Professional Documents
Culture Documents
Investment Management
and Control in Information
Technology
Alan McSweeney
Objectives
February 3, 2010 2
Agenda
February 3, 2010 3
Capital Planning and Investment Control (CPIC-IT)
February 3, 2010 4
IT Investment Issues
February 3, 2010 5
Questions on IT Investments
February 3, 2010 6
What the Business Wants From IT
15% 5%
35% 25%
70%
50%
Maintain The Momentum Of The Business Through Maintain The Momentum Of The Business Through
Existing Business Systems Existing Business Systems
Contribute To Improving Business Results Contribute To Improving Business Results
Provide It Direction And Management That Is Aligned To Provide It Direction And Management That Is Aligned To
The Needs Of The Business The Needs Of The Business
February 3, 2010 8
IT Value Management is a Key Topic for IT
Do Not Measure Business Value From IT
40%
Investments
0% 10% 20% 30% 40% 50% 60% 70% 80% 90% 100%
February 3, 2010 12
IT Investment Management
February 3, 2010 14
Challenges of Developing Good Cost Estimates
February 3, 2010 15
Reasons for Good and Bad Cost Estimates
Ineffe
and U ctive Risk
Effect ncer
i ve
Unce Risk and Unfa Analy tainty
r ta Techn miliar s is
Ident
ificat Analy inty First- ology or
s is
Rang ion of a Time
Use
Probl
em
Confi e
dence of De Acces s Getting
Level Docu tailed s to D
m ata Unre
s and H entation Unre
Proje asonable
Adeq
ua istor Train Unre alistic or ct Bas
Conti
ngen te Data ical E xp e
ed an
d
liable
Data Unre elin e
Mana c y and r ience
ge Detaile Analy d Assumalistic
Reser ment d , St a
b
sts No o ption
ves Agree
d
l e, Comp r Limited s Overo
Requ ariso ptimi
ireme Ag Avail n Data sm
n ts
Assumreed able New
ption Pr ocess
s e s Untra
Proje Inexp ined and
ct Ins er ie
t abilit
y Comp Analy nced
le sts
or Te x Project
chnol Unre
ogy alistic
Savin Project
gs
February 3, 2010 16
Sources of Risk and Uncertainty in Estimating Costs
February 3, 2010 17
Specific Risks
February 3, 2010 18
Importance of System Requirements and Solution
Lifecycle Costs
• System requirements drive costs, both implementation and operation
• A factor present in every successful project and absent in every unsuccessful project is sufficient
attention to requirements
• Half of all bugs can be traced to requirement errors
• Fixing these errors consumes 75% of project rework costs
• 25%- 40% percent of all spending on projects is wasted as a result of re-work
• 66% of software projects do not finish on time or on budget
• 56% of project defects originate in the requirements phase of the project
• Completed projects have only 52% of proposed functionality
• 75-80% of IT project failures are the result of requirements problems
• The average project exceeds its planned schedule by 120%
• 53% of projects will cost 189% of their original estimate
• 30% of projects are cancelled before completion
• 50% of projects are rolled back out of production
• The typical project expends least effort on analysis where most errors originate and whose errors
cost most to fix
• Requirements errors cost the most and that poor requirements are the main cause of project
failure
February 3, 2010 19
Requirements Drive Project Costs
100.0% • While minimal
90.0%
costs have
actually been
80.0% spent at the
Costs Committed and Spent
requirements
70.0% phase of the
entire project
60.0%
process,
50.0% Development and approximately
Implementation Starts 80% or more of
40.0% total life cycle
Design Finalised costs have
30.0%
Requirements Defined
already been
20.0% and Agreed determined at
this stage
10.0%
• Need to get
0.0% requirements
right from the
Project Timescale outset to control
costs effectively
Costs Determined by Decisions on Requirements and Design Actual Money Spent
February 3, 2010 20
Aligning the Solutions Being Delivered
February 3, 2010 21
Complete Picture of Project Selection and Delivery
February 3, 2010 22
Lessons Learned From Large Systems
Implementation
80 % More attention on process optimisation
65 % Align systematically to company goals
60 % Pay more attention to understanding the subject area spanned
55 % Implementation of a management information system as part of scope
50 % Outsource project management of the project to a third party
45 % Increase investment in training
35 % Greater employees involvement
35 % Enforce changes more courageously
30 % Identify and capture proof of benefits and saving as part of scope
20 % Avoid big-bang implementations
February 3, 2010 23
Types of Cost Estimates
February 3, 2010 24
Life Cycle Cost Estimate (LCCE) Composition
LIFE CYCLE COST
SYSTEM ACQUISITION
COST •Operations
PROCUREMENT COST •Internal Support
•Planning, Research, •Disposal
TOTAL SYSTEM COST •External Support and Analysis and Design
Maintenance •Ongoing Test
BASIC SYSTEM COST •Training •Subscription Facilities
•Documentation
•Hardware •Support Facilities
•Software •Parallel Running
•Development and •Warranty
Implementation
•Management
•Installation
•Transition and
Cutover
•Conversion
February 3, 2010 25
LCCE Cost Composition
Total Cost of Ownership
COST
YEARS
February 3, 2010 26
IT Investment Management and Project and
Solution Lifecycle
Structured Capture
and Management of
Cost Effective Requirements and
Operation of Business Analysis Cost Benefit Analysis
Delivered Solution of Solution Costs
and Effective Solution
Retirement/ Operation
Replacement/
Upgrade Decisions
Design/Selection of
Cost Effective
Solution Solutions to Meet
Architecture and Requirements
Cost Effective Design Including
Delivery of Evaluation of All
Programme and
Projects and Options
Project
Management of Management
Costs
Pre-Selection and
Identification
Investment
Stage
Results
Control Stage
Conduct post implementation reviews on major IT projects Translate business value into performance measures
using the asset performance measures established in the Develop detailed project plans and execute projects in
Control Phase accordance with project management standards
Use asset performance measures to measure the business Develop applications in accordance with technical and
value data standards for information technology
Document IT asset performance Submit project status reports, requests for baseline
Analyse gaps between current business needs and adjustments greater than defined percentage (typically
performance of IT assets 10%) and verification and validation reports for each
Make a determination to maintain, migrate, improve, or major IT project
retire each IT asset in the technology portfolio
February 3, 2010 30
IT Investment Management Control Function
Responsibilities
Technical Scope
Management
Technical
Portfolio Management Requirements
Management
IT Investment
Management
Control Function Progress
Earned Value
Reporting and
Management
Management
February 3, 2010 31
Portfolio Management
February 3, 2010 32
Earned Value Management
February 3, 2010 33
Cost Estimation Best Practices Checklist
February 3, 2010 34
Cost Estimating Process
Initiation and Research Step 1: Step 2:
Define the Develop the
The audience, what is Purpose of Estimating
being estimated and why the Estimate Plan
It is being estimated are
very importance
February 3, 2010 36
Cost Estimating Process
February 3, 2010 37
Cost Estimating Process
February 3, 2010 38
Cost Estimating Process
February 3, 2010 39
Cost Estimating Process
February 3, 2010 40
Cost Estimating Process
February 3, 2010 41
Cost Estimating Process
February 3, 2010 42
Work Breakdown Structure
February 3, 2010 44
Validating Cost Estimates
• Comprehensive
− Completely define the program and reflect the current schedule
− Include all possible costs using a logical WBS that accounts for all requirements
− Ensure that no costs are omitted nor double-counted
− Explain and document key assumptions that are technically reasonable
• Well-documented
− They can be easily repeated or updated and traced to original sources through
auditing
− Supporting documentation identifies the data sources, justifies all
assumptions, and provides a description of each estimating methodology for
every WBS cost element
− Schedule milestones and deliverables are traceable and consistent with the
cost estimate documentation
February 3, 2010 45
Validating Cost Estimates
• Accurate
− They are not overly conservative or too optimistic
− Based on an assessment of most likely costs and adjusted properly for inflation
− Contain few, if any, mistakes that are minor in nature
− Are updated when assumptions or requirements change to reflect current status
− Cost estimating relationships and parametric cost models are validated to ensure they are good
predictors of costs
• Data is current and applicable to the new program,
• The relationships between technical parameters are logical and statistically significant
• Results are tested with independent data
• Credible
− They clearly identify any limitations because of uncertainty or biases surrounding the data or assumptions
− Results are similar to cross-checks and an independent cost estimate derived using different
methodologies
• Independent cost estimates performed by estimators farthest away from the acquiring program office represent a
best practices because they
− Tend to produce higher and more accurate cost estimates than those performed by staff sharing a common supervisor
with the program office
− Produce more credible estimates than other types of independent estimate reviews which may not be as inclusive as an
ICE (e.g., IGCE, ICA, Sufficiency Review, etc.)
− A sensitivity analysis has been performed to identify cost drivers and the impacts of varying assumptions
− A risk / uncertainty analysis has been performed to determine the level of risk associated with the point
estimate
February 3, 2010 46
Cost Assessment Team
February 3, 2010 47
Disciplines and Concepts in Cost Analysis
Economics Interpersonal
•Break-even Analysis Skills
•Personnel Cost •Approach
•Inflation •Estimate
•Present Value •Knowledge
Analysis
Budgeting Commercial
•Organisation •Analysis of
Specific Skills Commercial Models
•Program Specific Cost Analysis •Analysis of
Skills Team Skills Proposals
•Development of
Cost Estimating
Relationship
February 3, 2010 49
Cost Assessment Team Best Practices Checklist
Description
The organisation has mastered the selection, control, and evaluation
Leveraging IT for processes and now seeks to shape its strategic outcomes by
5 Strategic Outcomes benchmarking its IT investment processes relative to other "best-in-class"
organizations.
Alan McSweeney
alan@alanmcsweeney.com
February 3, 2010 53