Professional Documents
Culture Documents
White Paper
September 2005
Fred Gattelaro
Vice President of Professional Services,
Pacific Edge Software
The Path to World-Class IT Governance
Maturing Your IT Organization to the Next Level
Few today would argue with the assertion that governance is a critical component of IT
management. However, while the benefits of IT governance have crystallized, the means for
achieving them remains elusive. Many IT organizations—lacking a clear, well-defined plan for
implementation, or having early on adopted a one-size-fits-all solution—have stalled on the
path to mature governance, mired down in complexities they can’t effectively manage.
Pacific Edge Software, through hundreds of successful deployments of IT governance
solutions, has developed processes that guide organizations through multiple stages of IT
governance maturity. The method focuses on assessing where your organization’s
governance maturity level intersects with seven key process categories. The result is that you
identify and prioritize the opportunities that will deliver the fastest time to value, and carry
you to the next level of governance maturity.
At a high level, the Pacific Edge approach categorizes governance maturity into three discrete
stages: Create Visibility, Execute and Optimize. In each stage, we focus on identifying and
achieving goals that deliver the highest value for the lowest effort. Where many organizations
bog down is in trying to integrate comprehensive governance programs from day one, when
in fact they can gain significant value by focusing only on those areas that will quickly deliver
the highest return to the organization. Let’s look at each maturity stage in more detail.
Common challenges faced by companies who lack visibility into their IT portfolios include:
• No process for aligning IT investments with business strategy
• Inability to effectively prioritize requests from business units competing for resources
• Redundancy within the project and application portfolios
• Inefficient and over-allocation of resources
• Resource capacity consumed by base, or “keep the lights on” operations
By integrating a simple framework and standard metrics for modeling project and nonproject
work, the IT organization gains access to the information it needs to align the portfolio with
overarching business strategy. In completing this exercise, the company will identify and
correct portfolio planning and prioritization issues, which will in turn allow IT to address the
resource supply/demand mismatch.
The Path to World-Class IT Governance - page two
At this stage, simple course corrections can yield significant value. For example, dropping
nonstrategic initiatives, retiring outdated applications or consolidating redundant systems
allows resources to be shifted to initiatives that offer real value to the business. And because
IT management and business stakeholders both have visibility into the IT investment
portfolio, they can start to rein in demand that far exceeds available resource capacity.
Companies that achieve stage one governance maturity enjoy the following benefits:
• Elimination of duplicate and nonstrategic initiatives
• Ability to model and understand impacts of portfolio changes
• Availability of information needed to measure capacity and drive prioritization
• Identification of resource over-allocation and underutilization
• Increased availability of resources for new strategic initiatives
Stage 2: Execute
With visibility into the IT portfolio and correction of the resource supply/demand mismatch, a
company is ready to shift into the next stage of governance maturity: improving execution.
In the Execute stage, IT begins to incorporate new processes to address the following issues:
• Inability to ensure projects remain in strategic
alignment
Not only do more effective
processes lead to improved • Inability to adjust the portfolio to business or
project execution and market changes
decreased failure rates, • High project failure rate
they give IT the ability to • Frequent budget overruns
evaluate the portfolio on • Unplanned project spillover from year to year
an ongoing basis.
In the second stage of governance, organizations begin
to implement tighter process controls for decision
workflows, resource allocation, project planning, status reporting and time tracking. This
increased level of control helps organizations better manage IT performance and improve
on-time, on-budget delivery of IT projects.
Not only do more effective processes lead to improved project execution and decreased
failure rates, they give IT the ability to evaluate the portfolio on an ongoing basis. For
example, an IT organization in stage two can continue to evaluate throughout the
development cycle whether project costs or risks are greater than originally anticipated.
With stage two’s enhanced processes for assessing strategic value, the organization may
either decide to cancel the project or—should they determine the project supports a
separate, high-value program—keep the project, warts and all.
In stage two, companies also gain a deeper understanding of the impact of project decisions.
An upgrade to an existing financial application may provide strategic value to the finance
group, but if it requires a dedicated pool of resources for ongoing support and maintenance,
those resources are no longer available for newer, more strategic initiatives.
The Path to World-Class IT Governance - page three
Companies that achieve stage two governance maturity enjoy the following benefits:
• Ability to assess project and resource impacts of portfolio changes
• Elimination of lower value projects based on continuous assessment
• Ability to monitor key performance indicators for early warning signs
• Task-level direction and accountability for improved success rates
• Management of issues and risk using common tools
Stage 3: Optimize
With visibility into the portfolio and effective processes for better project execution, the IT
organization is ready to move to stage three of governance maturity. In the Optimize stage,
companies begin to address more sophisticated challenges:
• No understanding of ROI and TCO across the
project lifecycle In stage three, companies
measure the realization
• No accountability for benefits realized after project
completion of value and the ongoing
lifecycle costs and funnel
• No ability to track projects back to the original that back into the
business case portfolio decision making
• No process workflow to support standard methods process.
for improving process efficiency
In this final stage, organizations begin managing the complete lifecycle of IT investments,
from the time a project request is made, through project completion and launch, on through
the maintenance and refresh stages, and ultimately through retirement. Enhanced financial
modeling yields better IT investment decisions that reduce total lifecycle costs and maximize
the business benefits (NPV and IRR). Companies in stage two stop evaluating a project at the
point the new capability is delivered. In stage three, companies measure the realization of
value and the ongoing lifecycle costs and funnel that back into the portfolio decision making
process. This information will also enable companies to identify and retire applications that
have become too costly to maintain.
One flaw typically discovered in this stage is failure of the portfolio decision process to
identify all high priority initiatives. For example, a process that always gives the highest
ranking to projects scoring high on financial value may fail to recognize the “value” of a
project that will help protect the company from lawsuits. Stage three maturity level
organizations begin to understand the need for balance and tradeoffs between multiple
factors—financial value, strategic value, risk, regulatory requirements and so on.
The Path to World-Class IT Governance - page four
Companies that achieve stage three governance maturity enjoy the following benefits:
• Shift from project-centric to investment-centric perspective
• Lifecycle cost and ROI considered for improved decision making
• Exception-based management
• Historical performance incorporated in future decision making
• Continued process improvement
When Pacific Edge consultants evaluate a customer’s governance maturity level, we assess
their progress in seven key process categories. Through this assessment, we identify and
prioritize the opportunities that will deliver the greatest value (and advance the maturity level
of the IT organization) for the smallest investment. This ensures rapid time to value.
Once this assessment is complete, we can determine which Maturity-based Accelerator best
maps to the specific needs of the organization, helping them to target the priorities and next
steps identified during the assessment. Pacific Edge Accelerators include best practices,
proven implementation and business processes, preconfigured software and integrated
product/process training.
Let’s take a closer look at the seven key process categories used to evaluate an organization’s
maturity level.
Demand Management
To assess maturity in the demand management category, we look at how and when ideas for
investment opportunities are captured. For some companies, investment opportunities may
be examined only at the beginning of each fiscal year. The problem with this approach is
that attempting to screen opportunities under the time pressure and constraints of an annual
planning cycle may limit consideration to opportunities only recently identified, or “top of
mind.” The first step is to introduce processes that allow companies to identify opportunities
throughout the year. Companies more advanced in governance maturity can tune the
process further by developing a set of screening criteria that allows business units themselves
to evaluate investment opportunities before submitting them for consideration, ensuring
their proposed initiatives support business strategy.
The other area we assess in the demand management category is the availability of key
measures to properly compare and evaluate investments competing for limited resources.
One way to evaluate this area is to probe into a company’s use of business cases.
Organizations that do not consistently build business cases for investment opportunities are
unlikely to select the best opportunities for execution. Consistent use of business cases allows
companies to measure value, resource needs, costs and risks, improving their ability to make
a properly balanced selection of investment opportunities.
The Path to World-Class IT Governance - page five
Portfolio Selection
In this category we also focus on the comprehensiveness of the portfolio selection process,
including the ability to weigh strategic alignment, financial value, risk, effort, costs and
organizational impact. Selecting opportunities based on individual business cases prevents
companies from understanding how investments may or may not support each other in
meeting enterprise-wide investment goals. The first step is to create a portfolio evaluation
and selection committee that will qualitatively rank, prioritize and select an optimal mix of
investments. From there, companies can work to develop a more quantitative process for
scoring investments based on strategic and financial value, cost, risk and organizational
impact.
Resource Management
To assess maturity in the resource management category, we focus on the way resources are
committed to investments. Companies that have not yet addressed this critical process area
will often make project assignments to resources and then let the resources themselves sort
out the details, such as identifying and managing any conflicts along the way. With this
approach, individual resources don’t understand how missing a deliverable or slipping the
schedule can impact other resources, even jeopardizing the project itself. For these
companies it’s essential to implement formal request, allocation and assignment processes for
resources, giving the organization full visibility into demand, as well as the ability to assess
the impact of changes in resource demand and capacity.
In this category we also look at how companies measure and compare resource capacity and
demand. Many companies have no process to accurately measure resource capacity over
time, or to compare capacity to demand. As a result, they are unable to identify resources
that may be over- or underutilized. Project delays due to a lack of resource availability are
common. The immediate opportunity is to assign resources to a resource group in order to
determine total capacity for that resource type. This will allow you to match capacity to
demand and help ensure resources are not over-utilized (delaying project progress) or
underutilized (wasting corporate assets). To advance maturity, companies should star t
modeling expected changes in capacity at the group level. Current and future capacity and
demand can then be compared to ensure full utilization of resources. The most mature
resource management processes recognize that resources can fill multiple roles and can be
given alternate assignments to correct over and underutilization. More mature processes also
are able to forecast resource demand based on a specific skill and proactively plan for any
needed skill development programs.
The Path to World-Class IT Governance - page six
Project Management
• Ability to track effort, costs and schedule against project plans — Maturity in this area
ranges from tracking only top-priority projects, to tracking all projects at a high level, to
tracking specific details (such as milestones, deliverables and tasks). This enables companies
to identify and address exceptions when they are actionable. Companies advanced in
governance maturity will also begin to measure the earned value of project deliverables.
• Process for closing past projects — Companies in earlier governance maturity stages may
rely on management discretion to close projects. Their opportunity is to initiate process
that ensures all project deliverables are completed, all project documentation is catalogued
and filed, and there is consensus between key stakeholders and project personnel that the
project is complete. As process matures further, companies will look at proactively
leveraging documentation and lessons learned from past projects to ensure the successful
delivery of future projects.
Governance
Financial Management
To assess maturity in the financial management of the portfolio, we examine how budgets
are defined to drive investment in corporate objectives, and how investment costs are
allocated back to business units. Companies in the early stages of governance maturity
may define budgets and then constrain investments based on the utilization of budgeted
resources. The opportunity is to define budgets not only for business units but also for
potential investments. Companies that have achieved this level of maturity might then look
at defining investment budgets by business strategies and enterprise-level business objectives
to ensure companywide alignment with these objectives.
In evaluating this process category, we also look at whether cost overruns are charged back
to business units as actual project costs are captured. Less mature organizations have no
chargeback process, while more mature organizations will charge business units based on
gross allocation rules defined by finance and IT management. Maturity in this category can
be advanced by implementing a process for charging back costs to business unit based on
sponsorship of the original investment proposal.
Application Management
Let’s take a look at how a top U.S. retailer realized incremental value and achieved
competitive advantage by maturing their governance program with Pacific Edge
Maturity-based Accelerators.
Result: The retailer first took the CIO’s list of corporate strategies and assessed how
much of overall IT spending aligned with each strategy. With this visibility, they realized
they were spending too much on internally focused business systems and too little on
customer-facing e-business initiatives. So the first step was to make adjustments to better
align projects with strategy. “It’s much easier to understand and actively manage this now,”
said the retailer’s senior program manager. “It’s also really easy to close out nonperforming
projects. And we have learned to view this as a win rather than a loss—it’s just not good
business to throw money at nonstrategic projects day after day.”
Result: The retailer started by creating an inventory of all active IT projects. “With our
first venture into project portfolio management, we found we couldn’t execute well with over
200 projects on our plate,” said the senior program manager. “Many of these projects were
not well-justified and others skipped over approval processes. So we evaluated all 200
projects and killed 30 percent in an initial review, and later cut another 30 to 40 percent.
Today, we are focused on 60 critical projects that directly align with strategic objectives.”
Result: Before the governance initiative, project managers submitted manual status
updates using Excel spreadsheets, and entering this data into a project portfolio database
required a full-time employee. The retailer’s first opportunity in the Execute stage was to
automate reporting and make project updates available from a centralized repository. By
utilizing 10 standard milestones in projects schedules, project managers were able to see at a
glance where additional support was needed. And both project managers and stakeholders
now had a complete, accurate view of the status of the portfolio.
The Path to World-Class IT Governance - page nine
Result: The Pacific Edge solution gave the retailer quick insight into the impact of
delaying or accelerating a project’s schedule, and the solution’s robust reporting features
led to more effective decision making. Having a holistic view of the resource pool enabled
managers to forecast workloads by project and month as well as by skills and expertise.
These changes led to realistic scheduling and more flexibility for adapting to changes in
scope and priority.
Opportunity No. 3: Understand the impact of this year’s decisions on next year’s
budgets.
Optimize Stage
Opportunity No. 1: Track costs associated with an application across its entire
lifecycle.
Result: With team time tracking against both project and nonproject work, in
addition to capture of capital costs, the retailer was able to get a complete view of all the
costs associated with an investment—before, during and after development.
Result: With consistent business cases part of the “permanent record” of each
investment, the retailer was able to compare actual benefits of the project or program to
the original business case forecast. This enabled the organization to learn from the past,
and ultimately deliver better business cases for future investment opportunities.
Conclusion
This is just one of many customer stories that demonstrates that the key to successful
implementation of governance initiatives is adopting a maturity-based approach. A staged
approach allows companies to realize rapid time to value by introducing new tools and
processes on an incremental basis. With Pacific Edge Maturity-based Accelerators, companies
avoid expensive, one-size-fits-all governance solutions that may set them up for failure, and
instead achieve mature governance and measurable returns over time using an approach
tailored to their specific needs.
Pacific Edge Software, Inc. 11100 NE 8th Street, Suite 600, Bellevue, WA 98004 425.213.1090 www.pacificedge.com