed on the word “assist”.
Employing consultants to develop such strategies implies that a) there is no in-house capability to think strategically about ICT and b) that nobody will be the true owner of such a strategy;
tHe roLeS And reSPonSIbILItIeS oF tHe cHIeF InForMAtIon oFFIcer Titles can sometimes be misleading. Managers responsible for information systems and technologies are known under various titles such as Chief/ Director of Information Technology or Director of Information Systems and Technology or Chief Technology Officer or Chief Information Officer (CIO). Whatever the title, a “real” CIO will fulfil the following roles: • Ensure that ICT projects and services are delivered with the required quality and value for money – regardless of whether these are performed in-house or by a third party (an outsourcer or service provider); Evaluate information technologies and proposals, validate estimates for the costs of ICT services and facilities, ensure that project sponsors assume responsibility for defining expected benefits; Ensure that the information assets of an organisation are protected against misuse, abuse, theft, sabotage and other damage, including being the “owner” of suitable disaster recovery arrangements; Maintain a portfolio of information assets and systems and data architectures; Provide internal consultancy services on ICT related matters and provide support to business analysis activities conducted across the organisation; Brief executives on ICT related issues such as security, technologybased opportunities and their potential value to the organisation; Manage a suitable ICT organisation in order to meet all of the above and other tasks assigned to the ICT function.
• • • • • •
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Each of the roles and responsibilities listed above that remains unfulfilled, wholly or in part represents a risk, if not a problem, to the organisation. This may happen simply because CIOs are not created equal. A good proportion of CIOs are best described as Level III CIOs – they operate the infrastructure and look after service delivery with a minimal role in major ICT projects, particularly software ones. These CIOs will be found on the left side of the chart and could be unkindly referred to as Techies. Level III CIOs are largely invisible to the executive until things go wrong and they should be aware that what they do is easily outsourceable.
Level II CIOs are much more involved with major projects and work to maximise the alignment between ICT and business objectives and will be found on the right hand side of the chart. When they focus on business processes, their visibility to the executive is reasonably high and allows them to operate as a senior partner in the overall management of the organisation. Level I CIOs are fewer in number and are found at the right hand side of the distribution in the figure. They are always close to the executive, who relies on them to: • • Protect the organisation against expensive mistakes, useless systems and missed opportunities; Recommend innovative business solutions that exploit the opportunities created by technology.
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PLAcIng tHe Ict FunctIon WItHIn An orgAnISAtIon There is no right answer to the question as to where the ICT function should be placed in an organisation. This depends on the role expected of ICT: An organisation that uses ICT to achieve high impact and its consequential change needs the ICT function to have extensive dialog and build partnerships with executives and business units and departments. Those that use technologies primarily for support functions and look for limited strategic impact on the organisation as a whole, are usually best served by a technical department that, when things work well is as good invisible. Such departments report several levels below the Chief Executive. Many ICT managers, some with the title of “Chief Information Officer” lament that they are relegated to the latter situation and, in the words of one such manager “treated as a plumber”. In fact this manager was wrong – plumbers are always welcome when they turn up to fix a problem – ICT managers tend to be treated as if they were the problem (and sometimes they are).
MeASurIng tHe PerForMAnce oF An Ict FunctIon At the most basic level, the ICT function will be seen as performing if things simply work well enough for problems not to be seen as a major corporate issue. Depending on the nature of the organisation, this may range from having few disruptions during working hours to a high level of order fulfilment in an e-commerce environment and no (or very few) customer complaints. While this represents a crude approach to measuring performance, the emergence of visible issues at this level of analysis is an indicator that
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there are problems that require executive attention, as otherwise there is a good chance that things will get worse. More formal techniques for measuring the performance of an ICT organisation are: • • • • • Service quality against specified Service Levels Project delivery track record (functionality, budget, timescale) Audits, certifications and benchmarks (financial and technical) End user and customer satisfaction surveys Ability to demonstrate value added by ICT
The first two of these metrics have been discussed, and a formal technique of evaluation is to be preferred over subjective views on performance in order to take whatever corrective action is required. When operational services and/or projects have been outsourced, such metrics are part of the contract defining deliverables, conditions of payment and penalties. Audits, are an established mechanism for executives to have an assessment of organisational risk arising from the use of ICT. As the importance of ICT to an organisation grows, such audits add considerable value. The limited availability of experienced ICT auditors should not be used as an excuse for avoiding such this activity as the business risk introduced by ICT can be significant, thus justifying independent validation that these risks are being sensible managed. Certifications – whether to ISO 9001 for Total Quality Management or to ISO 17799 for the management of information security – or any other appropriate standard is a good mechanism for executives to have another independent assessment of how well the ICT function is performing. Benchmarks – comparative analyses of the cost of providing ICT as well as of technical performance are also useful indicators of the effectiveness and efficiency with which ICT is managed in an organisation. While many ICT managers will insist that it is not possible to conduct such comparisons because of differences that could lead to misleading results, such benchmarks are well established and can be found from many sources. End user satisfaction surveys are subjective and will be useful only if the method used to poll the user community is unbiased. It is however a valuable indicator of the way in which ICT is regarded by the people who use these services. A good result may not be meaningful but a wide sense of
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frustration should be taken as an indication that executive action is required. The value added by the ICT function is not always easy to determine as the benefits of using ICT emerge elsewhere in the organisation. One method for identifying such value when this is not apparent is conducting postimplementation benefit audits to validate whether the case made for investing in new systems and facilities was sound and, in particular, to determine if the expected benefits actually materialised.
Ict PeoPLe: tHe cHIeF InForMAtIon oFFIcer And otHerS Organisations expect a lot from their CIOs. They should ideally have the combined skills of Peter the Great, Saint Peter, Macchiavelli and Houdini. The table summarises what is expected from a CIO and it has been constructed from job requirements found over the years in recruitment announcements: Expertise in Continuous ICT operations (7*24), security, finance, cost control, resource allocation, product development, marketing, administration, process management, project management, people management, vendor management. Strategy formulation, persuasion and negotiation, writing, speaking and presentations. Value generation, enabling teamwork, creating impact, partnerships with other executives, develop new managers. Leadership, integrity, insight and vision, sensitivity, commitment, intelligence, courage, tenacity, high ethical standards. Friend, mentor, advocate for the organisation
Personal skills Contribution
It is doubtful that such a person - if she or he existed - would make a good CIO just anywhere: organisations should be seen as the battleground where people fight for influence and, sometimes, status.
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In any case, organisations respond to change to reflect their organisational cultures. The job of the CIO is challenging because of the barriers to change. Some are technical, but the hard ones relate to organisational culture and politics. Even the best qualified and experienced CIO may fail in the absence of a good match between • • The organisational culture, politics and expectations of ICT The CIO’s values, motivation and personal skills
This may be one of the reasons why turnover among CIOs is high. ICT professionals jokingly say that CIO stands for “career is over”. Bureaucrats tend to make simple things complicated and incomprehensible and acquire power through exercising their knowledge of the labyrinthine procedures they create. It is unlikely that bureaucrats care for impact analyses, side-effects or value added. They do care about maintaining the status-quo and their political influence. Technocrats – technical people given the power to change the status-quo – can make complex things simple and easy to use, even if the end users do not understand how they work. A technocrat is quite different from a techie: techies are interested in technology per-se and are not interested in organisational issues or prepared to argue for a change in the status-quo. Who would make a “good CIO” for a pyramid-style organisation? A good technocrat would not do well in a pyramid organisation. Instead, a person who is a good administrator rather than an innovator, with good political skills and able to introduce gradual change without challenging the organisation’s culture or alter the status-quo dramatically would be more likely to succeed and survive. Moreover this CIO will have to be willing to accept rigid rules, an inflexible reward system and “legacy staff” – those who as a result of life-long job security have become unemployable elsewhere. Who would make a “good CIO” for a cube organisation? In this situation there is an accepted need that substantial change is the only option. This CIO is a person who can lead and take hard decisions, is willing to take measured risks and has past experience of turn-around situations and of managing large projects. Strong communications and negotiation skills are absolutely essential.
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Who would make a “good CIO” for a cylinder organisation? An open minded person, good at spotting opportunities, able to network and collaborate with people in all parts of the organisation, with a focus on Total Quality Management, metrics and an emphasis on process maturity. However, nothing is that simple. There are other factors that influence this choice as there are at least four distinct types of CIO: The Tech enthusiast: This is a person whose background is not in ICT but who enjoys dabbling with technology and ends up in charge of ICT. When aware of what they don’t know, they operate effectively by building a team of technically good people. They become dangerous to an organisation when they start believing that they know enough to be a CIO and behave accordingly. In these situations the ICT staff, vendors and other ICT professionals will not take this CIO seriously and many critical tasks will not be done, or done poorly. Such situations can be found in pyramid-style organisations. The Tech person: The ICT person primarily interested in technology and probably the most frequently found. They tend to know several technologies and like to roll up their sleeves, get their toolkit and get involved with complex technical problems. These people are less interested in the purpose of “their” ICT systems and facilities. Because of this, they are happy to change jobs if they perceive a greater technical challenge elsewhere. In most cases they have an intense dislike for the administrative and H.R. aspects of their work. The Tech person with good knowledge about business: likely to concentrate on business analysis, technical opportunity, strategic thinking and risk management rather than on technology for its own sake. Not the most commonly found type of CIO, when the value they contribute to the organisation is recognised, they are accepted as partners by the members of the executive team. The business person with good technical knowledge: substantially different from the enthusiast, this is a person who has had training and experience in business systems and is primarily focused on using ICT to implement a business vision and drive innovative uses of ICT. Most like-
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ly of the four types in this list to have an effective dialog with the Chief Financial Officer. Almost certainly a member of the executive team. Making the choice when a new CIO needs to be appointed requires, in the ideal world, all of the above considerations to be taken into account. If the target appointee must be a technical person, this creates an additional complication for an organisation as the selection process must include the competencies needed to judge the technical capabilities of the candidates.
executIve dILeMMA: tHe cIo HAS reSIgned The perfume and scents manufacturer “Smells Nice” is a medium size family company. Jerry, the owner’s nephew, was appointed Chief Technology Officer and over the years it became apparent that his real interest was to play with technology, modifying things to improve their performance and not taking much interest in the business. To remedy the situation, it was decided to recruit a Chief Information Officer who would need to be very knowledgeable about technology because Jerry would not agree to work with anyone who knew less about technical matters than he did. Peter was selected as he had both a business background and technical knowledge. Within a few weeks, Jerry and Peter were at war as they disagreed on every technical decision that had to be taken, and Jerry kept complaining to his uncle that Peter was going to prove a disastrous choice. Before the end of his first year Peter resigned, leaving “Smells Nice” in the hands of Jerry who promptly invested large sums of money in his favorite technologies. What should the owner do now that it is recognised that that Jerry is a liability to the organisation. Unfortunately, Jerry’s mother holds 35% of the voting rights at the board. If you were to select a new CIO, how would you go about it to avoid a repetition of this situation? Other ICT people These come in two categories – those working in the ICT function and knowledge workers who are able to perform some technical work such as “End User Computing”.
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Those working in the ICT function are the responsibility of the CIO and the majority of them will be largely invisible in the organisation, partly because of the work they perform which requires limited contact with end users and their managers (there are exceptions such as the help desk and installers). ICT seems to attract people fascinated by technology, usually knowledgeable and hard working. They are also happy not to have to talk to nonICT people and who, without the benefit of a good manager, will engage in the mindless pursuit of perfection even when this does not add value (but it is a great source of job satisfaction). People engaged in End User Computing use their skills to create templates, complex spreadsheets, database queries, design web pages and, sometimes, write small to medium size programs. These skills can add value to an organisation and is part of the way in which ICT is used by organisations. From an executive perspective the only caveat to this work is that it should not and cannot replace a corporate ICT function in areas such as information security and quality assurance. To gain maximum advantage of End User Computing, there should be a good working relationship between its practitioners and the formal ICT function. The risk of an out-of-control End User Computing environment is that of creating islands of information where the use of non-standardised data and inconsistent models delivers inconsistent results in different parts of the organisation.
orgAnISAtIonAL MIStAKeS tHAt Prevent tHe cIo FroM SucceedIng A CIO faces many challenges and their success cannot be guaranteed. Sometimes, organisations make it harder for them to succeed. CIOs widely agree that the two most common problems created by their organisations are executive detachment and arbitrary budget cuts. Executive detachment is more acute where the CIO reports several levels below the executive level and may have never met the executive team or the Board members. Working in a policy and business strategy vacuum the CIO, however good, will not be able to contribute business value.
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Budget cuts are a fact of corporate life. When the budget cut however is not targeted at specific elements but is a blanket percentage without discussion or explanation it strengthens the perception in the ICT function that it is not seen as a contributor to the organisation. Another self-imposed difficulty is choosing the “wrong” CIO. While in the private sector this is usually resolved by the CIO leaving willingly or otherwise, in the public sector and in organisations where political correctness is a major factor, the suffering and frustration can last for a considerable time as the CIO will not be fired and may not wish to leave.
good queStIonS to ASK Ict MAnAgerS The article entitled “Six IT decisions your IT people shouldn’t make”1 has the subtitle “If your IT investments aren’t paying off, don’t blame IT”. This article advises non-ICT executives to ensure that a) there is alignment between their organisations’ technology investments and corporate strategy and that b) part of the way to achieve this, consists of not delegating certain decisions to technical people or departments – hence the six decisions in the title. The article groups these six IT decisions in two categories: Strategy decisions and Execution decisions. These six decisions are: Strategy decisions How much should we spend on IT? Which business processes should receive our IT dollars? Which IT capabilities should be firmwide? Execution decisions How good do our IT services need to be? What security and privacy risks will we accept? Whom do we blame if an IT initiative fails?
The following list of questions is designed to supplement the above article with an approach that could improve the dialog between executives and ICT managers.
Six IT decisions your IT people shouldn’t make by Jeanne W. Ross and Peter Weill published by Harvard Business School OnPoint, 2002
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1. When proposing new investments in ICT systems and facilities, can you show how these will contribute to business results and business performance? Rationale: To ensure that investments are not driven by technologies that are just “nice to have” or exercises in “me too” which may give much joy to technical staff but are almost irrelevant from a perspective of providing some kind of return on investment. 2. What innovative and aligned projects or facilities have you initiated in the last 12 months? Rationale: To gain an insight into the ability of the CIO and the ICT function to be innovative, aware of business needs and able to spot opportunities to contribute to the effectiveness of the organisation at what it does. 3. How often do you meet with Business unit (Department) managers to discuss IT directions and issues, and what was the outcome? Rationale: To ensure that the ICT function is not operating in isolation from the rest of the organisation as this often leads to multiple parallel initiatives in departments and business units. This can result in information anarchy because of independent and incompatible initiatives. It can also lead to runaway expenditures. Alternatively, this question may reveal that the CIO is concerned primarily with running the infrastructure (which must of course run properly) and has no time or interest to get involved with business needs. 4. Do you maintain a formal and complete portfolio management approach for the organisation’s systems and technologies – does it include everything, including the work of departments, business units and informal or “shadow” ICT groups? Rationale: To ensure that ICT is actually “managed” in the organisation and that strategic planning is supported by factual information from across the organisation. If the CIO is unaware of the ICT work done in other parts of the organisation, this should be taken as a bad sign. When the answers to these four questions are unsatisfactory, the term CIO can be made to mean “Career Is Over”.
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questions on execution
5. When did you last procure an ICT audit (security/ technical)? Rationale: In the absence of regular formal audits, technical, security, compliance, or other, there is a risk that exposures to risk remain unknown and unmanaged. A CIO’s self-perception of the quality of their operations may be unduly optimistic and any shortcomings that become visible will lead to a request for additional resources which may not be the right answer to the problem. 6. How well is the IT work outside the ICT function/ outsourcer carried out? Rationale: If the CIO does not know – who does? In the case of outsourcing, monitoring what is delivered against what was specified is critical. 7. Can you formally certify the security of our systems and infrastructure? Rationale: The Chief Finance Officer is responsible for signing the organisation’s accounts and submit them to independent audit. This is rarely the practice in the ICT function where the CIO does not have to sign anything (other than perhaps contracts). In the absence of formal certification, particularly with regards to security, the organisation is facing a risk for which nobody is actually accountable. Recent legislation (for example the Sarbanes-Oxley Act in the USA) is likely to change this situation. 8. Who is responsible for information security and who is responsible for monitoring and assessing these activities (qui custodiat custodies)? Rationale: Information security is a major area of concern for all ICT operations and while many organisations have appointed Chief Security Officers, there needs to be clarity the lines of accountability for security. If the CIO is not the person to whom the Information Security person reports, how can the CIO certify the security of systems and infrastructure. And how does the CIO validate the performance of the security person?
questions on the financial aspects of Ict
9. What percentage of our organisation’s ICT expenditure goes to
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a) operations and security, b) applications maintenance and enhancements and c) new systems for value creation? and what are the trends in this area over the last three years ? Rationale: It is not unusual for 70 to 80% of an organisation’s ICT expenditures to be incurred to maintain the status quo, i.e. a) and b) above. When the percentage is higher than this, the organisation is at risk of lagging behind in their ability to exploit new technologies. When the CIO does not actually know the answer to these questions with reasonable accuracy, there may be a problem. 10. What percentage of our IT expenditure goes to a) infrastructure and support and b) core business activities? and how do you project this to evolve over the next three to five years? Rationale: If the CIO has a strategic role in the organisation, the answer to these questions should demonstrate a focus on alignment: spending money to support core activities rather than having a worldclass infrastructure and good administrative and office automation facilities. As in Question 9, when the CIO does not have good answers to these questions, there may be a problem. 11. What comparative benchmarks have you carried out in the last 18 months? How well is the ICT function doing against comparable organisations, and what steps do you propose to take to contain costs? Rationale: The amount of money that can be spent on technology for its own sake is colossal – upgrading equipment too soon, overspecifying capacity and performance, building a technical empire of technical staff and many other such areas are easily drifted into. Benchmarks against published information from reliable sources are good indicators of the efficiency of an ICT organisation. Not conducting such comparative benchmarks may indicate a “could not care less” attitude with regards to expenditure management and/ or an attitude that the pursuit of perfection justifies spending more than necessary, or at least more than other comparable organisations do.
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12. On the basis of these benchmarks, have you explored with outsourcing companies the case for outsourcing our organisations operational and/or project work – when was this and what was the outcome? Rationale: CIOs that willingly consider outsourcing separate themselves from the technically focused crowd, as the latter see running technology operations as the purpose of their life and are most reluctant to consider outsourcing, seeing it as “giving their jobs away”. A lack of interest in what the outsourcing industry can offer, evidenced by an answer that shows such a possibility has not been actively pursued claiming it would be “too expensive”, confirms such technical focus.
ActIon PoIntS Be aware of the nature of your organisation before selecting and appointing a CIO. A poor choice may have consequences that will last years. Establish a regular dialog with the CIO – the supplement to this Chapter contains 12 questions that should be asked of CIOs. Some of the questions may not be well received but are critical to the successful deployment of ICT in an organisation.
C h a p t e r
“Divorcing your outsourcer - Divorce & Reconciliation Strategies in Outsourcing” Title of a report by B.J. Dooley published in 2003 by the Cutter Consortium
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Key queStIonS And cHAPter SuMMAry • • • • What activities lend themselves to outsourcing? What are the benefits, disbenefits and risks of outsourcing? What is needed to be successful in outsourcing? What are the steps involved in doing an outsourcing deal?
Outsourcing and offshoring have been hailed as a great way to gain access to specialists, benefit from economies of scale and contain the cost of ICT. These activities have also been demonised by politicians and the media as job-destroying practices that cause considerable suffering to the individuals affected by outsourcing. Like with everything else, both perspectives have their element of truth and the decision to outsource is never a simple matter. Well thought out strategies to outsource ICT activities implemented with companies that can deliver the expected results can make a major difference – DuPont de Nemours (discussed here) is a good example. There are also instances where poorly planned and poorly negotiated outsourcing contracts resulted in both high cost and dissatisfaction with service quality. Good preparation and an understanding of the long term nature of outsourcing contracts and the many tradeoffs to be made are essential. Offshoring (outsourcing to a country with low labour costs) brings with it the factor of inter-cultural communications which, if not properly understood and managed, could have disastrous results.
SettIng tHe Scene For outSourcIng And oFFSHorIng Outsourcing is the mechanism through which technology services are bought from an external specialist party on a contractual basis instead of performing those tasks with internal resources. Offshoring is outsourcing where the service provider is in another country, typically with considerably lower labour costs. By early 2004, global I.T. outsourcing has become a robust industry reaching an annual volume of business in excess of 100 billion dollars. The choice of services has expanded to include in addition to facilities management and infrastructure operations:
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• • • • • • •
network management and operations maintenance of legacy applications development of client server applications customisation and implementation of Enterprise Resource Planning (ERP) systems development of e-commerce and e-business applications application service providers web and e-commerce hosting
In addition, business process outsourcing is on the increase handling activities such as order fulfilment and warehousing to support e-businesses. Outsourcing thrives because organisations recognise they cannot be expert in everything, and that when you are not expert you risk unnecessary expenditures and mediocrity. The decision to outsource is never simple and the answer is not always obvious and the decision to outsource should not be delegated to ICT people who have a significant vested interest in maintaining the status quo.
ActIvItIeS tHAt Lend tHeMSeLveS to outSourcIng
Process work includes activities that can be standardized, systematized, documented and automated. Such processes are monitored with performance metrics relatively easy to acquire and track. Examples of outsourceable ICT processes include • • • • • • Data centre operations; Operations of distributed systems, including desktops, Local Area Networks, end user support, etc.; Operations of Wide Area Networks and the corresponding network management; Information security; Applications Service Providers (ASP); Services for e-commerce and e-business;
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Data centre operations The oldest ICT outsourcing activity. Here, the hardware, software, staff and other components of a data centre are transferred to a specialist third party. These services are usually provided from the vendor’s premises. The vendor undertakes to deliver services to a contractually defined service level. Distributed systems and desktop operations and support Here the large number and nature of the items involved requires the vendor to be present at the client’s premises. It is usual for the outsourcer to have a major, often total, say in technology choices, management tools and all other items that have an impact on service delivery;. Information security The operational aspects of security (provision and management of firewalls, antivirus and anti-spam tools, intrusion detection, etc) are all based on structured processes and require the same amount of trust and verification as needed for other operational processes where the outsourcer becomes the custodian of data and other forms of intellectual property. Wide Area Networks The deregulation of the telecommunication industry has led to competition, lower charges and the wider availability of global connectivity. This created a market for the provision of managed wide area network services. Telecommunications operators have also entered the outsourcing market for distributed systems. Application Service Providers (ASP) A relatively new outsourcing business, it was initially targeted at small and medium size enterprises. An ASP deploys, hosts and provides all the activities and expertise required for a set of applications (for example Enterprise Resource Planning) through the Internet.
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The client buys access to a managed application and the ASP provides the software licenses and the infrastructure to host, operate and support these applications. The main characteristic of the current ASP market is that their offerings are standardized or have minimal customisation. e-commerce and other Internet Age outsourcing models and practices The dynamics of e-commerce have highlighted the importance of information security - the need to guarantee to clients and consumers that their data (e.g. proprietary processes, payroll information, customer details and credit card numbers) will remain confidential and not be misused or modified without due authorisation.
No two projects are the same. Software projects are invariably non-standard and often not very structured even when packaged products and standard methodologies are used. They also require considerable creative input. Their metrics are more complex to define, collect and manage than for processes. Outsourceable software projects include the maintenance of legacy applications, the customisation of Enterprise Resource Planning (ERP) packages, the design of totally custom software for a single client and the design of websites. The skills required for this work are in short supply and many companies across the world that have built large software factories employing 500 or more employees, using Rapid Application Development tools, are Total Quality Management certified. Outsourcing the maintenance of legacy applications The maintenance of legacy application software is mainly outsourced because of the need to free up staff for new projects. As such software is often poorly structured and documented, this requires many exchanges between the client and the outsourcer’s personnel.
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Outsourcing the development of computer applications and website design For large new systems, the requirements defined at the outset of the project will change many times as the development work progresses. This will require intensive interaction between client and vendor, likely to include a physical presence at the client’s premises. Outsourcing system customisation, integration and operations Such projects are always complex. In the case of Enterprise Resource Planning systems (ERP), their customisation requires expertise in specific products (such as SAP™, Oracle™ or Peoplesoft™). It is customary for specialists to work closely with the customer as changes to requirements will emerge at each stage of the project as familiarity with the capabilities of the system and an understanding of what it can deliver are built in the client organisation
beneFItS, PotentIAL ProbLeMS And rISKS In outSourcIng Benefit # 1: Cost reductions In process outsourcing, these are delivered by the outsourcer’s economies of scale and ability to leverage the procurement of hardware and software and also the transfer of personnel to the outsourcer, leading to lower overheads. As outsourcing also moves assets off the client’s balance sheet and avoids capital expenditures, it can show an improved return on investment. In project outsourcing, cost reductions arise from: • • • • the vendor’s ability to reuse code libraries developed for other projects; developing software on an assembly-line basis; the use of Rapid Applications Development and other specialized tools; lower salaries, particularly in offshoring.
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Benefit 2: Improved quality of service These are achieved by having access to the industry’s best practices and through access to skills that are in short supply. This is particularly true when the in-house service provision has a poor track record. Benefit 3: Ability to obtain resources and capacity on demand The client transfers to the vendor the responsibility for providing capacity as and when required, as well as for finding qualified personnel to cover the unavailability of a person assigned to a process or project or to meet changing needs. Benefit 4: Reduced managerial distractions The outsourcer takes over responsibility for many managerial and administrative tasks such as staff recruitment, administration, training, technology assessment and procurement. Besides, the contractual nature of the outsourcing relationship simplifies the I.T. budgeting process.
Mini-case study: DuPont de Nemours In 1990, DuPont, an international advanced materials and chemicals company with over 1,000 offices around the world and with some 75,000 networked computers, became aware of the extensive diversity of information systems among business units and of the multiple data centres providing ICT services to the company. The Chief Information Officer at the time, Mrs. Cinda Hallman, estimated that the total cost of ICT to the company was 1.2 billion US dollars per year and began a program of rationalisation, standardisation and consolidation (and was recognised as “CIO of the Year 1995” by CIO Magazine) in order to prepare the ground for the outsourcing of all of DuPont’s computer systems development and day-to-day operations – from data centres to help desks. In 1996, an outsourcing contract was signed with a consortium of Computer Science Corporation (CSC) and Andersen Consulting (now Accenture). This contract was worth 4 billion US dollars over 10 years and involved the transfer of 2,600 DuPont employees to the outsourcing consortium. In an article in the Financial Times in 2002, the CIO of DuPont stated that the company’s ICT expenditures had been reduced to 600 million US dollars a year – 50% of what they were spending ten years while the ubiquity and use of ICT had grown rapidly during this period.
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However, every outsourcing project also has potential disbenefits. Disbenefit I: Management costs While an outsourcing vendor can deliver services at lower costs, the client needs to incur costs that did not arise prior to deciding to outsource. Examples of these are: • • • The legal costs of contracting; Higher costs of changes: every new requirement, changes in scope of services, technology, charges, etc., will be treated as a contract amendment and may be premium-priced; The cost of monitoring performance. This is needed to validate that services are delivered to the agreed quality level, that issues arising in the execution of the contract are logged and raised, etc. Where services are provided by an in-house organisation this activity is frequently seen as not required.
Disbenefit II: Potential lock-in to an outsourcer Once a client has transferred its information technology assets and intellectual property to a vendor, and divested itself of personnel and their expertise, it is hard to reverse the decision to outsource Disbenefit III: Underperformance by the outsourcing vendor A considerable amount of senior management time may be needed to deal with an outsourcing vendor that consistently under-performs. Situations that would qualify as “underperformance” include: • • • Failure to deliver the agreed service level; Replacing staff originally assigned to the client by less qualified or less experienced personnel; Giving a lower priority to the client than that given to a larger client.
Disbenefit IV: Outsourcer abuse Although not a good business strategy, it sometimes happens that the interest of the vendor takes precedence over the client’s interest. Such situations may include: • Improper billing, particularly in project work, where more manhours are charged than are incurred;
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Exploitation of the client’s intellectual property in software for the vendor’s gain without the consent or participation of the client, as in the case of reusing code in a project for a different client; Outsourcing contracts must be flexible to accommodate the inevitable changes in requirements that will occur during the duration of the contract. Instances of premium level re-pricing of contract extensions and modifications, applied to take unfair advantage of a lockin situation have occurred... The risk that a small vendor will be taken over by a big vendor or that it will go out of business; Selecting the “right” vendor at a time when the outsourcing industry has become complex, with a growing number of players, domestic and international; The complexity of service level management in the Internet Age and the many parameters that an outsourcer cannot control; Potential loss of data confidentiality and other security issues
Other areas of outsourcing risk • • • •
Making the decision to outsource Outsourcing decisions are driven by factors such as poor quality of service, an inability to recruit and retain qualified and experienced personnel and/or a policy to concentrate or core activities. The decision is complicated by a perception that outsourcing may be “expensive” when in reality the true costs of in-house ICT activities may not be particularly well known. The initiative to consider outsourcing should be taken by the Chief Executive or the Board of Management. While a CIO may propose such a move, ICT in general have a vested interest to retain their jobs and are unlikely to recommend outsourcing unless they know something the executive does not… Side effects of outsourcing In every successful outsourcing case study, the transfer of responsibilities to a third party removes many time-consuming activities from the daily agenda of the CIO, in particular, participation in technology-buying decisions. This releases time to deal with strategic information systems issues, policies and strategies which should not be outsourced. Regardless of whether activities are outsourced or not, the CIO remains accountable when something goes wrong. In a situation where outsourc-
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ing does not work well, the CIO needs to quickly find out the reasons for this and act accordingly. Otherwise, a problem can become a crisis that paralyses the organisation. There are many variants of “people issues” in outsourcing and these can cause outsourcing to fail. To the staff affected by a decision to outsource, this is a political and emotional issue, as it will change their employment, their terms and conditions, the location where they work and more. As the language associated with process outsourcing often uses expressions such as “non-core activities”, “zero added value”, “lean and mean” when referring to jobs to be transferred to the outsourcing vendor, the people doing these jobs will find it difficult to avoid making value judgements and can be expected to be critical of the whole issue. There is a risk that some unrecognised or undervalued skills will only become apparent when they are withdrawn, such as in the case of unique knowledge relating to a “legacy” application. This is a common situation and it can also arise with downsizing and early retirement programs. Additional complications in offshoring or international outsourcing Software maintenance and development, the usual target for offshoring, requires good communications. English is the generally accepted business language for international software projects. When English is a second language for the outsourcer or for both parties, effective communications becomes an issue, because of the combination of language mastery and cross-cultural differences. Cross-cultural differences include the use of spoken and written language, body language, decision making styles, negotiating, conflict resolution, respect for hierarchy and age, the need to save face and many others that may be totally unknown or misunderstood by both parties. Examples of situations commonly occurring in such situations include: • • • People from another culture who would prefer to stay silent rather than “lose face” by asking for clarification; People from another culture who will not volunteer information about problems they have encountered; People from another culture who have a different concept of time. In such situations “by close of business today” is more precise than “as soon as possible”;
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crItIcAL SucceSS FActorS (cSF) Once the decision to outsource has been taken, it must succeed. CSF # 1: Viability of the outsourcing option The objectives of the client, whatever they may be, must be realistic, achievable and clearly understood by all parties. The client must understand the consequences of outsourcing, in particular how it will impact on personnel and on its financial, taxation and legal implications. Outsourcing processes that do not work well will not make things better. The client should fix such shortcomings before outsourcing or engage a third party, possibly the chosen vendor to address these shortcomings before outsourcing. When outsourcing software projects, the most successful situations involve clients who have the capability of developing the software themselves and opted instead to outsource in order to use their personnel for other projects with higher business value. CSF # 2: Thorough understanding of the scope of outsourcing, and realistic expectations. The client must ensure when preparing to outsource, certain responsibilities are not ignored. These include: • • • • • • • • • The definition of the scope of services to be provided; The definition of current service levels (which should be validated by the selected outsourcer); The definition of the target service levels expected from the outsourcer; The definition of the division of responsibilities between client and outsourcer; The definition of management controls, including the right to audit the outsourcer; The identification of personnel that will remain with the client and those that will be transferred to the outsourcer; The management of organisational and other changes required as a result of outsourcing; For project work, definition of performance metrics; The definition of measures to be taken to protect the client’s intellectual property, confidentiality, data integrity etc.
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CSF # 3: Legal support A legal team with knowledge and experience of outsourcing contracts should be involved from the preparation of the Request for Proposals until the contract is signed. The same applies to all amendments to the contract. CSF # 4: Relationship management The client should identify a vendor well suited to meet the overall objectives of the particular outsourcing and in particular, a trustworthy and well managed vendor whose prime objective is to maintain its reputation. The relationship between client and vendor begins at the time of contract negotiation, and will be a key component of service delivery for the duration of the contract. Success in this area requires the existence of good communications arrangements, frequent contact and the goodwill necessary to build an effective relationship. Success in outsourcing is therefore a joint venture where there are no winners and losers; either everyone succeeds or everyone fails.
A SteP-by-SteP guIde to MAnAgIng tHe outSourcIng ProceSS Step 1: Selecting a vendor Because of the critical role that ICT play in an organisation the process of selecting one or more vendors must be focused on finding a vendor who will take responsibility for success. The best way to prepare includes at three components: • • • The preparation of a Request for Information and a Request for Proposals; The definition of the criteria and techniques that will be used to select a vendor; The decision whether to employ external advisors or to rely exclusively on in-house staff to perform the selection.
Step 2: Preparing a Request for Information Having identified the costs, benefits and risks of outsourcing and of alternatives (which include the “do nothing” option, it is useful to issue a Request for Information (RFI).
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Here, an outline of what is intended is distributed to potential vendors. Their replies will indicate their interest and provide information about their capabilities and client base. An RFI can and should include a section where potential vendors are invited to propose ideas on other value added services they could provide if awarded the contract. Replies to an RFI are non-binding. It is also good practice to obtain additional information about potential vendors such as their companies annual report, independent financial assessments and client references. Step 3: Preparing a Request for Proposals A Request for Proposals (RFP) is a record of the potential client’s requirements. This is a complex and resource-intensive task. It may be appropriate to employ the services of an experienced consultant to prepare this document. It would be frustrating to discover during the evaluation phase that a critical requirement was omitted. Before releasing a proposal, it is prudent to consider seeking a legal review by a lawyer familiar with the outsourcing industry. Step 4: Proposal evaluation It cannot be assumed that all the proposals received will match exactly the scope of services described in the RFP. Attention needs to be given to: • • • • Services and/or features which are excluded from the offer; Proposed performance levels that differ from those requested; Schedules that do not meet the clients’ requirements; All other differences from the client’s original requirements;
Step 5: Vendor selection criteria These would usually include the vendors’ technological capabilities, track record and reputation, the existence of a prior working relationship, their viability and stability, price, knowledge of the client’s business, ISO 9000 and equivalent qualifications, and location (including language and culture), and, of course, price. However, some of these criteria are “soft” and comparisons between vendors may include subjective elements and because of this, the evaluation may be influenced by the evaluator’s knowledge or familiarity with a particular vendor. Moreover, to demonstrate their track record, vendors are likely to provide as references clients who are their greatest successes. Evaluators should
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ask vendors to provide information about dissatisfied clients, and these references must be followed up. An independent assessment of a vendor’s financial viability is particularly important when dealing with smaller or more recently established vendors. This can highlight potential financial problems that could inhibit their ability to deliver. There are techniques to minimise bias from complex decisions involving many people and many factors. One such technique is that of Weighted Ranking by Levels (WRBL), and is particularly suitable when: • • • There is a need to choose among several alternatives The decision needs to be objective The decision should be agreed upon by a group
Step 6: Preparing for an outsourcing contract Finalising an outsourcing contract is a specialised task. The biggest risk in outsourcing is that of being contractually committed to an unsatisfactory arrangement. A formal agreement may consist of several contracts including a portfolio of service agreements with the detailed definition of the scope of services and performance for each service. Negotiating an outsourcing contract is hard to do when the buyer may be negotiating his/her first outsourcing contract with a company that has hundreds of such contracts in place. Good preparation is vital, as the contract will be the foundation for the working relationship between of the two parties. The contracts should make clear: 1. The process for transferring personnel, intellectual property, licences, hardware and other assets from the client to the outsourcer, including: • Definition of the ownership and valuation of all assets to be transferred; • Ownership and reassignment of leases, licences, etc.; • Proprietary software: Who retains ownership, who has access to the source; code, exploitation rights of the outsourcer, terms of supply of documentation; • Knowledge transfer (what, when and how); • Identification of the personnel to be transferred; • Involvement of third parties (vendors, lessors and other financial institutions, disaster recovery operators, etc.);
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• Disaster-recovery services, documentation, test results, etc.; • Issues related to premises, etc. Unless the selected outsourcer is thoroughly familiar with the activities and organisational culture of the client, the transition period should be used to refine and validate such matters as objectives, measurement procedures, and reporting arrangements. The transfer process should be approached as a major project by both parties. High-level project management must be in place to deal with all supplier contracts and documentation, and appropriate controls must be in place. Milestones and the schedule of payments should be clearly defined. 2. What and when will be provided to the client after completion of the transfer: • Start date; • Items that can be shared with other clients of the outsourcer and items that must be dedicated to the client; • Disaster recovery arrangements; • Right to audit the outsourcer; • Pricing arrangements (fixed cost, cost plus, benchmarks, benefits sharing, etc.); • Copyright, intellectual property, confidentiality and data protection (licensing patents and trademarks to the outsourcer); • Compliance with legislation and regulations; • Change control procedures; • Client rights to audit the services, charges and other vendor activities pertinent to the contract; • Warranties, liabilities and indemnities (service levels, consequential losses, extra costs); • Management of the relationship (appointed representatives, regular meetings, right to audit); • schedule of payments, etc. Vendors will invariably propose their own standard terms and conditions. These are designed to be biased in their favour. A well-negotiated variant of such contracts or individually tailored contract should be the preferred option to maintain a balance between the parties. This is a major undertaking involving the lawyers from both parties. While discussions relating to the contract should be treated as confidential and subject to incorporation in the final contract, promis-
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es made by sales people during negotiations should be obtained in writing to avoid subsequent disputes. 3. The process of retuning assets, personnel, intellectual property, etc., to the client should the contract be terminated or other circumstances so require. • Every contract is different in this respect and this topic should be the subject of individual study for each specific situation, but the possibility of divorcing the outsourcer must be given due to consideration before the contract is signed. • The contract should specify the procedures for amendment (change of scope or deliverables) and termination (including definitions of the period of agreement, notice of termination, special instances (insolvency/breach of contract)) and, in the latter case, the detail arrangements for returning all appropriate items to the client. Contract negotiations must specifically focus on liabilities. Vendors will strive to keep their liabilities to a minimum. This is not unreasonable given that the price of the contract must include the cost of insurance and/or the risk of failure, which could be significant in unusual or complex situations. Other clauses concerning liabilities are those of consequential loss (for example, of profit or of goodwill), are particularly hard to quantify. The possibility of obtaining liability insurance should be investigated. Copies of the contract should be distributed to all parties who may need them, and the production of a plain language summary may be a valuable supplementary document. The contract should specify mechanisms for the resolution of disputes and arbitration, including definition of legal framework that will apply (country or place of resolution).
ActIon PoIntS Be clear about the objectives for seeking an outsourcing option. The overall track record of ICT outsourcing is pretty good and reducing costs is not the only reason for pursuing this path. Remember that the people carrying out activities suitable for outsourcing have a vital interest in preventing this from happening and that their views are likely to be biased.
C h a p t e r
Legal and ethical aspects of ITC
Laws are like sausages. It is better not to see them being made. Statement attributed to Otto von Bismarck (1815-1898)
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Key queStIonS And cHAPter SuMMAry • • • • • What is so different about ICT legislation? What is covered by legislation directly related to ICT? Are ICT contracts really that different from other contracts? How do I know my organisation is not breaking the law? Ethical issues in the workplace – what exactly is this all about?
The good old days when the Chief Legal Counsel looked after legislative matters, the Chief Information Officer ensured ICT worked properly and the Chief Executive could delegate these matters are, in many countries, over. Recent legislation on Data Protection and on reporting financial results (such as Sarbanes-Oxley in the United States of America), makes directors personally liable and penalties, under criminal law, can be severe. There is a substantial amount of legislation relating to ICT, and this is evolving rapidly, but not as fast as technology or cybercrime. There is also significant disparity between legal developments across countries and what may be an offence in one country is not considered so elsewhere. This is being taken advantage of by cyber-criminals and also by various actors in marketing (namely spammers) who move their actual technical operations to countries that do not legislate against such activities. In addition to cybercrime, there are laws concerning the workforce’s health and safety at work, computer misuse and abuse, national security and, most recently, the need to ensure that computer systems cannot be exploited to create misleading or fraudulent financial statements and reports. There are also important legal issues of protection of intellectual property. Contract law, particularly that relating to computer contracts, is another potential minefield for the unaware and the Romans’ Caveat Emptor remains good advice. Finally, there are many issues of human rights and freedom of expression that need to be meshed with an organisation’s code of conduct, in particular concerning what represents appropriate personal use of the organisation’s ICT resources by a member of the workforce and the extent to which the employer may monitor an individual’s activities, examine the contents of their computer and conduct investigations on the basis of perceived unusual activities.
About tHe LAW And Ict Legal matters Societies have formulated laws codifying their behaviour in terms of what they considered to be permitted and what is not. An example of such early legislation is the Code of Hammurabi (the ruler that created the greatness of Babylon (1795-1750 BC).
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Today there are several legal codes covering virtually all areas of activity. While laws have largely the same intent, there are substantial variations between countries. Non-compliance with legal matters may result in prosecution and punishment if the party being prosecuted is found guilty. Because law develops at a slower pace than creative innovation, there are gaps – for example the issue of undesired electronic mail (spam) is only recently being addressed by lawmakers and countries are not all at the same stage of development. While such gaps exist they are a license for individuals and organized crime to exploit them, and this is the current situation in many areas of the information society. When apprehended and tried individuals may be judged by courts that make a best effort to adapt existing legislation. Some are released because the courts consider that in the absence of legislation their actions did not constitute an offence.
Code of Hammuarabi. The Louvre, Paris
An example can illustrate this situation: a young student of computer programming in the Philippines, Onel de Guzman, was accused in May 2000 of creating and disseminating the “I love you virus” which was sent as an e-mail attachment and infected a large number of computers and deleted certain types of files (mp3 and jpeg among them). After being traced, arrested and charged, the Department of Justice in Manila dropped all charges against de Guzman in August 2000 despite the fact that this virus had affected tens of millions of computers. California-based IT consultancy Computer Economics estimated worldwide damage to be $2.6bn by the end of its first week of circulation.
National legislation can have considerable impact when it affects multinational organisations as compliance becomes an important issue. The joint efforts of executives, legal officers, internal and external auditors and ICT managers to ensure diligence and compliance are essential.
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tHe SPecIAL nAture oF LegISLAtIon concernIng Ict Old laws, those that predate the information age, are primarily concerned with tangible objects. The major exception to this are laws dealing with defamation and libel, focusing on an individual’s reputation. Data and information are incorporeal – their only physical manifestation is the package in which they are contained regardless of its form (disk, CD or DVD, newspaper, book). Their proliferation has created new requirements to provide a legal framework for the correctness and integrity of data and for protecting individuals about the misuse or abuse of data about them in electronic form. Additional “old law” problems still exist in some countries where for example legislation on theft, larceny and embezzlement requires the offender to take an item of another person’s property which could be interpreted to be limited to tangible objects. Similarly, under some legislation, fraud requires the deception of a person and therefore it would not cater for a situation where the one defrauded is a computer and its software. Facts about the law Fact # 1: There are thousands of laws, by-laws and other codified statements around the world. These evolved when the need for amendments or new legislation became apparent because existing laws could not be satisfactorily interpreted or modified to apply in a new situation. Interpreting existing laws in a new context does not result in consistent results as analogies are not always appropriate and are challenged on appeal. As a result, legislation always lags behind technology. For example in 2004 there is no international legislation on transnational cyber-crime or on several other areas of contemporary concern such as genetically modified foods. The Council of Europe Convention on Cybercrime entered into force in 2004 but has only been signed by 33 countries, many of which have not yet ratified it. Fact # 2: Legislation is often a lengthy process. The OECD had discussed the criminalization of computer abuse in 1983 to 1985 and the Council of
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Europe initiated work towards the convention shortly after that. It was only in November 2001 that the Council of Europe got 33 countries to sign its Convention on Cybercrime. The convention finally entered into force in 2004 after being ratified by the required five countries. There are exceptions, particularly in national legislation. The SarbanesOxley Act of the USA was passed in a relatively short time to reflect the need to regulate accounting in the light of scandals arising from overly creative statements of financial results. Fact # 3: The absence of legislation is a time of opportunity – just like the “Wild West” of the United States of America in the 19th century attracted adventurers and risk takers, cyberspace, the world of data and software, has many parallels in particular the knowledge that when something goes wrong the legal framework might not be there and that the resources available to “police” cyberspace are very limited. Fact # 4: People with malicious intent – from fraud to theft of intellectual property, including identity theft, unsolicited e-mail (spam), virus and worm writing, do so in the knowledge that even if they are caught the chances of a successful prosecution against them are small. Fact # 5: Even when legislation, conventions, agreements do exist, not all countries in the world respect them to the same degree – the business of pirated software, DVDs and other counterfeit products (infringing copyrights) represents billions of dollar of trade outside such agreements. Fact # 6: Ignorance of the law is no excuse. This is particularly true in a corporate context.
Ict reLAted AreAS Are covered by LegISLAtIon The amount of legislation both civil and criminal relating to ICT is substantial and covers areas such as: Health and safety in the workplace Computer misuse Regulations governing specific activities (e.g. financial accounting)
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Privacy Rights of access to personal information held by third parties Defamation and libel in cyberspace Data protection Software copyrights and patents Contractual obligations of ICT vendors, including ISPs Electronic contracts Digital signatures Taxation of e-commerce Censorship Obscene publications Protection of minors Consumer protection Gambling in cyberspace Money laundering through electronic means Telecommunications interception National security and anti-terrorism Search and seizure of ICT material to be used as evidence And indeed much more. For the purpose of illustration, the main legislative instruments in Great Britain relevant to ICT include: The Data Protection Act (1998) The Regulation of Investigatory Powers Act (2000) The Copyright, Designs and Patents Act (1988) The Computer Misuse Act (1990) The Operating and Financial Review Regulations (2005) The Privacy and Electronic Communications Regulations (2003) and many more… As another example, France introduced the law 2004-575 “Loi our la confiance en l’economie digital” – the Law for trusting the digital economy”. Organisations that operate in many countries need to know that variations in the application of such laws varies greatly, particularly when these laws interpret the requirements of regional legislation (such as European Union Directives) in different ways. To make matters more complex, companies listed in the United States of America also need to comply with the Sarbanes-Oxley Act, passed to deal
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with irregularities in financial reporting following a number of situations where creative accounting exceeded the boundaries of what was tolerable. Sarbanes-Oxley’s Section 404 has a profound impact on the ICT arrangements, controls and operations of organisations. Other regulations – for example Basel II for financial implications create their own needs for ICT systems and facility to comply with them. Several surveys of the status of ICT-related legislation have been conducted by various researchers. One example of such collections of references available online can be found at: http://www.ll.georgetown.edu/intl/guides/cyberspace/cyber_3.html This is an academic institution that provides a guide to topical areas of legislation, notably electronic commerce and computer crime, and provides links to related information sources and discussions. National legislation is often in advance of regional and international law and as a result, there are significant variations in national legislation and many areas of ambiguity. The joint efforts of executives, legal officers, internal and external auditors and ICT managers are needed to ensure that appropriate diligence and compliance are part of the work environment. The slow adoption of the Council of Europe’s Convention of Cybercrime confirms the disparity in legal provisions and indicates that there are problems of jurisdiction and international cooperation to deal with such situations. There is some international legislation dealing with data, computers and software, for example the United Nations Convention On Contracts For The International Sale Of Goods (1980, ratified 1988). This convention is of a general nature and deals with the sale of goods. As such it includes computers and other ICT hardware. However, the term “goods” is not defined. Whether software is covered by the Convention is contentious, as under most national sale of goods legislation, package software supplied on a physical carrier (such as a disc) is more likely to be considered goods than bespoke software, as the latter is treated as a service. When the software is downloaded across borders, as is increasingly the case, the applicability of the Convention is unclear. Complex situations arise when it is necessary to exchange data, particularly personal data across borders between countries that have dissimi-
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lar legal frameworks: as part of its measures to strengthen security, the Homeland Security department of the United States of America signed an agreement with the European Commission to provide advance passenger information (API) on travelers on planes and ships with destinations in the USA. The USA does not have legislation equivalent to the Data Protection Directive and the European Commission found that the measures in the agreement gave “adequate protection” to the information transferred. However, in May 2004, the European Parlament decided that the agreement does not offer adequate protection. The subject was still under discussion at the time of writing this Chapter. Two pointers towards the way international cooperation and legislation can evolve can be found in the United Nations past initiatives, both currently operational: • • The Law of the Seas (http://www.un.org/Depts/los/index.htm) The Office for Outer Space Affairs (http://www.oosa.unvienna.org/)
These initiatives have good analogies with the world of data, software and information systems, particularly with regards to areas such as common and individual ownership, rights of shared use, military use and many other. The World Summit on the Information Society (WSIS) held in Geneva in December 2003 discussed some of the legal issues around Internet Governance. The subject continues to be discussed in multilateral international organisations such as the World Intellectual Property Organisation (WIPO), the International Telecommunications Union (ITU), the United Nations (UN), the World Trade Organisation (WTO) and the Organisation for Economic Cooperation and Development (OECD) and others, including non-governmental organisations – for example the International Chamber of Commerce. Some legislation, regardless of where it first enters into force, can have a major impact on information technology practices and operations as well as on related audits and security measures elsewhere. One current example arises from the Sarbanes-Oxley Act (United States, 2002) that introduced requirements for the retention of documents in electronic form and appropriate monitoring mechanisms that include: centralized e-mail system, hard drive data and backup tapes, employee floppy disks and home computers, company laptops, cellphone and per-
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sonal digital assistant logs, cookie files and personal history files, Instant Messaging (IM). The possibility of similar requirements being introduced into the legislation of other countries cannot be excluded.
Ict contrActS And LIcenceS: PrActIcAL ISSueS
Buying and leasing hardware is well established, well legislated and in principle unproblematic. These are goods that are traded in a fairly competitive market. The word “fairly” is used because not all ICT hardware consists of commodities available from several vendors. Proprietary equipment continues to be manufactured for specialised applications and migrating from one set of proprietary “standards” to another is usually a complex project with significant risks and costs.
Software is quite a different story, as it does not consist of tangible goods other than the storage device on which it is stored in electronic form (a diskette, CDROM, tape or similar carrier) and when the software is in fact downloaded from one server to another computer, it has no tangible form. This is one part of the problem. The other is the ownership of the intellectual property of the software. The two most common situations are those of obtaining a license to use a product and that of developing custom software for use by a particular organisation or company. Product licenses for software are no more than permission to use a particular set of programs, and the software itself remains the property of the supplier at all times. Product licenses for software come in three distinct models: Proprietary software supplied by a commercial company against a license fee; Shareware, where the owner of the intellectual property is not necessarily a company and offers a license against a modest payment which is often left to the discretion of the end user and Freeware which can be obtained free of charge. In the case of shareware and freeware, the end user acknowledges to use the software “as is” and accepts that it does not have warranties and that
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the provider will not accept any liability for situations arising from the use of such software. The legal status of software product licences is somewhat ambiguous and depends on the type of software in question and on the countries where the transactions take place.
(NB Open Source software is a form of shareware increasingly being distributed by commercial companies who charge a fee to provide product support, documentation and related services). Starting with the contracts generally known as “shrink-wrap licenses” typical of software packages for personal computers, software produced in the USA makes use of the provisions of the Uniform Computer Information Transactions Act (UCITA), developed by the National Conference of Commissioners on Uniform State Laws and approved for use in all the States of the USA. UCITA is a contract law statute applicable to computer software, multimedia products, computer data, computer databases, online information, and other similar products. It was designed to create a uniform commercial contract law for these products and is described as “a cyberspace commercial statute.” UCITA has been criticised because it appears to allow software publishers to: • • Change the terms of the contract after purchase; Deliver products that contain “back door” entrances, potentially making systems using this software vulnerable to infiltration by unauthorized parties, including hackers;
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Sell their products “as is” and to disclaim liability for product shortcomings.
In addition, UCITA allows restrictions that prohibit users from criticizing or publicly commenting on software they purchased. Most software that makes use of one or more of the provisions of UCITA requires the installer to accept the conditions before the software can be installed. For software other than shrink-wrap licences, such as that used for servers and larger computers, system management utilities, databases, enterprise resource planning systems and other applications, their vendors require the acceptance of their standard conditions of contract. Such standard conditions describe the type of license that applies to a particular product in at least two distinct categories of definitions: • One dealing with the type of licensing arrangement – for example a perpetual license, a periodic license (for N years) and whether it is exclusive – the licensee owns the intellectual property if the software or any particular features were developed at the initiative of the buyer – or non-exclusive, which means that the software may be made available to other interested parties. The second set of definitions describe the rights of use of the software. In the case of large systems software such rights may be limited to a specific machine – the price of the license may differ for different size processors – at a particular location, and it may include clauses giving the vendor the right to conduct an audit for compliance with these conditions. All such contracts include a multitude of disclaimers and waivers of the vendor’s liability.
Well drafted software contracts make provision for changes to such rights of use and the charges involved in doing so. One instance where such changes may be needed is when computer centre operations are outsourced and this involves the relocation and resizing of the computer(s) involved. In practice, “standard” contracts are negotiable. To succeed, this requires the involvement of the procurement and legal departments (if necessary with additional support from a lawyer specialising in software contracts) and consulting ICT industry advisory services. The contractual and legal issues of custom software developed by a third party are discussed in the next section.
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Outsourced and third party services The issues relating to outsourcing contracts for operational services are discussed in Chapter 12. It should be fairly obvious that outsourcing contracts are complex because of the risks associated with being committed to an unsatisfactory arrangement covering activities critical to an organisation. Such a contract may in practice consist of several contracts and invariably includes Service Level Agreements (SLA). These define the terms under which a vendor will provide a service. As the main purpose of an SLA is to protect the technology services that are important to an organisation, the vendor must be held responsible for delivering services to the required level of quality or better. A good SLA is best prepared by a team consisting of business unit managers, legal advisors and information technologists. For the outsourcing of existing processes, the client should be able to define current service levels in the appropriate metrics, and notify the selected vendor, who would normally require time to validate and verify these. Performance measurement criteria for processes usually include: • • • • service availability and how it is defined response time and where it is measured definition of maintenance windows problem resolution targets
Such Service Level Agreements must also be entered into with all critical third party service providers – telecommunications links, Internet Service with particular attention being given to the relevant penalty clauses should the service level not be delivered. Software development When software intended for the exclusive use of an organisation (for example a tailor made system or facility – like the one click button in Amazon or a “made-to-measure” payroll system) is operated by a third party such as an outsourcer, a consultancy organisation or contractors it is
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essential to ensure that the contract for these services makes adequate provision for each of the following matters: Ownership of the intellectual property of the specification and of the source code (the program as developed by the provider of the service) and relevant documentation; Rights and conditions of use for the service provider to reuse part or all of the software code created for a particular client; Quality assurance and security audit of the code (to ensure that the developers did not include facilities not specified by the client such as back doors, logical bombs and other forms of undesired software). When buying software developed specifically for one organisation, the contract should include provisions for: • • Obtaining a copy of the source code (the listing of the computer program in a language that is understandable to others); Exclusive ownership – a clause to prevent the vendor from selling the same software to another client. In situations when this cannot be agreed, the contract should define limitations on when the software could be sold to others; The buyer’s right to sell the computer program and code (source and object) to a third party, with provision to pay royalties to the developer for each copy sold;
Conversely, a professional software developer would be likely to ask that the license be non-exclusive and that the contract includes a limit on the number of copies that the buyer can make (for example limited to backup purposes) and forbid reverse engineering or disassembly (mechanisms through which the buyer could discover how the software is constructed).
etHIcAL ISSueS Ethical matters There is a difference between our values and ethics in the work environment. Our values, part of our culture define what we think is right, good, fair, and just. It is not up to an employer to define what the personal values of an individual should be – these are part and parcel of the person that joins the employer.
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However, it is very much the employer’s responsibility to set behavioral standards and also its obligation to communicate these standards to all people working with this employer (employees, temporary staff, interns, consultants and others). This is usually done through a Code of Conduct, Employee’s Handbook or similarly named document and where appropriate, training sessions. Ethical issues include such matters as conflict of interest, truthfulness in reporting, non-discriminatory policies, permitted personal use of the employer’s resources, right to privacy in the workplace, and many more that may or may note be legally mandated. Non-compliance with ethical issues not covered by legislation is, at best, antisocial behaviour. Regrettably history teaches us that human nature does allow for antisocial behaviour (regardless of whether it is illegal or merely unethical) and this behaviour manifests itself in very inspired acts of creativity (from virus writers to fraudsters in all manner of operation). An appropriate standard of conduct for individuals working in an organisation that works with information would include the protection of the privacy and confidentiality of information (legally required where data protection legislation exists), not misrepresenting information (now made illegal in the USA by the Sarbanes-Oxley Act of 2002, following a number of major accounting scandals), not exploiting weaknesses in systems or misusing the information resources of an organisation. Conversely, the organisation, through its executives also has several ethical responsibilities towards its employees, temporary staff, contractors and others who use their information systems and data. Ethical issues directly related to ICT include the four dimensions pictured here.
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Chapter 4 discussed the impact of ICT on organisations and on individuals. When this impact manifests itself in innovation, growth, knowledge work and a multiplicity of opportunities, the ethical issues of enabling creativity, providing adequate training and working conditions are an important contributor to the success of such initiatives. ICT implementations that lead to business process re-engineering, significant organisational change such as downsizing, outsourcing of activities, offshoring, etc also create ethical issues in organisations and require that these be treated not only within the law but also with due regard to the emotional well being of those affected. Not all countries have legislation that describes the responsibilities of employers with regards to the health and safety conditions in the workplace in terms of office furniture, lighting, exposed cables and electrical connections. When these are not regulated by law they become ethical issues with potentially significant side-effects. Finally, the issue of the right to privacy at work deserves to be formally handled. What constitutes “reasonable personal use” of an employer’s ICT resources will vary from one organisation to another, depending on the nature of their activities. Compliance with such policies may require matching monitoring measures. The ethical question is whether such monitoring should be disclosed to the workforce or should be conducted without such disclosure. There are no simple answers to any of these issues. In the case of an investigation into improper or illegal behaviour, prior notification may be inappropriate if evidence needs to be collected and safeguarded to be used in a court of law. The rules of admissibility vary from one country to another and should be part of the background against which such monitoring practices and policies are implemented. NB: the technology needed for the comprehensive and detailed monitoring of the activities of people working in an organisation has been available for some time and has become highly sophisticated. Many countries have legislation concerning health and safety at work and this requires not only that the equipment should be safe to operate – no risk of electric shocks, no wires or other obstacles that could cause a person to trip or otherwise hurt themselves, suitable lighting, ergonomic furniture and more of the kind.
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ActIon PoIntS Executives must work with their Chief Information Officer, Legal Counsel and Internal auditors to ensure that the organisation is fully aware of its legal obligations and that suitable programs of work are put in place to ensure compliance. Policies concerning all aspects of compliance with legislation must be developed, circulated to all relevant personnel and acted upon in terms of implementation of appropriate measures, monitoring for compliance and action to ensure compliance is achieved. Monitor developments in legislation that have an impact on the need to retain documents and databases in electronic form, as these have an impact on the organisation’s disaster recovery and business continuity arrangements and its overall ICT expenditures.
C h a p t e r
We won’t know where we are going until we get there. 18th Century British soldiers’ song
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Key assumption: We already are in the early stages of an Information Society. Those who adapt and adjust to its challenges and learn how to get the best out of their information assets will be among the Winners. Those who don’t will join the Losers.
Here are some indicators that the Information Society is developing • In 2004 there are an estimated 1 billion fixed telephones and a further 1.3 billion cellular telephones, and any two such telephones can connect to each other – this represents a very large “machine” that actually works very well; Since their adoption as business tools about 25 years ago, the number of personal computers has continued to grow to the point that in OECD countries they have become commodities, despite the predictions made years ago by the leaders of the computing industry;
In 1943, Thomas Watson, then Chairman of International Business Machines (IBM) stated that he thought that “there was a world market for five computers” In 1977, Kenneth Olsen, Chief Executive Officer of Digital Equipment Corporation said at the Convention of the World Future Society in Boston that “he did not see why anyone would want to have a computer at home” and subsequently stopped projects in his company intended to develop a personal computer.
While the total number of personal computers in use around the world cannot be known with any accuracy, it will be greater than the number of computers connected to the Internet. The growing population of smart cellular telephones, digital personal assistants and other gadgets that have e-mail and some kind of internet access capabilities should be added to this number; A reputable source for information on Internet use (http://www.nua. com) publishes statistics – the latest published figures, dated September 2002 state that there were 605 million people with access to the Internet. Current estimates are that this number has grown to at least 750 million. Another source (http://www.netcraft.com) indicates that in March 2006 they had catalogued over over 70 million websites around the world; By 2004, data traffic over global networks has exceeded the volume of voice traffic;
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The business use of ICT continues to grow steadily – the global ICT industry turns over at least a trillion US dollars a year and a single company, IBM is close to having an annual turnover of 100 billion. The ICT services outsourcing business is also worth over 100 billion dollars a year; Electronic bank transfers are currently running at 5 trillion US dollars a day; ICT is finding its way into areas other than the office and the home. A car built in the year 2000 has more of these technologies than the NASA Lunar Module of 1969, and this is growing as systems such as Global Positioning by Satellite also become commodities; Online learning is growing fast, providing education and training on an “anywhere, anytime” basis to millions of people who would otherwise not have access to the education needed to operate effectively in the Information Society; Many governments around the world are embracing the online society and it is now possible to make enquiries from government departments, download forms, renew driving licences, complete tax returns and pay taxes online through the Internet.
If is safe to assume that the Information Society being created will be very different from past societies. Alvin Toffler, in his series of books (Future Shock (1970), The Third Wave (1980) and Power Shift (1990)) made a powerful case for expecting the future to be different and challenging, particularly for those who are unprepared. During the first wave of civilisation that started some 10,000 years ago with the first towns, organized farming and the domestication of animals – both of which led to the production of food surpluses and, indirectly, to the invention of writing to record the ownership of these surpluses, time was measured through the seasons and the height of the sun in the sky, and change was slow – major discoveries and inventions were separated by hundreds, even thousands of years. Knowledge and goods moved with the speed of the caravans. The second wave was triggered by the growing interest in science and mathematics that followed the Renaissance and the Age of Enlightenment, some five hundred years ago and led to the Industrial Revolution. At this point change started to accelerate driven by the growing body of knowledge and major shifts in the way people live (increasingly in towns
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and cities) and fulfil their material needs (dual role of producers (in factories) and consumers – no longer reliant on self-sufficiency). As technologies became mature, there were major shifts in all areas of endeavour – sailing ships were displaced by steamships, canal barges by railways and the physical delivery of information by the electric telegraph (around 1860), the transoceanic liner by the airlines and more. Each of these shifts resulted in Winners and Losers. The telegraph is a major landmark of the Information Age as it enabled information to move faster than the fastest means of transport and provided the instantaneous transmission of beyond the line of sight. While ICT has a long history: a mechanical programmable computer had been developed in 1833 by Charles Babbage – and Lady Ada Byron, Countess of Lovelace became the first programmer by working on this “Analytical Engine”. Punched cards, tabulators and other electromechanical sorting machines go back to the 19th Century and the first electronic programmable computer (ENIAC) was used in 1943. The last sixty years of information and communications technologies have produced changes that exceed the expectations of most people working in this industry. The challenges of making good use of information and the technologies that enable us to exploit it remain many and complex as it seems that the one thing that is constant in the Information Age is rapid change. The inability to adapt and capitalise on this change will divide organisations into Winners, Losers and those that stay outside the Information Age. This will create a new digital divide distinguishing those who cannot from those who will not.
Mark Twain said that “the man who does not read good books has no advantage over the man who cannot”. This statement holds true when extended to the “literacy” needed to exploit the tools of the Information Age.
The Winners will be those who learn how to create and extract value from the opportunities provided by innovative information technologies. Information is there – in fact today we have access to so much of it that we don’t really know how to come to terms with it.
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What can be expected over the next few years – and what opportunities does this open to those aspiring to be Winners? Electronics and various forms of ICT will find their way into an increasing number of devices and activities. Enormous amounts of research are taking place in the ICT industry and in academic circles on new materials for ICT, on new concepts (for example quantum and microbiological computing) and on new applications and uses for ICT. Three things we can expect with reasonable confidence are: • The further development of electronic commerce in all its forms, Business to consumer (B2C), Business to Business (B2B), Business to Government (B2G), Consumer to Consumer (C2C), as well as the growth of tailor made products for individual customers as it is already possible to order and purchase made-to-measure clothing over the Internet as well as to create custom music compilations that are downloaded or burnt into a custom CD. “Deep computing” to bring about the computing power to make sense of all the data. Progress has been made in creating supercomputers with a power never before achieved (the GRID project) and using this power to solve highly complex problems, such as weather forecasting. In future, it is likely that such deep computing will be used to analyse, aggregate and explore other massive databases – for example how much information does a government hold about its population? Tax records, driving licences and car ownership, property ownership, health records, criminal records and so much more. Currently these are in separate databases, often incompatible, but “big brother” may well be coming thanks to ICT developments. Quality content for sale. The growing popularity of the World Wide Web in the mid 1990s created a thinking model that information is and should be free. While nobody denies the wonderful freedom of speech which exists on the Internet, information providers – publishers, news agencies, researchers, artists and many others are seeing their copyright and intellectual property being appropriated and misused without recompense. When a simple mechanism for collecting money in small amounts (smaller than credit card companies are prepared to accept) become established, it is likely that more and more of the quality content available on the Internet and its World Wide Web will no longer be free.
What are the barriers to becoming a winner?
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The two main barriers are a lack of awareness that: • • Continuous creative thinking and ongoing learning will become essential for both individuals and organisations; Rapid change will be an inevitable outcome of such thinking and learning being applied in the work environment, with destabilisation and discontinuity as side-effects.
Besides, many people are held back from creative thinking and ongoing learning by factors such as: • • • • The thinking skills currently fostered and developed by educational establishments – more focused on analysis than on systems thinking and on creativity; An inability to ask “the right questions” when confronted with masses of information, thus not being able of seeing or hearing weak signals in the overall noise; An inability to use anything other than a very small amount of information at a time; A mental model of the world which contains many assumptions that may no longer be valid.
Success in the Information Age will need a higher level of creativity, leadership and courage than today’s environment. It also needs a close working relationship between those who understand business opportunities and those who have knowledge of technology and its capabilities. To get there, many things need to change. Many organisations are still struggling with questions on how and where to invest in technology, with a general inability to determine the value of information, knowledge and the contribution that ICT makes to business results. The relative complexity of technology operations can demand 80 to 90% of a Chief Information Officer’s time to maintain a focus on service delivery. This inhibits the CIO’s ability to participate fully in working with business units and departments to unlock the opportunities that technology can enable. This is not helped by those executives who regard ICT primarily as a utility and are unfamiliar with its nature and requirements and who end up delegating (abdicating) responsibility for ICT to the technical community who may or may not be sufficiently familiar with the business objectives to make a valuable contribution.
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It is essential to narrow the gap (another digital divide) between technologists and executives to bring the management of ICT to the same level of visibility and comprehension as financial and human resource management. If this book has succeeded in dispelling some of the mysteries of ICT, its purpose has been fulfilled.
When you go into the future, take plenty of money with you
A listing of all the questions raised at the beginning of each chapter
The only stupid question is the one that doesn’t get asked
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Key queStIonS This appendix lists all the key questions at the beginning of each chapter. Chapter 1: Setting the scene • • Why should an executive be interested in this kind of “tekkie” thing – information technologies are the job of the Chief Information Officer… aren’t they? Is there really an “executive digital divide” and if so, what is it about?
Chapter 2: How well are we doing with ICT? • • • • • • • What is the track record of the ICT function? What are the efficiency and effectiveness of the organisation’s ICT? What is the value assigned to information, knowledge work and ICT? Where does the money spent on ICT go? What are the legacies and constraints on ICT in the organisation? Do we have a well articulated vision of how we should exploit ICT? What tools and methodologies can an executive use to find out answers to these questions?
Chapter 3: Technology and information or information and technology? • • • • • • What are the differences between data, information and knowledge? Transaction and knowledge workers what exactly do they do and why does it matter? How do businesses and organisations use information and knowledge? Why is information quality important and what determines quality? What is the appropriate role for technology in “Information Technology” and what does it take to be able to exploit it? Asset management for information systems and technology: does it make sense?
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Chapter 4: Impact of ICT on organisations and on people • • • • What have we learned about the impact of ICT in the “real world”? Should ICT investments make a difference, and if so, how much? How do organisations and people react when confronted with disruptive change? What are the challenges facing the non-ICT executive?
Chapter 5: Financial aspects of ICT: costs • • • • • Why does ICT cost so much? What drives the cost of ICT? How does an organisation know the total cost of its ICT? Can the cost of ICT be contained? Is outsourcing expensive?
Chapter 6: Financial aspects of ICT: benefits • • • Why is it so hard to define the benefits of investing in ICT? How can benefits be identified and quantified? Are there any formal techniques for evaluating benefits?
Chapter 7: Workable ICT strategies • • • What is the purpose of an ICT strategy, and is it important to have one? What is needed for a strategy to be implemented successfully and support business results? What should an ICT strategy contain?
Chapter 8: ICT service delivery processes: resources, quality and risk • • • • Are ICT processes different from other processes? What are the typical processes that support ICT activities? Is process management an art or a science? What are the risks associated with ICT service delivery processes
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Chapter 9: Managing ICT projects for success, quality and reduced risk • • • • • • What exactly is a project? What is the impact of quality requirements on projects? Can projects be divided into distinct stages? Why do projects – particularly ICT projects - go wrong? Is project management an art or a science? What can an executive do to reduce the risks inherent in ICT projects?
Chapter 10: Understanding and managing ICT risks • • • • What exactly is risk and what are the factors that determine it? What is the scope of risks associated with ICT? Why should an executive be concerned with ICT-related risk management? What are the steps needed to manage risk?
Chapter 11: Information insecurity: external risks • • • • What makes information security a hot topic that requires executive attention? What are the specific non-technical issues of information security? Can information security be outsourced? Is your organisation adequately prepared to deal with abuse and crime through ICT?
Chapter 12: Information insecurity: the insider threat • • • • • Which abusive, fraudulent and criminal activities that could affect an organisation would be easier to commit from the inside? How difficult is it to acquire the knowledge needed to perform fraudulent and criminal activities using information systems and technology? Who is an insider in a modern corporation and what could motivate an insider to act in a fraudulent or criminal manner? What steps can an organisation take to protect itself from such acts? What are the problems and limitations that such protection needs to address?
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Chapter 13: Contingency planning • • • • • What can cause an organisation to have an ICT disaster? What are the steps needed to reduce the impact of such a disaster? What are the options to consider? How much will this cost? What are the most likely problems to be encountered?
Chapter 14: ICT organisations and ICT people • • • • • • • • What do ICT organisations do (or are supposed to)? What lends itself to centralisation and to outsourcing? What are the roles and responsibilities of a Chief Information Officer – are there different kinds of CIO? Where should the ICT function fit in the organisation? How does one measure the performance of the ICT function? Are ICT people really “different” from other employees? What factors prevent CIOs from succeeding in their job? What are the questions that executives should ask of their CIOs?
Chapter 15: Outsourcing • • • • What activities lend themselves to outsourcing? What are the benefits, disbenefits and risks of outsourcing? What is needed to be successful in outsourcing? What are the steps involved in doing an outsourcing deal?
Chapter 16: Legal and ethical aspects of ITC • • • • • What is so different about ICT legislation? What is covered by legislation directly related to ICT? Are ICT contracts really that different from other contracts? How do I know my organisation is not breaking the law? Ethical issues in the workplace – what exactly is this all about?
Chapter 17: Concluding remarks • What distinguishes winners from losers of the ICT Board game?
A listing of all the action points given at the end of each chapter
A vision without action is only a daydream. Action without a vision is a nightmare. Japanese proverb
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ActIon PoIntS This appendix presents a complete list of all the action points given at the end of each chapter. Chapter 1: Setting the scene An old proverb states that “When there is a will there is a way”. This is particularly true for ICT and bridging, or at least narrowing, the Executive Digital Divide is one step that should help. Executives who take a serious interest in ICT and see it as a strategic tool and are also prepared to lead the organisational change that follows such implementations will be better equipped to gain value out of the significant investments involved than those who don’t. Taking a greater interest is necessary but not sufficient. The executive also needs a good awareness of what ICT can deliver and what it cannot yet do, understand the issues that need to be addressed, be good at risk management and not least, ensure that the right people are engaged to deliver results that make a difference. Chapter 2: How well are we doing with ICT? If your organisation’s ICT performance, business impact and value for money seem fine: Congratulations! You are among the Winners of the ICT Board game (not a crowded place). The challenge now is to remain at this level. If there appear to be doubts, concerns or problems about performance, costs or in difficulties in assessing the value added by ICT: Things will not get better by themselves – the reverse is more likely. In these circumstances, executive action is necessary to diagnose the true nature and extent of the problems in order to take appropriate corrective action. When a SWOT analysis is insufficient and the financial data on costs and benefits is inconclusive, incomplete or incomprehensible, it is recommended to carry out a series of audits of the ICT function, specifically: • • • A technical audit if there are performance problems and/or A financial audit if the true costs of ICT are unclear and/or A board level review of the benefits delivered by ICT in the last few years, and, if these are unclear or undefined, the development of a new strategy to change the situation.
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and, in parallel, conduct an assessment of skill gaps for the people who use the computer systems and ICT facilities of the organisation – part of the problem could be their inability to exploit the tools put at their disposal due to lack of training or other essential ICT skills. Other audits that may prove necessary if the outcome of the previous audits gives cause for concern may include: • • • Compliance with national legislation relating to ICT (data protection, privacy, cybercrime, health and safety at work, etc) Compliance with policies relating to the use, misuse and abuse of ICT Information security audit
Chapter 3: Technology and information or information and technology? Recognise that data, information and software defining your organisation’s business rules and processes are valuable assets. Prevent your organisation from drifting into information anarchy by ensuring all information assets have an identified custodian or “owner” and that a minimum set of standards is implemented and adhered to. Ensure that the organisation knows what it has and what it knows. Ensure that the workforce has the necessary capacities and skills to exploit the information assets with which they work. Chapter 4: Impact of ICT on organisations and on people Ensure that the purpose of investing in ICT is clear and communicated to all those who will be impacted by the changes resulting from this investment. The factors that will unlock the benefits of investing in ICT require executive action – these are always beyond the reach of ICT managers. Chapter 5: Financial aspects of ICT: costs Find out if there are indications that your organisation is spending more than it needs to on ICT – despite cries from the ICT function that they are “not spending enough”.
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Find out if the expenditures incurred on ICT are well aligned with the business objectives of the organisation – what’s the value of a World Class infrastructure if the computer systems are inadequate to support business activities or management decisions? Chapter 6: Financial aspects of ICT: benefits Do not accept “intangible benefits” as an excuse for not developing a business case for investments in ICT. Similarly, do not accept statements such as: • • • • This project is aligned with our business objectives - without being specific of how this alignment consists of; This is a long term investment – which means that there will be no significant impact in the forseeable future and that by then the executives would have forgotten who the project champion was…; This project is part of corporate activity consolidation or equivalent consultant-speak which actually does not mean significant; This project will lead to optimum resource performance which could mean that we shall know what we get out of this investment after we have completed it.
Recognise that there are no benefits without risk and that their speculative nature requires an act of faith on the part of the executive. Validate these acts of faith by conducting post-implementation benefit audits. Be suspicious of proposals that do not put boundaries (worst case, best case, most likely outcome) on benefits. They may imply that the uncertainty is too high or that the sponsor has not thought enough about the business case. Chapter 7: Workable ICT strategies Ensure that the business objectives of your organisation are known and understood by those responsible for ICT strategy. Strengthen ICT governance mechanisms to enable ICT to deliver the appropriate quality of projects and services with acceptable track record and costs. Focus the work of the ICT governance body on alignment and value issues.
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Demand that ICT strategies be regularly updated and that they reflect the input of all constitutent parts of the organisation. Chapter 8: ICT service delivery processes: resources, quality and risk If your in-house ICT organisation does not use (or comply with) ISO 9001, the Information Technology Infrastructure Library, COBIT, or equivalent guidelines, ask why this is the case – is it likely that your ICT people can do better without such established best practices than with them? If your ICT service provider, in-house or outsourced, is certified to comply with ISO 9001 and is regularly audited, you are doing well. If not ISO 9001 certified, but the performance of your systems, networks, help desk and contingency planning is generally considered as acceptable, you are doing well and may wish to consider conducting a process level assessment based on the COBIT guidelines. If neither of the above two situations apply, it would be appropriate for you to take action, starting with an in-depth diagnostic (Chapter 2) followed by an action plan to avoid unpleasant surprises in the future. Chapter 9: Managing ICT projects for success, quality and reduced risk Nobody wishes to be associated with a failed project, particularly one involving large sums of money and risk to their organisation. What can executives do to manage and contain risk to avoid the pain and embarrassment of a failed project? A good approach is to think of a project as if it was a patient in an intensive care - continuous monitoring of vital signs is required to increase the chances of survival. This requires a consolidated view of the project through its lifecycle by all the parties concerned – the sponsor, senior management, project teams, end users and others. Consistency, good communications, even when it is a matter of conveying bad news make a big difference. Here are a few approaches known to work well. These may well help both before and during the project implementation:
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9. Avoid overambitious or unrealistic project goals and objectives and remember there is always a choice to be made between Quick, Quality and Cheap; 10. Resource the project sensibly, starting with the right kind of project manager, project team and other parties involved. The “right kind” must be, as a very minimum competent, experienced and empowered); 11. Ensure that formal project management methodologies are used and that all changes to the project are documented as it goes forward; 12. Make certain that the project sponsor and other executives are involved and informed on the evolution of the project; 13. Help the project manager keep a tight control on changes in requirements and discourage frequent changes altogether; 14. Recognise that project delays and cost overruns are likely and help the project team to keep both of these to a minimum; 15. Ensure that, if your organisational culture allows for it, risk management is applied to all projects. If your organisation does not believe in the value of risk management or it is contrary to its culture and behaviour, you will have to rely on luck. 16. When things go wrong with a project, blamestorming is unhelpful. Executives should be sensitive to warning signs and take appropriate action before it is too late even if such action may cause distress if it involves replacing one or more members of the project team or even the project manager. Chapter 10: Understanding and managing ICT risks Brainstorm potential risks to identify them, assess them and take appropriate actions. If risk has not been well managed, consider applying the benevolent rule that “Once is a mistake. Twice is a coincidence. Thrice is either carelessness or incompetence”, then act accordingly. Clearly there will be situations where a mistake should be dealt with before a “coincidence” occurs. Recognise that there is a real risk of loss of business and money as a result of shortcomings in information systems and the internal controls built into them.
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Chapter 11: Information insecurity: external risks The successful management of information security requires components that only executives can put in place: policies, monitoring and compliance. The ICT function will be handicapped if these are not in place or are not effective and will be unable to protect the organisation’s information assets. Information security should be everybody’s concern and executives should ensure there is adequate awareness of these issues across the organisation as a whole. Insider threats are real and serious. Dealing with this threat requires more than the technical measures put in place to prevent virus infections, and the capabilities to detect, investigate and prosecute offenders do not belong in the ICT function. Chapter 12: Information insecurity: the insider threat Executives should ensure that there are clear and well disseminated policies, supported by consistent organisational behaviour with regards to all forms of cybercrime. This behaviour should extend from formulation of deterrence policies to sanctions and redress. Those responsible for information security should be required to learn how “bad guys” think and operate and incorporate appropriate defences against external and internal threats. Cybercrimes committed by an expert will be essentially undetectable. The role of tests, audits and security certification must be seriously considered if the organisation’s information assets are valuable. Chapter 13: Contingency planning Appoint a person to be in charge of contingency planning – a typical title is Emergency Coordinator – and ensure that this person has adequate backup, after all, an emergency necessitating immediate response may arise while the Emergency Coordinator is on holiday…; Actively participate in the process of Business Impact Analysis and also in the decisions that define recovery priorities and the speed with which recovery is to be achieved;
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Monitor the results of the tests of contingency plans and ensure that the lessons learned during these tests are discussed and reflected in the plans; Make available the financial and human resources needed to make contingency planning workable and sustainable. This is often a major issue for organisations; Recognise the importance of communications during an emergency – with the workforce, with their relatives and close ones, with vendors, clients, the media, etc., and act accordingly to ensure that poor communications do not lead to a loss of image and reputation Chapter 14: ICT organisations and ICT people Be aware of the nature of your organisation before selecting and appointing a CIO. A poor choice may have consequences that will last years. Establish a regular dialog with the CIO – the supplement to this Chapter contains 12 questions that should be asked of CIOs. Some of the questions may not be well received but are critical to the successful deployment of ICT in an organisation. Chapter 15: Outsourcing Be clear about the objectives for seeking an outsourcing option. The overall track record of ICT outsourcing is pretty good and reducing costs is not the only reason for pursuing this path. Remember that the people carrying out activities suitable for outsourcing have a vital interest in preventing this from happening and that their views are likely to be biased. Chapter 16: Legal and ethical aspects of ICT Executives must work with their Chief Information Officer, Legal Counsel and Internal auditors to ensure that the organisation is fully aware of its legal obligations and that suitable programs of work are put in place to ensure compliance. Policies concerning all aspects of compliance with legislation must be developed, circulated to all relevant personnel and acted upon in terms of
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implementation of appropriate measures, monitoring for compliance and action to ensure compliance is achieved. Monitor developments in legislation that have an impact on the need to retain documents and databases in electronic form, as these have an impact on the organisation’s disaster recovery and business continuity arrangements and its overall ICT expenditures. Chapter 17: Concluding remarks When you go to the future, take plenty of money with you.
A short contradictionary of ICT frequently used terms
You should have printed what he meant, not what he said Earl Bush, press aide to Major Daley of Chicago
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A SHort contrAdIctIonAry oF deFInItIonS And terMInoLogy reLAted to tHe governAnce oF Ict First letters of the German expression “Alles Ganz Anders Bei Uns”, which roughly translates as “We do everything differently here”. A significant cost and risk driver when applied to ICT. The process through which investments in ICT are made in those areas that deliver business value. An independent assessment of compliance with policies, standards, proven practices and/or an independent assessment of an organisation’s exposures to risk. Objective, often independent, mechanism for comparing the performance of an activity with information about equivalent activities carried out elsewhere. First letters of Critical Success Factors – these are the actions that need to be achieved in order to allow an event (or a strategy) to be delivered. Also referred to as Residual Risk, the probability that an undesired situation could arise as a result of the combination of threats, vulnerabilities and countermeasures taken to protect against them. The process through which those who decide policy guide those who implement policy. First letters of the expression “I’ll Know It When I See It” and an approach to strategic thinking that cannot be recommended. First letters of the expression “Mindeless Pursuit of Perfection” – the opposite of Pareto’s principle of 80/20. When applied to ICT projects guaranteed to cause significant delays and cost increases. Having work done in a country with much lower labour costs. Much used in the development and maintenance of software.
AGABU Alignment Audit
Exposure Governance IKIWISI
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Politics Power Risk Scammer Spammer SMRC
Contractual relationship with a company for the provision of services. These can be limited to ICT operations or involve entire business processes. Documents that describe guidelines for an organisation. Ranging from a Code of Conduct to technical matters such as information security, they should include a statement of the actions that will be taken if the policies are not complied with. The process through which power is acquired in an organisation. What it takes to change the status-quo in an organisation. It is misued and abused when it’s only used to stop initiatives. The probabilty of an undersired situation arising. Persons who lure the unaware to part with their money by making promises of instant wealth (the deals are always too good to be true) Persons whose business is to send large amounts of unsolicited (junk) e-mail. First letters of the expression “Saving Money Regardless of Cost”, a game indulged by the uninformed ro cut budgets without fully understanding the consequences of such actions.
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AcKnoWLedgeMentS The preparation of this book was greatly helped by the many people who willingly gave their thoughts, time, candid comments and material help at the many stages of preparation of this book. I particularly wish to thank my friends, listed in alphabetical order: Stefano Baldi, Italian career diplomat, currently in New York, with whom I had the pleasure of co-authoring several publications and conference papers Keith Inight, UK Technical Directorate, Atos Origin, Nottingham, U.K. Andreas Christoforides, Director, United Nations International Computing Centre, Geneva, Switzerland Paul Dooley, Chief Information Officer, United Nations System Joint Staff Pension Fund, New York, U.S.A. Jovan Kurbalija, Director of the de Diplo foundation and his teams in Geneva and Belgrade for their assistance with graphic design, typesetting and the general business of getting the book published Guido Maccari, Head of Information Technology and Network Services, Organization for Economic Cooperation and Development (OECD), Paris, France. It was his suggestion that there should be a version of the book “Crossing the Executive Digital Divide” that was short enough for a busy executive to read while travelling. Dr. Elöd Polgar, Chief Executive of Critical Skills Consulting, Adjunct Professor at Webster University, both in Geneva, Switzerland I also with to thank the following for agreement to use copyrighted material Elsevier, Chapter 15, on Outsourcing, is a shortened version of the article on outsourcing written by the author for the Academic Press Encyclopedia of Information Systems, published in 2003. MISTI (UK) – Chapter 10, on Risk Management, is largely based on a paper presented at their AudIT 2005 Conference, in London, May 2005.
Gennadi Obukhov, for permission to use his graphic of the tango dancers in Chapter 7, Strategies that work. More of his work can be found at http://propro.ru/go/gallery/ html/us2000.html.
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About tHe AutHor Eduardo Gelbstein has worked in the field of electronics and information technologies since the early 1960s and worked in development, technology assessment, project management, ICT operations and ICT strategy. This work was done in several countries and in the private and public sectors. Between 1993 and 2002, he was the Director of the United Nations International Computing Centre, located in Geneva, Switzerland, an organisation that provides ICT services to a large number of International Organisations. Since 2002 he has been active as an advisor to the United Nations Board of Auditors, a Senior Fellow of the Diplo Foundation and a Senior Special Fellow of the United Nations Institute for Training and Research. Ed has published many papers over the years and is a regular speaker on various topics relating to the management of ICT at international conferences.
Photograph (2005) by Biljana Scott (www.biscott.co.uk)
Ed was born in Buenos Aires, Argentina and has an electronics engineering degree from Buenos Aires University and a a Ph.D. from Loughborough Univerisity, England. His other interests include the history of science and technology, the mechanisms of thinking and creativity and playing the piano.
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