Professional Documents
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IT
Controlling
From IT cost and activity allocation
to smart controlling
IT Controlling
Andreas Gadatsch
IT Controlling
From IT cost and activity allocation
to smart controlling
Andreas Gadatsch
Hochschule Bonn-Rhein-Sieg
Sankt Augustin, Germany
© The Editor(s) (if applicable) and The Author(s), under exclusive licence to Springer Fachmedien Wiesbaden
GmbH, part of Springer Nature 2023
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Foreword
v
Preface to the Second Edition
vii
Contents
1
Digitization: Changing Framework Conditions in Work and Society 1
1.1 Clarification of Terms������������������������������������������������������������������������������ 1
1.2 Effects of Digitalisation �������������������������������������������������������������������������� 2
1.2.1 Paradigm Shift and Change in Work�������������������������������������� 2
1.2.2 Digital Business Model Changes�������������������������������������������� 4
1.3 Impact on Occupational Profiles�������������������������������������������������������������� 5
1.3.1 General Changes�������������������������������������������������������������������� 5
1.3.2 Design of the Work ���������������������������������������������������������������� 5
1.3.3 From IT Management to Chief Information and Digital
Officer (CIDO)������������������������������������������������������������������������ 6
1.3.4 Classical Versus Agile Information Management������������������ 8
1.4 Summary�������������������������������������������������������������������������������������������������� 9
References�������������������������������������������������������������������������������������������������������������� 9
2 Controlling Concept: General Conditions, Basics and Central Terms 11
IT
2.1 Mission Statement IT Controlling ���������������������������������������������������������� 11
2.2 Quick Test IT Controlling: Self-Assessment ������������������������������������������ 12
2.3 IT Controlling������������������������������������������������������������������������������������������ 14
2.3.1 Clarification of Terms ������������������������������������������������������������ 14
2.3.2 Tasks �������������������������������������������������������������������������������������� 16
2.3.3 Methods and Tools������������������������������������������������������������������ 19
2.3.4 Organisational Concepts �������������������������������������������������������� 21
2.3.5 Reasons for IT Controlling ���������������������������������������������������� 24
2.3.6 Smart IT Controlling�������������������������������������������������������������� 25
2.4 Summary�������������������������������������������������������������������������������������������������� 28
References�������������������������������������������������������������������������������������������������������������� 28
3
From IT Strategy to Digital Strategy: From Classic IT Strategy to
Digital Strategy 31
3.1 Classical Notion of IT Strategy���������������������������������������������������������������� 31
3.2 Contents of IT Strategies ������������������������������������������������������������������������ 32
ix
x Contents
Abstract
To explain the central feature of digitalization one can either resort to an old proverb by
Confucius “If you intend to renew yourself, do it every day” (quoted from Moestl 2008,
p. 10) or show a few photos of supposedly real people taken from the website “thisperson-
doesnotexist.com/”. The website creates photos of people who do not exist but still look
real. The basis for this are two algorithms, which are responsible for the image generation
and optimization. The first algorithm (generator) mixes photos of real people and creates
a new photo from them. The second algorithm (validator) checks whether the image is real
or fake. If it detects a fake, the image goes back to the first algorithm. This then delivers an
improved version, and so on.
Digitization is omnipresent and encompasses all areas of society. The boundaries
between the real world and the digital world can no longer be separated, just as the front
and back of a coin only give a different perspective on the same object (coin) (cf. Costello
2010, p. 42). The technology consulting firm Gartner pointed out relatively early on the
IT IT IT becomes a IT IT
supports optimizes part of the directs amalgamates
with the
functions processes business the business business
changes in the information economy and the transformation from “IT craft” to the “indus-
trialization of IT” to “digitization” (cf. Gartner 2014, p. 2).
Figure 1.1 shows an overview of the development of information technology over sev-
eral decades with its effects on IT management and IT controlling. In the 1970s and 1980s,
IT only supported individual functions or processes. It was referred to as “electronic data
processing (EDP)”, which was seen only as a cost-cutting and optimization tool. If at all,
the aim was to record and allocate the “EDP costs”.
It was not until the 1990s, when information technology became more a part of the
business, that new ideas entered the companies with information management. Since then,
people have also been talking about IT controlling. At the latest since 2020 and the emerg-
ing disruptive business models, IT is merging with the business and is thus essential for
business benefit. The first publications are already talking about “smart IT controlling” as
a successor term for IT controlling (see Gadatsch et al. 2017).
Qualification
deficit
Necessary
quaIification
Frequency
issues
Qualification Qualification
gap
Qualification offer
Skills demand
transparency) (cf. Spath 2018). The Corona pandemic has further accelerated these pro-
cesses drastically and irreversibly at the beginning of 2020.
completely, with the share at less than 5% (cf. Eckert 2020). Digitalization has thus drasti-
cally changed the value chain and vertical integration in the IT industry.
New digital business models are becoming increasingly visible in the economy, which will
sooner or later have an impact on the public sector. The effort required for the new busi-
ness models is manageable, but the impact is very large. The characteristics of disruptive
business models are:
Digital business model changes lead to completely new industries and company offerings
through “rethinking”. Well-known examples are Airbnb or Car2Go. In some cases, prod-
ucts and services are being replaced by digitalised solutions with higher customer value,
such as the replacement of traditional TV or cinema offerings by Netflix, Amazon and
others (cf. Westerman et al. 2014). Less known, for example, are concepts such as “Nano
Degree”, in which independent certifiers bundle the emerging Massive Open Online
Courses (Mooc) from various providers (e.g. Hasso Plattner Institute, Udacity, Udemy)
into a highly individual academic degree in the future.
The company Google has already implemented this trend in its own model. It offers
university degrees that are supposed to be university-equivalent: Short certificate courses
in purely digital form and very inexpensive (cf. Seele 2020).
Digitization has given rise to a trend towards the subscription economy, which can be
seen across many industries. Behind this is a payment model that is not new, but different
for traditional industries: renting instead of buying. Rolls Royce “has been charging for
the hours flown on their engines for some years now, but not for the systems themselves”.
Heidelberger Druckmaschinen writes: “instead of earning money from the delivery of the
machines as before, the aim is to achieve agreed productivity and growth targets. In con-
crete terms, this means that payment is not made for the printing press itself, but for the
number of products manufactured” (cf. Segerer 2019).
The characteristics of new business models can be summarized as follows:
At the same time, the speed at which innovations are made available on the market is
increasing. The car industry needed 62 years to reach the number of 50 million motorists,
the computer industry needed 14 years to do so, the internet industry needed only 7 years,
the Chinese chat service WeChat managed to penetrate the market in 1 year, and the video
game “Pokémon Go” did it in 19 days (cf. Rütti 2018).
Digitization has high growth potential if management is willing to invest in new business
models and processes (Gadatsch 2016, p. 63). The digitization of processes continues to
increase and reaches application examples that were previously unthinkable. Werth et al.
(2016) describe a digitized consulting process that encompasses the entire consulting pro-
cess from problem identification, analysis, problem solving and its implementation. Below
are some examples from various controlling disciplines that show changes in the processes
(taken and modified from Gadatsch 2016, p. 65).
• Production controlling: The analysis of machine parts during operation enables the
creation of dynamic preventive maintenance plans.
• Production controlling: In this sector, numerous solutions have already been imple-
mented in practice, which are assigned to predictive maintenance.
• IT controlling: Predicting operational failures and disruptions or accumulations of user
requests can help improve the stability of information systems and, as a result, simplify
IT staff planning.
• Financial controlling: A classic application is fraud detection in payment transactions,
preferably in real time. The algorithms developed by finance and credit card companies
can also be applied to internal payment flows.
• Personnel controlling: The shortage of well-trained specialists can be alleviated by the
early detection of employees who are willing to leave the company, if timely counter-
measures can be taken.
There are companies that do not know their age structure (Ihne 2013, p. 18). Such behav-
iour is likely to be detrimental to competition in the future, because companies will have
to organise target group-oriented further training measures in order to be able to counter
the rising average age of the workforce caused by fewer young recruits.
The reactions to digitally triggered changes in the world of work are not always like
those of Hal Varian, Google’s Chief Economist on Statistics and data: “I keep saying the
6 1 Digitization: Changing Framework Conditions in Work and Society
sexy job in the next ten years will be statisticians. People think I’m joking, but who
would’ve guessed that computer engineers would’ve been the sexy job of the 1990s?”
(Deutsche Bank Research 2014).
On the other hand, the “digital burnout” threatens an entire society who, as smartphone
zombies, are becoming increasingly dependent on their end devices and, for example, in
the particularly active age group 17–25 years, spend about 3 h a day with the smartphone
(Markowetz 2015, p. 13) and mechanisms like those of gambling addicts become visible
(Markowetz 2015, p. 35).
In IT management and its environment, many job titles are common for the upper manage-
ment level and can still be found in companies today, although some of them date back to
early eras. The following job titles are frequently used: EDP manager, IT manager, CIO
(Chief Information Officer) or head of information management, CPO (Chief Process
Officer), CIPO (Chief Information & Process Officer) and, in recent years, CDO (Chief
Digital Officer).
1.3.3.2 CIO
The CIO (Chief Information Officer) came to Germany from the USA in the 1990s, prefer-
ably in large companies (cf. Heinzl 2001). The CIO is the “business- and result-oriented,
chiefly responsible personality in (top) management for the strategic IT matters of an
organization.” (cf. Baumeister 2010, p. 159). Compared to the “classic” IT manager, the
CIO is more business-oriented, thinks and acts in processes that he optimizes with the help
of information technology.
1.3.3.3 CPO
The role of the CPO (Chief Process Officer) came into companies in the 1990s, which
wanted to give greater emphasis to process orientation. His tasks are mainly process docu-
mentation, process analysis, process optimization, process monitoring and process organi-
zation (cf. Gadatsch 2020, p. 55). Since many processes are IT-supported, there is a lot of
overlap with the tasks of the CIO, so that the positions are often combined.
1.3.3.4 CIPO
The naming of the merged task profiles for the CIO and CPO is inconsistent. Lufthansa
uses a dual designation “CIO/CPO,” as the following excerpt from an article shows: “Josef
Bogdanski (61) has been the Lufthansa Group’s new CIO and Chief Process Officer (CPO)
since May 2015. He is thus responsible for the aviation group’s global IT and process
management. His most important task is to drive forward the further integration of the
airline and service companies” (see Klostermeier 2015). The abbreviation “CIPO” (Chief
Information and Process Officer) would be suitable, but it has not become established in
practice.
1.3.3.5 CDO
A few years ago, the market research company Gartner initiated a discussion of the two
speeds in the IT organization of companies. According to this, customer requirements
have an increasingly higher “clock speed” than internal IT can realize. A separation of IT
into Slow IT (classic IT) and Fast IT (customer-oriented and communicative processes)
should take this into account. The CIO (Chief Information Officer) is responsible for the
“bread and butter business”, i.e. the highly standardized IT processes for human resources,
finance, etc. The newly created position of CDO (Chief Information Officer) is responsible
for the “fast IT”. The newly created position of CDO (Chief Digital Officer) is responsible
for processes with rapidly changing requirements, especially in areas such as customer
management, communication, social media (cf. Gartner 2015).
If we compare the role of the CDO with that of the CIO, the CDO also has the task of
designing digital business models. Inge Hanschke, the CIO of an IT consulting firm, sees
the CDO’s job profile as follows: “A Chief Digital Officer (CDO) is responsible for devel-
oping the digital strategy and new digital business models. He also drives the digital trans-
formation at all levels” (cf. Hanschke 2018, p. 141). The CDO is more of a TOP-level
8 1 Digitization: Changing Framework Conditions in Work and Society
change manager, the CDO develops disruptive business models. The CIO is the guarantor
of stable IT systems (cf. Walchshofer and Riedel 2017).
In the literature, the previously discussed job descriptions are interpreted differently.
However, the consensus is that today managers are needed who understand the business
purpose of the company and are able to use the added value of IT in a targeted manner (cf.
Johanning 2019, p. 18).
Another trend in the context of digitalization is the increasing use of agile methods. In
practice, many projects fail even though the classic project management methods that have
been propagated for decades are used. The core problem of classic methods is that at the
beginning of the projects there is a lot of ambiguity about the goal, approach and future
requirements. The plans created are therefore inevitably wrong and are quickly overtaken
by reality in the course of the project. The solution approach of agile methods is based on
the following basic logic: If the classic methods do not work, then they should not be used.
Instead, it relies on giving a mixed team with experienced members the necessary freedom
to solve the problem. Transparency, freedom, daily or timely team coordination and decen-
tralized responsibility replace detailed central planning. The differences between agile and
classic methods are shown in Table 1.1 (cf. Sieber 2016).
Over the last few years, numerous agile methods have been developed, of which
SCRUM is probably the best known. SCRUM can be traced back to Ken Schwaber and
Jeff Sutherland, who first presented it in 1995 (cf. Schwaber and Sutherland 2016). Scrum
is a framework for developing and sustaining complex products. It supports people to be
able to tackle complex adaptive tasks and through which they are enabled to productively
and creatively deliver products with the highest possible value (cf. Schwaber and
Sutherland 2016). In addition, “DevOps” (combining software development and software
operation), “Kanban” (adaptation of an approach from the manufacturing industry for
1.4 Summary
• The pressure of digitalization is changing many processes and structures across all
industries.
• Digital business models are based on central platforms that offer customers an indi-
vidual service and largely digital processes.
• The job description “IT controller” is changing. Rule-based routine tasks can increas-
ingly be performed by software robots. The persons responsible for IT controlling can
increasingly devote themselves to advisory and strategic tasks.
• Traditional IT managers with technical tasks are being replaced by new roles such as
the Chief Information Officer or the Chief Digital Officer. These emphasize a more
entrepreneurial view and use IT as a lever for digital processes and new digital busi-
ness models.
• Agile concepts of information management are displacing classic process models of
software implementation and process restructuring in subject areas with high customer
interaction and rapidly changing requirements. IT controlling still has to find answers
to this and adapt its instruments.
References
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konstruktivistischer Perspektive. Diss., Duisburg-Essen, Universität Duisburg-Essen
Buehler K, Steimel B (2018) Digitale Dividende im Mittelstand. Management Summary, Köln
Ciesielski MA, Schutz T (2016) Digitale Führung. Berlin/Heidelberg
Costello GJ (2010) Innovation and information systems: a case for ecological systems theory, PhD
thesis, Galway, 2010, J.E. Cairnes School of Business & Economics, National University of
Ireland, Galway
Deutsche Bank Research (Hrsg) (2014) Big-Data, die ungezähmte Macht, Frankfurt 04.03.2014.
http://www.dbresearch.de/MAIL/DBR_INTERNET_DE-PROD/PROD0000000000328652.pdf.
Accessed on 09.03.2014
Eckert C (2020) Wer schützt unsere Daten? – Möglichkeiten und Herausforderungen der Cyber
Security, acatech, 30.06.2020, Online per ZOOM
Gadatsch A (2016) Die Möglichkeiten von Big Data voll ausschöpfen. Control Manag Rev
2016(Sonderheft 1):62–66
Gadatsch A (2020) Grundkurs Geschäftsprozessmanagement, 9. Aufl. Springer Vieweg, Wiesbaden
Gadatsch A, Krupp A, Wiesehahn A (2017) Smart Controlling – Führungsunterstützung im digitalen
Wandel. Controll Mag 4:72–75
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Gartner Hrsg (2014) Taming the digital dragon: the 2014 CIO Agenda. https://www.gartner.com/
imagesrv/cio/pdf/cio_agenda_execsum2014.pdf. Accessed on 10.07.2020
Gartner Hrsg (2015) Gartner says bimodal IT projects require new project management styles,
an outcome-centered approach will bridge the gap between ‚slow‘ and ‚fast‘ IT, analysts will
explore bimodal projects at the Gartner PPM & IT Governance Summits 2015 in Grapevine,
Texas on June 1–3 and in London, UK on June 8–9, STAMFORD, Conn., April 23, 2015. http://
www.gartner.com/newsroom/id/3036017. Accessed on 29.02.2016
Hanschke I (2018) Digitalisierung und Industrie 4.0. München
Heinzl A (2001) Die Rolle des CIO in der Unternehmung. Wirtschaftsinformatik 43(4):408–420
Ihne M (2013) Die Zukunft der Weiterbildung, Trends in der betrieblichen Bildung. In: Siepmann F,
Müller P (Hrsg) Jahrbuch eLearning & Wissensmanagement, S 18–28
Johanning V (2019) IT-Strategie, Die IT für die digitale Transformation in der Industrie fit machen.
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cio.de/a/bogdanski-neuer-cio-bei-lufthansa,3109572?tap=e76debe9672f8a078de6f2e363a79f1c
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Kornwachs K (2018) Digitalisierung – Revolution oder Gestaltungsauftrag?, Dialogreihe “Innovation
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transformation. Perseus Book, Boston
IT Controlling Concept: General Conditions,
Basics and Central Terms 2
Abstract
This article presents an IT controlling concept. At the beginning of the article, the
reader can check the maturity level of his organization with the help of a compact quick
test that has been tested in practice. The IT controlling concept includes a mission state-
ment, the goals, contents, selected organizational concepts and tools for IT controlling.
After reading, the reader has an overview of central aspects and framework conditions
of IT controlling. Finally, an outlook on the trend towards “smart IT controlling”
is given.
IT controlling covers a variety of topics, which we will discuss in detail later. The special-
ist group “IT Controlling” of the Gesellschaft für Informatik e. V. (GI) has published an IT
controller mission statement. (GI) has published an IT controller mission statement, taking
into account current developments, which is based on a modern and broad approach to IT
controlling (cf. Barth et al. 2009) and represents a broad framework into which specific
concepts can be placed.
Accordingly, “(IT controllers) design and support the management process of opera-
tional information processing and thus share responsibility for the achievement of infor-
mation management objectives.” The definition is specified in 11 core sentences:
1. IT controllers bridge communication and cultural barriers between technical and busi-
ness perspectives and thus contribute to an adequate culture in dealing with the
resource information.
The full version of the mission statement can be downloaded from the URL of the source
reference (Barth et al. 2009).
The “quick test” described below is intended for readers from the field. It can be used for
a self-assessment of a company or an authority. This provides readers with a simple aid to
roughly assess which areas of the organisation still have potential for development and
where active intervention may be required.
A total of five questions are to be answered on a scale of 1–5, intermediate values are
permissible. The result can be displayed as a network diagram and compared with other
organisations.
2.2 Quick Test IT Controlling: Self-Assessment 13
Question 1: IT controller
1 = not available
2 = planned
3 = existing, within IT
4 = existing and communicated
5 = exists and is communicated, is created and monitored regularly, e.g. annually with
the specialist side
Question 3: IT standards
1 = not available
2 = project bundles are defined for individual areas, otherwise the principle of “first
come first served” or similar applies.
3 = Project bundles are evaluated across companies available
4 = Project portfolios are set up by IT controlling and approved in consultation with an
“IT board”.
5 = Project portfolios are regularly (e.g. once a quarter) compared with the corporate
strategy by IT controlling and adjusted.
In Fig. 2.1 you will find an anonymised practical example of participating institutions.
If you are interested in a self-assessment according to this procedure model, you can
request a blank table (Microsoft Excel) under the mail address andreas.gadatsch@h-brs.de.
IT controlling has numerous facets and supports different goals. The term is still not uni-
formly defined. On the one hand, IT controlling is very strongly associated with
2.3 IT Controlling 15
operational “IT cost management” and “IT budget control”. On the other hand, the focus
is on strategic IT portfolio management and IT strategy control.
There is also no shortage of alternative terms. Numerous terms are common in the lit-
erature and in practice, but some of them are also considered outdated. The following
variants are particularly well known:
Occasionally, since IT services are increasingly procured externally, the term “IT sourcing
controlling” is also used (cf. Schelp et al. 2006, p. 96), but this basically only covers par-
tial tasks.
In the English-speaking world, the term “IT performance management” is common; the
term “IT-Controlling” used in the German-speaking world is not used there (cf.
Strecker 2008).
concepts have to be developed and adapted for each organization. Otherwise, IT control-
ling can easily become an instrument of system and self-deception if it is not adapted to
the framework conditions of the respective situation. Therefore, this book also presents
approaches that you as a reader would not have attributed to IT controlling.
2.3.2 Tasks
The scope of tasks for IT controlling is not uniformly described in the literature (cf.
Gadatsch and Mayer 2013). In typical job advertisements, for example, the following
activities are mentioned:
IT controllers must therefore answer strategic questions (e.g. “Can we improve our perfor-
mance by outsourcing IT?”) and provide operational answers (e.g. “How high were the IT
costs in May for the IT product mail server?”). A practical catalogue of typical questions
has been compiled by Müller et al. (2005, pp. 101–102):
• Implementation and support of the monthly and annual financial statements of the cen-
tral IT company,
• Preparation and execution of the IT cost allocation according to the source,
• Implementation and conception of standard and ad-hoc reporting,
• Implementation and monitoring of the budget and forecast process,
• Contract management (intercompany cost allocation),
• Contact person for business management questions,
• Participation in the creation of increased transparency of IT costs within the
organization.
This job advertisement from another company has a similar focus, but is more interna-
tional and optimised:
The “Zürcher Kantonalbank” published a very good IT controlling concept several years
ago (see Betschart 2010). It shows that the role of the IT controller is very much service-
and moderation-oriented, but nevertheless contains a large share of responsibility for
achieving the organization’s goals.
The area of tension for IT controlling is large, as there is no uniform definition of the
scope of tasks. The views of the various stakeholders on the task area “IT controlling” are
large; the company management, the CIO, the various specialist departments and IT con-
trolling itself have different views (cf. Fig. 2.2).
IT-Controlling
CIO
Department
Corporate Management
Even within economics, computer science and business informatics, it is disputed how
IT controlling is classified in the disciplines. One school of thought considers IT control-
ling to be part of information management (planning, management and control of IT),
while another school of thought sees IT controlling as part of the field of controlling (“IT”
is the controlling object). A pragmatic approach is the view that IT controlling should be
regarded as a networking discipline (control and design of IT deployment) (Gadatsch and
Mayer 2013, p. 33).
The methods used in IT controlling can be divided into strategic, operational and over-
arching methods. They cover the possible overall spectrum, which, however, is not always
fully exploited in practice. Figure 2.3 provides an overview of the correlation.
Overlapping
Methods Key-figure-based
IT reporting
IT investment accounting is used to determine and evaluate NPVs and other quantita-
tive parameters of IT investments. Total cost of ownership analyses support IT investment
accounting by determining and evaluating direct and indirect IT costs and services. IT
standardization plays an important role in reducing costs and ensuring consistent perfor-
mance. It also serves to support IT management in defining and enforcing program plans,
consolidation projects and IT standards.
From the methods mentioned, a “toolbox” for IT controlling can be bundled, which is
shown in cf. Fig. 2.4, and which will be explained in detail in the following chapters.
Fig. 2.5 Distribution of roles between CIO and IT controlling. (Based on Kütz 2006, p. 9)
2.3 IT Controlling 23
Management
Human
(CIO) IT-Controlling Controlling Sales Manufacturing …
Resources
Partnership Model
Management
Human
(CIO) Controlling Sales Manufacturing …
Resources
… IT-Controlling
… …
Employee model
Management
Human
(CIO) Controlling Sales Manufacturing …
Resources
… IT-Controlling
… …
Controlling Model
In practice, unfortunately, there are repeated examples of failed IT projects. For example,
the energy supply company of the city of Cologne had enormous problems with the start-
up of a standard SAP solution many years ago (cf. Computerwoche 2001). The difficulties
experienced by the public administration in providing a uniform “federal client”, i.e. a
standardised IT workstation for the public sector, are also examples of this (cf. Rosenbach
2021). Figure 2.7 shows a number of major implementation projects for ERP systems that
have either been abandoned in recent years or at least had to overcome major challenges
(cf. Kroker 2018).
Haribo 2018 Introduction of a new enterprise resource planning system based Complexity,
(confeconary on SAP HANA S/4. New software will replace old management fehlende Erfahrung
company) systems from the 80s. System introduction led to issues in the (Project ongoing)
introductionary phase which lead to a 25% loss of sales due to
outstanding or wrong delivery to customers
O o 2009 - „Passion for Performance“: Largest IT-Project for Otto, which Complexity
(Mail-order 2012 would have connected a multitude of IT-Systems with SAP. Project (cancelled)
company) was cancelled.
Deutsche Bank 2015 „Magellan“: Integration of „Postbank“ systems into the own native Complexity
SAP systems. Project was cancelled. (cancelled)
„Postbank“ had previously been acquired by Deutsche Bank.
Deutsche Post 2015 „New Forwarding Environment“: Introduction of a brand new IT- Complexity
(Naonal mail- System for €345 million. Project cost an additional €37 million to (cancelled)
delivery company) reverse the new changes. Project cancelled.
LIDL 2018 „Elwis“: SAP-introductionary project based on SAP/HANA S/4 Project targets
(supermarket started in 2011. Project was finally cancelled after costing upwards economically not
corporaon) of €500 million. achievable
2.3.5.1 Complexity
An important reason for the failure of these projects is the complexity of the respective
tasks. Whether an IT controlling concept was applied in the application examples cannot
be said from an external perspective. But it can be seen that IT controlling is helpful in
such cases because it can identify undesirable developments early on and suggest
countermeasures.
2.3.5.3 Transparency
Another common problem is the lack of cost transparency, as there is insufficient informa-
tion on IT costs and services. Without IT performance accounting, no effective IT control
is possible. Many IT costs are not visible (e.g. colleague help due to lack of training, sys-
tem failures due to lack of maintenance). One speaks of “indirect costs”, which can only
be made visible by special analyses and which are counteracted by suitable measures.
The use of large amounts of data in structured and unstructured form is referred to as “Big
Data” (cf. Gadatsch and Landrock 2017). Up to now, classic structured data from ERP
systems and data warehouse systems have still been predominantly used in controlling.
But digitalization has led to strong changes. Many companies have successfully imple-
mented their first Big Data applications, e.g. in the real-time analysis of customer data and
business processes.
The term “Smart Data” is associated with the innovative character of Big Data, which
is primarily linked to the development of new business forms and models. A transfer to
controlling means that controlling has evolved in several steps (cf. Gadatsch et al. 2017a).
Figure 2.8 shows the steps from pure actual cost control to smart controlling based on
Gadatsch, Krupp and Wiesehahn (2017a).
26 2 IT Controlling Concept: General Conditions, Basics and Central Terms
Smart Controlling
Digitally facilitated (Big Data)
Pioneer phase of data Controlling
processing supported (Data Warehouse)
accounting
■ Real-time processing and
(ERP-Systems/ PC) -structuring of structured
and non-structured
■ Processing and formatting elemnetary and
of structured elementary compressed data.
■ Processing and
numerical depiction of and compressed Data
■ Prediction of future
structured Data. behaviours
■ Relational data models
In the first pioneering phase, the focus was on pure reporting of structured data. The
data was processed batch-oriented on mainframes and was consequently not up-to-date. A
typical application example for IT controlling is IT cost and activity allocation. In the
second phase, the digitalization of controlling was intensified and increasingly data struc-
tured in real time and summarized in data warehouse systems was processed. The analysis
of the data was supported graphically. Data mining methods made it possible to identify
unknown correlations in data, e.g. error situations in IT systems in connection with certain
activity patterns. In the current phase of smart IT controlling, new types of database sys-
tems are available that give controllers significantly more analysis options in terms of data
variety, data quantity and data timeliness. Thus, user interactions in information systems
can be monitored in real time, interpreted and transformed into countermeasures.
In recent years, the job description of the “data scientist” has been developed in the
course of digitalisation. This refers to people who methodically support an organization
with a mix of different key skills (especially mathematics, statistics, information technol-
ogy and domain knowledge) (cf. Gadatsch and Landrock 2017). Typical task areas are
strategy development, use case identification and expression, data analysis and modeling
as well as tool-related customizing and programming of applications (cf. Gadatsch and
Landrock 2017). With regard to the tasks of IT controllers, overlaps arise in relation to data
analysis. As part of an unpublished study, the Bonn-Rhein-Sieg University of Applied
2.3 IT Controlling 27
Sciences asked IT controllers in various industries how they see their professional future
and what role the topic of data science will have. In the following, two questions and
slightly modified answers are given as examples to give an insight into the “mood”.
Question
Will there be Data Scientists in the future instead of controllers, or are they more of a
complement?
Answer: Data Scientists will not replace controllers. However, their work is an
important prerequisite for targeted controlling. The interpretation of data will remain in
the hands of finance experts in the future.
Question
The changes to the job description of IT controllers are not yet clear, but some aspects
are already beginning to emerge. For example, activities with a high degree of digitaliza-
tion will be increasingly automated in the future. Examples of this are activities such as the
“preparation and coordination of IT budgets”, “evaluation and prioritisation of project
applications” or “profitability analyses”. On the other hand, new tasks such as “participa-
tion in digital business models” or “participation in the creation of the digital strategy” will
be added.
Data Lake
Analysis and
Data Sources Preparation Storage
Visualization
Local SAP Central Use Case
System Pool Pool
Knime
SAP BW ETL-Tools
Power BI
System
Premium
Fig. 2.9 Use of data science tools in IT controlling practice. (cf. Sasse 2020)
28 2 IT Controlling Concept: General Conditions, Basics and Central Terms
2.4 Summary
References
Gadatsch A, Kütz M, Freitag S (2017b) IT-CON 2017, Ergebnisse der 5. Umfrage zum Stand des
IT-Controllings im deutschsprachigen Raum (2017), Band 34, Sankt Augustin 2017. https://doi.
org/10.18418/978-3-96043-043-8
Kroker K (2018) Haribo, Lidl, Deutsche Post & Co. Die lange Liste schwieriger und gefloppter
SAP-Projekte. https://www.wiwo.de/unternehmen/it/haribo-lidl-deutsche-post-und-co-die-
lange-liste-schwieriger-und-gefloppter-sap-projekte/23771296.html. Accessed on 17.12.2018
Kütz M (2006) IT-Steuerung mit Kennzahlensystemen. dpunkt, Heidelberg
Müller A, von Thienen L, Schröder H (2005) IT-Controlling: So messen Sie den Beitrag der
Informationstechnologie zum Unternehmenserfolg. Control Berat 1:99–122
Rosenbach M (2021) Digitalisierung der Verwaltung, Modernisierung der Bundes-IT dauert wohl bis
2032, Spiegel Online, 19.04.2021. https://www.spiegel.de/netzwelt/netzpolitik/digitalisierung-
der-verwaltung-modernisierung-der-bundes-it-dauert-wohl-bis-2032-a-4b3c61b7-8b9d-4bd0-
ac2f-f409192505e9. Accessed on 26.04.2021
Sasse C (2020) Integrated IT-controlling, IT costs & service charge back 2020, 20.11.2020
Schelp J, Schmitz O, Schulz J, Stutz M (2006) Governance des IT-Sourcing bei einem
Finanzdienstleister. Prax Wirtschaftsinform HMD 250:88–98
Strecker S (2008) IT-Performance-Management: Zum gegenwärtigen Stand der Diskussion.
Controlling 20(10):518–523
From IT Strategy to Digital Strategy:
From Classic IT Strategy to Digital Strategy 3
Abstract
IT strategies were previously derived from the strategy of a company. Currently, there
is a discernible trend towards merging the organizational strategy and the IT strategy
into a digital strategy. This section discusses the relevance of an IT strategy or digital
strategy in the context of IT controlling. In addition, the differences between a digital
strategy and a classic IT strategy are discussed and the effects are shown.
The term strategy is derived from the ancient Greek word “strategeia”, which can be trans-
lated as warfare or the art of war. Today, the term strategy is often used in different mean-
ings to “enhance” concepts. A strategy provides a forward planning of future action.
“Ergo: to do today what others think of only tomorrow- for only constant is change”
(Heraclitus, died 480 BC). Without the targeted and economic use of information technol-
ogy (IT), operational and strategic corporate goals can no longer be planned in the twenty-
first century.
The corporate strategy influences both the IT strategy and the organizational and opera-
tional structure (processes) of a company. The IT strategy determines the IT architecture,
which in turn has an impact on the processes. Taken together, these elements influence the
performance of the company (cf. Fig. 3.1).
influences
(General) Organizational
Business-Strategy structure
influences
facilitates
The effiency
Business of
influences processes organization
facilitates
IT- managed by
IT-
Strategy Architecture
Subject Example
2017 65.1%
2013 77.1%
2009 72.8%
2007 80.2%
2004 74.4%
IT strategies can be aggressive, moderate or defensive (Heinrich and Stelzer 2009, p. 130).
An aggressive IT strategy pursues the goal of leadership in the use of technology. One
wants to be faster than one’s competitors. Current topics are digitalization, Industry 4.0,
Internet of Things (IoT) or Big Data. A moderate IT strategy involves imitating the behav-
ior of competitors, and depending on their experience, the measures are followed or not.
An example is the use of software typical for the industry, such as SAP ERP. A defensive
IT strategy primarily uses proven standard solutions, such as the use of proven standard
products like Microsoft Office for workplace support. There are no approaches that devi-
ate from competitors.
Typically, first follower strategies (i.e. moderate or defensive strategies) are considered
to be less risky, as the risks are placed on the technical leader (cf. Mertens and Bissantz
2021, p. 7).
• Infrastructure/Technologies/Cloud Computing,
• Applications and Services,
• IT governance/role of IT in the organization,
The classic IT strategy is derived from the strategic goals of the company. In a multi-stage
process, various alternatives for IT strategy content are examined and ultimately combined
into an IT strategy (cf. Heinrich and Stelzer 2009, p. 129).
Occasionally, however, only planned IT projects are listed in the “IT strategy” in prac-
tice, without any reference to business goals being apparent. However, the goal is to create
an IT strategy derived from the corporate strategy, which is the basis for the following
measures, among others:
Bharadwaj et al. (2013) describe a phenomenon that can be observed worldwide: Many
companies are merging their corporate and IT strategies into a “digital strategy” or “digital
business strategy” based mostly on new or expanded business models. The difference does
not appear to be great at first glance, but it has far-reaching consequences.
The classic IT strategy derives the requirements from the corporate or public authority
strategy, i.e. it is reactive. The digital strategy achieves competitive advantages or strategic
advantages for an authority on the basis of an environment analysis (according to Porter
1998), it is interactive and adapts to the environment (cf. Fig. 3.4).
36 3 From IT Strategy to Digital Strategy: From Classic IT Strategy to Digital Strategy
Original IT strategy
(potential) Derives requirements
from business
Competitors strategy
(reactive)
Alternative competitors
Bargaining power pose a threat
of suppliers
Fig. 3.4 Environmental analysis for a digital strategy. (After Porter 1998)
Currently, the change can already be seen in the focus of the IT strategies of well-known
companies. However, many companies are still pursuing a classic IT strategy in which IT
plays the role of service provider and pursues IT goals that are derived from the corporate
strategy. Another group is pursuing goals that involve a digital transformation, i.e. a
realignment of the corporate organization. Here, IT is seen as an enabler and service pro-
vider for the transformation. The third group pursues a Business Digital Strategy, i.e. an
integration of both aspects in one go. A look at the IT strategy patterns of selected compa-
nies (cf. CIO Magazin 2017) broken down by strategy type is shown in Fig. 3.5.
Example DOGEWO21
Example Metro
Metro used the Corona pandemic as a trigger to strengthen its customer loyalty and
help its restaurant customers in the process. When it was mandated to track restaurant
guest contacts, Metro had a digital check-in tool programmed to relieve restaurateurs of
paperwork and made it available to them. When the restaurants ultimately had to close,
3.4 IT Architecture Planning 37
Fig. 3.5 IT strategies according to strategy patterns. (cf. CIO Magazin 2017)
Metro launched a collaboration with Google to integrate a delivery service into Google
Maps. The affiliated restaurateurs no longer have to pay commissions to services such
as Lieferando, but instead receive customers for their delivery service free of charge via
Google search (cf. Kolf 2020). ◄
The connection between the corporate and IT strategy and the IT architecture derived from
it was presented in Fig. 3.1. A central element of IT architecture planning is the develop-
ment of an IT development plan. It is also known as: Enterprise Development Plan, Zoning
Plan, IS Plan or Information System Plan, IT Master Plan or Framework Architecture
Plan. The Boehringer Ingelheim company uses the term “Business Support Matrix” (cf.
Grünewald 2013).
The IT development plan describes the target state of an IT architecture (Dern 2009,
p. 157). In the basic form of the IT development plan, the applications are visualized as
elements of a matrix representation of processes and organizational units of the company
(e.g., divisions, departments, areas) (cf. Durst 2007, pp. 38–39). With the help of colors,
special shapes, size and arrangement of graphic elements, individual aspects (time refer-
ence, complexity of an application, cost volume, etc.) can be particularly emphasized (cf.
38 3 From IT Strategy to Digital Strategy: From Classic IT Strategy to Digital Strategy
Primary
Product Damage/
-process Sales Application
developement drawn benefits
Sub-
process- … … … … … … … …
Division
Areas of Operation
Life insurance
Health insurance
Motor insurance
Hybrid-Systems
Durst 2007, p. 43). A simplified principle representation using the example of an insurance
company is shown in Fig. 3.6 and a more detailed example is shown in Fig. 3.7.
The IT development plan provides answers to the following questions:
From a controller’s point of view, the IT development plan offers a possibility to check the
current and planned status of the IT architecture with regard to the fulfillment of strategic
goals and therefore represents an important instrument for strategic IT controlling. With
its help, it can be checked whether the current and future business processes can be sup-
ported appropriately.
3.4
Third-party
IT Architecture Planning
Accident ICIS
Motor (Komposit)
Non-life
Life COR-Life
SVIS
SV informaon system
SAP / RI (counterinsurance)
SAP / FS CD (pay-in/pay-out)
insurances (Life)
SAP / FI CO AA (Financial accounng)
Addional SAP modules (CMI, HR, RE-EX),
incl. SCD & Phin AMV
Areas of operation
Filenet (Archive)
Fig. 3.7 IT development plan of an insurance company. (cf. Föhrer and Wirtz 2013)
39
40 3 From IT Strategy to Digital Strategy: From Classic IT Strategy to Digital Strategy
The case study describes a fictitious company. Any similarities with real companies are
purely coincidental. The subject is a medium-sized service company with an annual turn-
over of approximately EUR 400 million/year and around 500 employees. The company is
based in a major German city and has no branches. It offers its services only in Germany
and has no plans to expand its business internationally.
A central overview of applications is missing. There are only outdated rudimentary com-
pilations. There are no management tools (e.g., an IT development plan) for planning and
controlling the IT architecture. There are only some rough process representations that
allow a content-related entry and are roughly updated by the IT department. However, they
do not cover all applications, but could be expanded.
Note: Application support is limited to technical support for external IT service providers
(importing updates, backups, maintaining printer tables and similar administrative activi-
ties). Otherwise, the focus is on communication with external IT service providers, who
are responsible for the entire technical analysis, programming, testing and training of users.
There are no standardized performance profiles for employees. Tasks are often assigned
ad hoc by IT management. The principle of “everyone must be able to do everything”
applies. However, this has led to the fact that specialized tasks can no longer be performed,
but have been outsourced to external service providers.
Professional deficits can be seen above all in the areas of IT project management and
business know-how. Technical administration qualifications clearly dominate.
The role of project management in implementation and maintenance projects is only
performed by external persons from among the IT service providers. There is a lack of in-
house application developers, so that the focus of the IT department’s work is on the tech-
nical administration of the installed software.
The data center, operated by the company’s own staff, is located in the company’s admin-
istrative building. An external service provider provides the company with a backup center
42 3 From IT Strategy to Digital Strategy: From Classic IT Strategy to Digital Strategy
in the same city (approx. 10 km away). Regularly created backups (1x daily) are also
deposited there by courier. Security exercises are carried out sporadically. These consist of
data being restored and checked. However, no disaster scenario has yet been run through
in which a main building fire or similar was simulated.
The company works with numerous external IT service providers. No one in the company
has a central and up-to-date overview of all external assignments and projects.
The assignments are completed without formal project management procedures (proj-
ect application, approval process, budget allocation, etc.). The external IT service provid-
ers take over the entire system analysis, development and maintenance of the software.
The technical process knowledge is therefore in the hands of the service providers. IT
management is only insufficiently informed about the IT service providers involved and is
not involved in many projects.
The documentation of the activities of the service providers is carried out differently.
There are no specifications from the company to the contractors, you “take what the ser-
vice provider offers you”. Invoices can only be roughly allocated to commissioned activi-
ties. Detailed controlling of commissioned and performed services is not possible.
There is no IT strategy or digital strategy. The divisions manage “their” external IT
service providers themselves. There is no cross-divisional coordination. The entire spe-
cialist process knowledge and software development are in external hands (100% out-
sourcing), while the technical provision of hardware and network is provided by the
company’s own employees. The costs for the provision of IT systems are high compared
to companies in similar industries.
3.5.6 Task
Design a strategy to solve the problems of the company described. For this purpose, create
a slide set with two to three slides in which you explain the basic strategy.
3.6 Summary
• The classic IT strategy is derived from the corporate strategy in an iterative process,
based on the corporate requirements and limited by technical possibilities.
• Many companies combine the corporate strategy and the IT strategy, i.e. they create a
“digital strategy” in one step.
• Architecture planning enables the IT controller to monitor the IT strategy with regard
to the support of current and future processes.
References 43
References
Abstract
This article presents the Balanced Scorecard or, in an adapted form, the IT Balanced
Scorecard. It is an easy-to-use indicator-based multidimensional control system for
strategic IT controlling. With its help, IT controlling can manage the implementation of
the IT strategy or digital strategy down to the level of measures and projects. The
method was originally developed as a concept for general strategic corporate control-
ling. Due to its universal approach, it was later employed in other tasks, including IT
controlling.
The concept of the Balanced Scorecard (BSC) was developed in the early 1990s by
R. S. Kaplan and D. P. Norton as an instrument for corporate management to replace tra-
ditional performance measurement systems. The groundwork for the development of the
Balanced Scorecard was laid through many years of research conducted by the authors in
corporate practice.
The performance measurement systems available at that time were inadequate because
they only looked at financial figures based on top ratios such as return on investment (RoI)
and thus provided management with one-sided information. Value-adding aspects such as
personnel quality, process efficiency or customer satisfaction were not directly considered
in the management systems used until then. The Balanced Scorecard was conceived as a
strategic-operational performance indicator system linked to concrete measures that sup-
ports balanced corporate management with multiple perspectives.
4.1.2 Methodology
A balanced scorecard works with several interlinked areas of analysis (perspectives), for
which coordinated goals, key figures, target values and concrete measures are defined by
means of cause-effect chains. Cause-effect chains represent the interaction of various
objectives from different perspectives and allow several subject areas to be brought into an
overall context. The choice of perspectives is basically an individual decision for the com-
panies, but often, as in the standard version of the Balanced Scorecard, the areas of finance,
processes, customers and employees are chosen because they cover the essential areas.
The Balanced Scorecard can be created for groups, companies, public authorities or
other forms of organisation or can be limited to sub-areas, departments or projects down
to the individual employee. In principle, its use is independent of the size of the
organization.
The example of a simple cause-and-effect chain shown in Fig. 4.1 links staff quality,
customer orientation and financial targets: Qualified employees improve process quality
and reduce throughput times. As a result, customers are supplied more punctually, they
remain loyal to the company, and overall costs are reduced. Satisfied regular customers
ensure a sufficient return on investment in the long term.
The traditional KPI systems used in the past were predominantly past-oriented and typi-
cally built unilaterally on a financially oriented top KPI, which was successively broken
Process
quality
On-time Customer
ROI
Qualified delivery loyalty
Staff
Process
throughput
time
Fig. 4.1 Example of a simple cause-effect chain. (cf. Appel et al. 2002, p. 89)
4.2 Adaptation for IT Controlling 47
Sales
Cover
contribution
Variable costs
Profit
Specific fixed
Turnover
costs
profitability
Fixed
General fixed
Sales costs
Roi
Property, plant
Sales and equipment
Investment
assets
Financial
Capital
assets
turnover
Total
capital
Inventories
Current
Receivables
assets
liquid
assets
Fig. 4.2 Dupont key figure scheme. (cf. Dillerup and Stoi 2006)
down into individual KPIs. This system always worked towards a specific goal, which was
represented by the key performance indicator.
A well-known example of a peak ratio-based system is the DuPont ratio scheme, which
was developed and used by the DuPont company (cf. Fig. 4.2). The Balanced Scorecard,
on the other hand, provides a future-oriented networked system of key figures and coordi-
nates the management systems used in the company.
The Balanced Scorecard was adapted for use in IT controlling only after several years of
use in general controlling. It is considered a tool to support the goals of IT governance (cf.
van Grembergen and De Haes 2005). The team of authors Buchta et al. (2003, p. 279)
48 4 Control of the IT Strategy with the Balanced Scorecard: Implementing…
• IT Staff,
• Projects (in information technology),
• Customers (of information technology),
• IT infrastructure (hardware, software, network),
• Operation (of IT systems) and
• Finance.
In addition to the use of the IT balanced scorecard for the IT area, other authors also pro-
pose the management of individual IT projects as a “project scorecard” (cf. e.g. Engstler
and Dold 2002). Other proposals also see it as an instrument for assessing IT investments
(Balanced IT Decision Card, cf. Jonen et al. 2004).
Baschin and Steffen (2003) recommend a four-stage implementation concept for the intro-
duction of an IT balanced scorecard: clarification of the strategic goals of IT, translation of
the IT strategy into measurable variables, communication of IT strategy and goals, and
obtaining strategic feedback as part of a top-down – bottom-up process (cf. Baschin and
Steffen 2003, p. 368ff.). Another approach based on a vision is shown in Fig. 4.3.
Long-term
orientaon Vision
of IT
Basic principles
of implementaon Mission
IT goals to
aain the
set vision
Strategic IT goals /
List of objecves
Implementaon
Measures / Projects
Fig. 4.4 Implementation of the IT balanced scorecard using the example of the IT customer satis-
faction target
First, a vision is developed as the long-term orientation of IT, and a mission is formu-
lated, i.e. principles for the implementation of the vision. This is followed by the definition
of goals, key figures, target values and measures for the implementation of the IT strategy
or digital strategy.
Figure 4.4 uses the objective “IT customer satisfaction” as an example to show how the
transformation process is carried out from the objective to possible key figures, here “pro-
cessing time of inquiries” and target values, here “95% within one day”, to measures (here
setting up a user helpdesk, etc.).
Figure 4.5 shows an example of a vision, mission and target catalog for the IT balanced
scorecard that was developed at a research institution. The perspectives “Customer” and
“Processes” are taken from the standard, the perspectives “Technology” and “Efficiency &
Effectiveness” have been specifically selected. The catalog of objectives includes goals
that have not yet been underpinned by measures presented here.
Strategic target IT infrasturcture is designed in such a way, that the newest technology
can be used with the maximum of efficiency and effecveness
Improved
Introducon of fully
communicaon Increase the level of Cost-reducon in the
developed
regarding standardizaon IT-Department
technology
innovaons
Target objecves
according to perspecves Improved Increase of IT-
Increase work
communicaon with support as well as
producvity
users overall IT benefit
Improvement of user
support
Fig. 4.5 Example of a vision, mission and list of objectives for a research institution
IT-Scorecard
Corporation
Scorecard Scorecard
•Targets • Targets
•Performance
Coordinate • Performance
indicators indicators
•Target values • Target values
•Measures≈ • Measures≈
Supervise
Supply Supply Supervise
Coordinate
Budgets IT-Budgets
Coordinate
Measures IT-Measures
Fig. 4.7 Integration of the IT balanced scorecard into the management system
In order to obtain realistic goals, guiding questions should first be formulated that support
the vision and mission. Concrete goals and measures can then be derived from these.
Possible guiding questions and associated key figures of a standard IT scorecard with the
perspectives of finance, processes, personnel and customers are listed below as examples.
These goals have to be worked out individually depending on the concrete case of
application.
52 4 Control of the IT Strategy with the Balanced Scorecard: Implementing…
The issues related to personnel perspective can be captured and clarified by asking the fol-
lowing questions:
Key figures for the personnel perspective provide the following data:
The IT balanced scorecard (IT scorecard for short) is used in about 30% of German com-
panies for IT management (cf. Gadatsch et al. 2013, p. 11). The example in Fig. 4.8 repre-
sents the IT scorecard of a group service provider for information technology that competes
with external providers and has to compete for orders from the group and its units.
At Daimler-Benz, the IT scorecard is considered the “business card of IT” (cf. Sarsam
2010). The idea is to transfer concepts from production to administration and has been
54 4 Control of the IT Strategy with the Balanced Scorecard: Implementing…
Customer IT-Processes
Target Performance Target Measures Target Performance Target Measures
indicators values indicators values
Become Percentage of Market Interview Improve Quota of Rate Analyse internal
preferred Sales per IT share Customers performance timely > 95% processes and
corporations volume > 75% Analyse of IT- adressed benchmark these
supplier requirements Processes malfunctions / with direct
Total share of Market to market total number competition
Prices on market standard
IT- share Standardise
level Number of Rate
applications > 80% IT-Processes
Services on complaints < 10%
market level based on ITIL
Staff/Learning Finances
Target Performance Target Measures Target Performance Target Measures
indicators values indicators values
IT- Number of 10 Updating of job Contribution TCO per IT TCO Perform TCO
Personnel advanced IT days descriptions of every workplace Analysis
is training days per < xxxx
IT-Process EUR Integrate ROI into
adequetly per Employee year towards
trained to Compare approval process
Adherence to Rate requirements to success is Total effiency ROI
meet transparent
required set > 95% current level of (ROI) > 10%
appointments training Survery monthly
standards ROI per IT-
Establish training Measure
schedule
implemented for 700 projects worldwide. A look at the production shows on a number
board what is currently being assembled where, the IT board shows who has made a mis-
take where. In this way, IT can provide answers to important business questions, such as
„How many cars/trucks could not be built because of IT malfunctions? As a side effect, the
management board is not only informed when something in IT does not work, but when
there are successes.
The IT balanced scorecard offers a holistic corporate view in the IT controlling concept.
Through a holistic linking of corporate strategy, IT strategy and information management
measures, there is a close interlocking of the company with the IT controlling concept. The
use of IT serves the corporate strategy. A networking of existing management instruments
and key figure systems integrates proven solutions into the IT controlling concept, thus
protecting investments that have already been made.
The IT balanced scorecard usually focuses on internal problem solutions in the plan-
ning process. Interactions are not always verifiable via cause-effect relationships. Many
objectives, key figures, etc. are difficult to differentiate in practical use to individual areas,
departments and persons. Introduction and use of the IT-Balanced Scorecard cause a high
expenditure of time and require resources for personnel and information technology.
Table 4.1 compares the differences between the Balanced Scorecard method and the clas-
sic KPI-based systems.
4.5 Summary 55
Table 4.1 Differences between traditional KPI systems and the BSC
Traditional KPI systems Balanced scorecard
Support of analysis and information Support of planning, management and control
(reporting) (controlling)
Purely fiscal/monetary orientation of the KPI Alignment with all relevant stakeholders as far as
structure (past-oriented view) possible (future-oriented view)
KPI are based on mathematical decomposition KPIs are based on cause-effect relationships
of top key figures (empirical/analytical determination)
Cost orientation is in the foreground Performance orientation is in the foreground
Barthélemey et al. (2011, p. 62)
An IT startup wants to become the “leading Big Data system house in Europe” by offering
the following:
• Data Center (e.g. cloud services, Big Data as a Service),
• Consulting/projects (e.g. strategy consulting, use case development for Big Data
projects),
• Development and distribution of a cloud-based standard software for real-time analysis
of customer opinions (Twitter, Facebook, etc.).
The management strives for the following goals
• Europe-wide activities,
• Sustained high sales and profit growth,
• satisfied customers and staff,
• High professional reputation.
4.4.1 Task
4.5 Summary
• The IT balanced scorecard contains goals, key figures, target values, measures for indi-
vidual perspectives: customer view (view of IT customers on information processing),
IT process view (quality of information processing), IT staff view (suitability and sat-
isfaction of staff), financial view (profitability of information processing).
References
Appel D, Brauner S, Preuss P (2002) Einsatz von SAP strategic enterprise management als
IT-gestütztes balanced scorecard-system. Inf Manag Consult 17(2):89
Barthélemey F, Knöll D, Salfeld A, Schultz-Sacharow C, Vögele D (2011) Balanced scorecard
Wiesbaden, S 2011
Baschin A, Steffen A (2003) IT-Controlling mit der Balanced Scorecard. Kostenrechnungspraxis
45(6):367–371
Buchta D, Klatt M, Kannegieser M (2003) Performance Management zur strategischen Steuerung
der Informationstechnologie. Control Mag 3:277–282
Dillerup R, Stoi R (2006) Unternehmensführung. Vahlen, München
Engstler M, Dold C (2002) Einsatz der Balanced Scorecard im Projektmanagement. In: Kerber et al
(Hrsg) Zukunft im Projektmanagement. dpunkt, Heidelberg, S 127–141
Form S, Hüllman U (2002) Chance- und Risk-Scorecarding. Umsetzungsaspekte eines IT-gestützten
strategischen Reporting. Controlling 12:691–700
Gadatsch A, Kütz J, Juszczak J (2013) Ergebnisse der 4. Umfrage zum Stand des IT-Controlling im
deutschsprachigen Raum, Bd 33. Schriftenreihe des Fachbereiches Wirtschaft Sankt Augustin,
Hochschule Bonn-Rhein-Sieg, Sankt Augustin
Jonen A, Lingnau V, Müller J, Müller P (2004) Balanced IT-Decision-Card, Ein instrument für das
Investitionscontrolling von IT-Projekten. Wirtschaftsinformatik 46(3):196–203
Sarsam R (2010) (CIO-Magazin): Daimler-CIO Gorriz: Die Balanced Scorecard bei der Daimler
IT. www.cio.de2223908. Accessed on 04.06.2019
van Grembergen W, De Haes S (2005) Measuring and improving IT-governance through the bal-
anced scorecard. Inf Syst J 2. http://citeseerx.ist.psu.edu/viewdoc/download?doi=10.1.1.469.754
1&rep=rep1&type=pdf. Accessed on 12.02.2021
IT Portfolio Management: Manage IT Project
Selection 5
Abstract
The foundations of portfolio theory dates back to an article by Markowitz (1952), who
dealt with the question of designing optimal bundles of bonds. Much later, international
studies found that in industries that depend heavily on IT, there is a strong correlation
between the quality of IT investments and company performance (cf. Zimmermann 2008,
p. 460). Higher IT investments generally have a positive effect on corporate success. The
key question here, however, is choosing the “right” IT investments.
IT portfolio management is therefore an important element of a company’s IT gover-
nance. It ensures that the projects with the highest value contribution for a planning period
are selected from the bundled demand for IT services (IT demand), budgeted and realized
by internal or external IT (IT supply). According to Helmke and Uebel, it consists of the
two sub-processes “Definition of the (future) project portfolio” for the next planning
period, and “Management of the current project portfolio” (cf. Fig. 5.1).
Processes of IT-Portfolio-Management
Fig. 5.1 IT portfolio management processes. (Based on Helmke and Uebel 2013, p. 61)
Project Planning
Time
Fig. 5.2 Relationship between IT architecture and IT portfolio management. (Gellweiler 2020,
p. 108, translated into German)
IT-relevant projects can be roughly divided into technically driven architecture projects of
the CIO and business-driven projects of the business side. Very often, there are many
dependencies and overlaps (e.g., in terms of time or subject matter) between these proj-
ects. It is therefore necessary to identify the dependencies, the mutual requirements and
the resulting risks. From this, costs and benefit aspects can be estimated and ultimately
priorities can be derived. The basis for this is provided by the analysis and model of
Gellweiler (2020), which is roughly outlined in Fig. 5.2. Only the interaction of both proj-
ect types in a jointly prepared sequence plan (roadmap) leads to the desired results.
5.2 Concept of IT Portfolio Analysis 59
IT-
Governance
Project-
Portfolio-
management
Multi-
Project-
management
Project-
management
Within the framework of IT governance important “rules of the game” are defined, e.g.
project selection, prioritization and budget allocation. Project management takes over the
task of planning and controlling individual projects and ensures that the project goals are
achieved. The project portfolio management is responsible for project selection and its
ongoing adjustment. In larger companies, the establishment of multi-project management
(program management) makes sense. It takes over the planning and control of a project
bundle (program) consisting of several thematically related projects. Project controlling
provides key figures and analyses, monitors implementation (e.g. budgets, milestones) and
ensures transparency. The described context is shown in Fig. 5.3.
Usually, IT projects are processed in parallel at different stages of progress (e.g. in plan-
ning, in the approval process, in the technical conception, in development, in introduction,
in trial operation, in maintenance, in replacement). Since financial and other resources
(e.g., special personnel) are limited, decisions must be made regularly about the composi-
tion of the project portfolio. In order to draw up a list of priorities as a starting point for
60 5 IT Portfolio Management: Manage IT Project Selection
concrete decisions, quantitative procedures have been common practice to date, which
take into account the parameters of return and risk in particular (cf. Wehrmann et al. 2006).
In the scope of portfolio management, three project types can be distinguished from the
point of view of the need for evaluation: Target projects, mandatory projects and standard
projects.
Target projects are projects desired by the authority’s management from a strategic point
of view, which should not or do not have to be subjected to an evaluation. They are con-
sidered “set” for the project portfolio.
Mandatory projects are unavoidable for operational or legal reasons. General examples are
the Y2K changeover (factually necessary) or the euro changeover (law) of IT systems.
Standard IT projects undergo a standardized evaluation process, e.g. with regard to their
capital value and risk or their contribution to the corporate strategy (value-in-use analysis).
5.2 Concept of IT Portfolio Analysis 61
Examples include the introduction of a new logistics system or the redesign of the account-
ing system including a software conversion.
• Preliminary study
• Process improvement
• Maintenance
• New projects / investment
• …
IT-Portfolio- IT-Project-
navigation application
IT-Portfolio- IT-strategy-
management development
Life-Cycle
IT-Portfolio-
communication IT-Portfolio-
analysis
& prioritisation
IT-Portfolio-
adjustment
Analysis of
Project idea
IT soluons
Selecon
System/Applicaon
Management
approval
I Investment dependant (e.g.: new Factory) Project execuon Reaudit of financial viability
T IT infrastructure
Project
V Prelimenary Studies monitoring Addional benefit
P Process improvement
High
P7 P1
P3
P2
Cost efficiency
P5
P4
P6
Low
Low High
Likelihood of Realisation
contribution) are shown on the axes. The diameter of the circles with which the projects
are drawn in represents the relative budget size.
Some research approaches have drawn on proven classical methods for the valuation of
financial investments to mathematically determine an integrated utility value and have
presented special valuation functions for IT projects (cf. Wehrmann and Zimmermann
2005, p. 247ff.). The utility function developed by Wehrmann and Zimmermann (2005)
takes into account the expected net present value of the project, the estimated project risk
and the individual risk attitude of the decision maker according to Bernoulli’s principle, a
method for supporting uncertain decisions. The utility function for an IT project is (cf.
Wehrmann and Zimmermann 2005, p. 249):
α 2
Vi = v ( zi ,σ i ) = zi − σi
2
Vi is the integrated benefit value of the project. The parameter zi gives the expected NPV
of the project and σ2 gives the estimated variance as a measure of the risk of the NPV
occurring. The value of a safe project σ2 = 0 is equal to its NPV. The parameter α is the risk
aversion level of the decision maker. If α takes the value “0”, the value of the project also
corresponds to the NPV.
More recently, Karrenbauer and Breitner (2020) published a quantitative approach
based on an extensive literature review. It is a complex scoring model for evaluating IT
investments that takes into account the project selection criteria complexity, risk,
64 5 IT Portfolio Management: Manage IT Project Selection
efficiency, strategy and urgency. The criteria used by the authors are likely to cover a wide
range of common selection criteria in practice. Since there is still a lack of comprehensive
practical experience with the model, no explanation of the approach is provided and refer-
ence is made to the original source (cf. in detail Karrenbauer and Breitner 2020).
Identification
of cross-relationships
In 2019, the mechanical engineering company Trumpf GmbH & Co KG published a com-
prehensive concept for prioritizing digitization projects (see Pschybilla et al. 2019), which
forms the basis for this section.
The business environment “mechanical engineering” is subject to strong changes. In
particular, there is an increase in external and thus also internal complexity, a stronger
focus on “end-to-end” customer requirements and an increasing number of digitalization
projects with many dependencies. In addition, the projects are often cross-divisional in
nature. This has led to a desire for effective prioritization. Classic portfolio management
approaches seemed unsuitable to the company. The method therefore developed by the
company is based on the classic business case for IT investments (value in use, net present
value), the real options theory and mathematical models for several decision criteria. On
this basis, a four-stage decision-making process was designed:
1. Project pre-selection,
2. Project Analysis,
3. Portfolio formation and
4. Portfolio Management.
The first phase (project pre-selection) serves to identify projects and carry out a feasibility
study. For this purpose, all projects that run along the process chain are identified. All
projects are qualitatively examined with regard to their impact on the process chain. In
addition, legal aspects and feasibility are reflected.
The analysis of the second phase (project analysis) is carried out by means of a business
case for IT investments using utility values and capital values. The effects are mirrored
along the process chain and broken down to individual processes.
In the third phase (portfolio formation), project values are determined in the context of
the entire portfolio. Dependencies are also determined here. So-called „basic projects“
form the basis for further projects that do not create a positive value contribution on their
own. The project value-cost matrix shows the project value (utility values) and costs (net
present value) in one representation.
In the fourth phase (portfolio management), the portfolio is regularly adjusted and con-
trolled. Projects are evaluated with regard to progress and, if necessary, removed from the
portfolio.
66 5 IT Portfolio Management: Manage IT Project Selection
5.5.1 Problem
Elster is a project started in 1996 by the German government and federal states to digi-
tize the handling of the German tax system. One aim of ELSTER is to support citizens
in preparing their tax returns in digital form. In the process, the data for the tax return
forms are recorded electronically in a decentralised manner. The idea is now to make
the recorded data available to the tax administration via the Internet for further process-
ing. This saves the tax administration the costs of data entry and can speed up the pro-
cess. A positive economic efficiency can be assumed for this scenario.
However, the efficiency effect relates to the entire business process. The factors that
positively determine the economic efficiency are primarily provided by the saved elec-
tronic data entry. The implemented security mechanisms “merely” act as “enablers” for
the implementation of the optimization potential. ◄
The use of digital signatures in workflows (Workflows are automated business pro-
cesses, cf. in detail Gadatsch 2020.) is about electronically supporting repetitive busi-
ness processes and using authentication mechanisms to trigger the execution of
sub-steps and provide evidence of their completion. For example, the release of an
order, the approval of a vacation request or a business trip can be such a substep.
Workflow management systems often release a high optimization potential. A positive
economic efficiency can usually be demonstrated.
The legal framework basically offers the possibility of replacing manual signatures
with certified digital signatures (electronic signatures). However, this requires technical
and organisational investments to which a benefit must be assigned in order to prove
positive economic efficiency. The benefit can only be generated from process improve-
ments. The process optimization with the release of the savings potential does not result
directly from a security project, but from the replacement of paper-based processes
with electronic systems. ◄
If the projects presented are classified, three project types can be derived according to
Uebelacker (cf. Gadatsch and Uebelacker 2006): the insurer project, the enabler project
and the saver project (cf. Fig. 5.8).
The aim of these projects is to minimize the probability of occurrence and the risk of unde-
sirable events. The primary goal is not to realize potential savings. As a rule, a positive RoI
68 5 IT Portfolio Management: Manage IT Project Selection
IT Security Projects
Fig. 5.8 Project types for portfolio analysis (IT security projects)
is not presentable. Numerous IT security projects are insurer projects (e.g. firewall, virus
protection program, access control systems).
If new business processes have security requirements, these are often enabler projects. The
IT security measures have a supporting character. The savings are primarily achieved by
the application, not by the security modules. A typical example is PIN-TAN procedures in
Internet banking, without which no banking transactions are possible via the Internet.
Firewall systems are also included here, which only enable selected transactions by seal-
ing off the company network (e.g. secure access by customers to their order data on the
company computer). RoI considerations are of secondary importance in enabler projects.
This type of project is rarely encountered. Savings potentials can be realized through a
security application. One example is the digital citizen card (digital ID system), which
offers a variety of potential economic benefits as an identification medium.
When assessing an IT security project, it is necessary to determine what the savings
potential is based on. Typically, the application is responsible because it maps the business
process to IT systems. In the case of ELSTER, the electronic form filled out by the citizen
5.5 Evaluation of IT Security Projects 69
represents this application. If we examine projects with savings potential, we notice that
the applications are rarely “pure” security applications. Single sign-on projects are excep-
tions. It becomes clear that numerous applications require IT security functions in order to
generate their added value. A classic example is Internet banking, which is not possible
without secure data exchange with the PIN-TAN procedure between the customer and the
bank. Nevertheless, an important result remains to be noted: For many IT security proj-
ects, no positive economic contribution can be presented.
Against the background of the problems described above, the University of Idaho has
developed a calculation model based on return on investment (RoSI) (cf. Keller 2002).
RoSI is the difference between the benefits achieved by IT security measures and the costs
of implementing and operating the necessary IT security tools (e.g. firewall, encryption
software). In addition to the implementation costs, RoSI also takes into account the costs
caused by damage. The formulas for calculating the RoSI key figure are documented in
Fig. 5.9.
A simple calculation example gives the following picture: The purchase and operation
of a firewall (T = 30,000 €) ensure a security level of 95%. The total risk of possible dam-
age if a firewall is not used is estimated at 100,000 €. The gross saving by using the firewall
is E = 95,000 €. After deducting the tool costs of T = 30,000 €, a net saving of RoSI = 65,000
$ remains. Or a bit simpler: RoSI = E – T [65,000 € = 95,000 € – 30,000 €].
The use of the method is not easy in practice. An example from banking practice was
published in (Sowa 2007). A bank would like to replace the classic PIN/TAN procedure
used so far, which has some weaknesses, with more modern procedures. The bank’s tech-
nical experts favour the HBCI procedure, as it is currently considered the most secure but
also the most expensive. A compilation of all possible alternatives (cf. Figs. 5.9 and 5.10)
RoSI = E – T
Fig. 5.10 Use of the RoSI method in practice. (cf. Sowa 2007)
5.6.1 Scenario
5.6.3 Task
Before evaluating the projects, develop a concept and algorithm for prioritizing the above
projects and evaluate each project based on their algorithm. Make a concrete decision
regarding the portfolio for the next period.
This case study can lead to very different solutions. First, a concept should be described
how the prioritization is done. Then, an operational sequence should be formed. For exam-
ple, the concept could look like this:
• Projects are divided into three categories: Required projects, target projects and optional
projects. The categorization is the task of IT controlling; the project managers make a
proposal.
• Must-do projects are placed in the portfolio first, as long as budget is available.
• If the budget is already insufficient here, the authority management must determine the
further procedure. The remaining budget goes to the target projects. If there is still
budget left, an order is formed among the optional projects according to which the
budget is to be distributed.
• The order for the optional projects is determined by means of a value-in-use analysis
based on the following criteria: Quantitative benefit/project costs (weighting 1) and
Strategic value contribution (weighting 2).
• Formula for the value in use: benefit/cost * 2 * strategic value contribution
• The Strategic Value Contribution can take the following values: 0 = No Value
Contribution, 1 = Normal Strategic Contribution, 2 = High Strategic Contribution. The
classification is made by the IT controller in conjunction with the CIO.
• The budget should be used up as far as possible, i.e. the order may be changed slightly
if residual budgets can be exhausted as a result.
5.7 Summary
References
Abstract
The chapter IT Investment Accounting and Total Cost of Ownership (TCO) addresses
the cost and revenue effects obtained through IT investments. After introductory expla-
nations of terms and examples, case studies are used to determine concrete TCO and
discuss the implications for management.
This section first provides a brief overview of classic business methods of investment
appraisal (see also the overview in Kesten et al. 2006), which are also suitable for use in
IT controlling. Subsequently, selected methods are presented with application examples.
Figure 6.1 shows the most important business methods for IT investment accounting
and methods of cost estimation. The classic methods of capital budgeting are subdivided
into static methods, in which only one period is considered as a representative variable,
and dynamic methods, which cover multi-year payment flows taking into account interest
effects (cf. e.g. Kruschwitz 2005, p. 31ff.).
Funcon Point
6.1.1.4 Profitability
In the case of profitability, the average return on capital employed is determined and the
alternative with the highest profitability is selected.
the time t = 0. An investment is advantageous if the net present value is positive. If there
are several alternatives, the one with the highest net present value is selected.
6.1.1.8 Annuity
In the annuity method, the so-called annuity is determined. It represents a sequence of “n”
constant instalments, which corresponds to the capital value. Accordingly, the investment
is advantageous if the annuity is positive. The investment with the largest annuity sum is
selected from several alternatives.
The static methods are mostly rejected from a theoretical point of view. In practice, how-
ever, they are still frequently used for rough calculations or are generally used in simple
situations. The following is a simplified example of the application of the static methods
of investment appraisal. The problem definition is:
For simplification, it is assumed that no imputed costs such as depreciation and interest are
to be taken into account. The payment series are shown in Fig. 6.2.
The calculations of the static procedures cost, profit and profitability comparison and
payback period are shown below:
78 6 IT Investment Calculation and Total Cost of Ownership Analysis: IT Standards…
Alternave Time
0 1 2 3 4
A Cash oulow -10,000 -2,000 -2,000 -2,000 -2,000
Fig. 6.2 Data for the calculation example for static methods
Alternative A
Investment t = 0–10,000
Average cash return = +3000 (revenue 5000 – operating costs 2000)
Payback period = 10,000/3000 = 3.33 years
6.1 Business Methods of Investment Appraisal 79
Alternative B
Investment t = 0–1000
Average cash return = +1000 (revenue 5000 – operating costs 4000)
Payback period = 1000/1000 = 1 year
For the application of the net present value method, the introduction of an information
system is to serve, which causes an initial payout in t = 0 and is used over 4 years. Figure 6.3
shows the net present value formula including the legend.
Table 6.1 shows the cash flows and the results of applying the net present value formula
with a calculation interest rate of i = 8%. The net present value of the investment is posi-
tive, i.e. the investment is beneficial.
Of the multidimensional methods presented in Fig. 6.1, only the widely used utility analy-
sis will be briefly presented here in the context of IT controlling. This method is also
known as the “scoring method”. Here, qualitative and quantitative characteristics are eval-
uated, weighted and condensed to a point value. The alternative with the highest point
value is the “optimal” alternative (cf. on the methodology of utility value analysis
Riedl 2006).
The advantages of the utility analysis lie in the consideration of qualitative effects and
the simplicity of the application of the procedure, provided that sufficient data are avail-
able. The result is comprehensible for third parties. However, the individual evaluation of
the criteria is always subjective. Thus, the procedure pretends a non-existent quantitative
measurability. Of decisive importance is the choice of weighting factors, which signifi-
cantly influence the result. The calculated score should only be used as a basis for decision-
making and should not necessarily lead to an automated decision.
80 6 IT Investment Calculation and Total Cost of Ownership Analysis: IT Standards…
Table 6.1 Net present value calculation for a new ERP system
Period 0 1 2 3 4
Investment −120,000
Operating costs −15,000 −15,000 −15,000 −15,000
Direct effects personnel reduction +5000 +10,000 +15,000 +15,000
Indirect savings
Construction +30,000 +65,000 +65,000 +65,000
Work preparation +10,000 +15,000 +20,000 +20,000
Increase in sales +5000 +15,000 +20,000 +15,000
Balance −120,000 +35,000 +90,000 +105,000 +15,000
Calculation interest rate 8%
Net present value 146,423
A short application example should explain the methodology. A new ERP system is to
be introduced in an industrial company. There are three systems to choose from. A deci-
sion proposal is to be prepared with the help of the utility analysis. The following must be
taken into account:
Fig. 6.4 Model calculation utility analysis for decision preparation of IT outsourcing
Figure 6.4 shows a practical example for the decision alternatives “100% insourcing” (no
outsourcing), “100 % outsourcing” and selective outsourcing, in which only selected parts
of the corporate IT are outsourced. The utility analysis assumes a high weighting of the
first two criteria (strategy and finance) with 40% each, while the other criteria are only
included with a low impact.
In practice, the determination of cost and benefit values often does not lead to the desired
results. For example, the net present value method determines a discounted present value
for the entire IT project. Unfortunately, the dynamics typical for IT projects cannot always
82 6 IT Investment Calculation and Total Cost of Ownership Analysis: IT Standards…
be included in the decision-making process, since many project durations are compara-
tively short. This is disadvantageous for the quality of decision-making, because the
framework conditions of an IT project often change several times already during the proj-
ect duration, which ultimately also led to the agile methods of project control. The concept
of the “real option” offers an alternative to make decisions in IT projects more dynamic.
However, real options are very rarely used as a tool for project management (cf. e.g.
Gadatsch et al. 2010, p. 19).
6.1.5.1 Option
An “Option” is the right, but not the obligation, to perform a certain action. For example,
a call option on a share makes sense from a certain share price onwards if price increases
are expected. However, there are still uncertainties regarding the future price development
that need to be weighed up.
6.1.5.2 Options
In principle, every IT project can be seen as a bundle of several real options. The project
management has to permanently adjust to changing environmental or general conditions
within the framework of project control. Real options of IT projects are considered to be:
• Option to expand: Extension of the planned functional scope of the information sys-
tem, e.g. if, after testing the standard software, additional functions previously unknown
to the customer are discovered that were not known in the original project volume.
• Delay option: Project delay, in the introduction of a new distribution processing sys-
tem, because the preliminary project “high-bay warehouse” was not completed in time.
The project will be continued when the high-bay warehouse is in operation.
• Termination option: Project termination due to a change in the general conditions,
e.g.: The client no longer needs the planned data center due to a company purchase, the
purchased capacities are to be used first.
• Restart option: Project that was previously delayed or stopped is started as planned,
e.g. rollout of finished software after it was suspended due to numerous quality defects.
If the individual options are combined with classic instruments of profitability analysis,
e.g. the frequently used net present value method, the result is not a static value for the
entire IT project, but adjusted net present values for each option (cf. the example in
Fig. 6.5).
A 10,000 * 0.3
E Project-scenario
pessimistic
B 5,000 * 0.1 milestone
C 0 * 0.05 P probability
terminate
D -12,000 * 0.25
terminate
E -6,000 * 0.30
Fig. 6.5 Use of real options in connection with capital values. (Based on Fiedler 2001)
financial processes. In addition, the standard processes of the software are by far not suf-
ficient to satisfy the requirements of production and sales.
The following options are proposed to the Steering Committee for the further course of
the project:
• Project termination: Immediate stop of the project and re-tendering of the standard
software, since the selected software cannot provide the necessary solutions as a stan-
dard solution. This results in considerable additional costs that were not planned.
• Project extension (technical): The missing functions are developed via add-on pro-
grams and linked to the standard software via interface programs. This alternative also
leads to additional costs, but the purchased software can be used.
• Project extension (organizational): Inclusion of the areas “financial accounting and
controlling” in the project in order to implement an integrated overall solution.
After the option “project termination” has been stopped in favour of the option “technical
project extension”, the options “technical and organisational project extension” are
realised together. After five further months, delays in the “logistics” sub-project become
transparent. Therefore, the subprojects “Manufacturing”, “Sales” as well as “Finance”
84 6 IT Investment Calculation and Total Cost of Ownership Analysis: IT Standards…
have to be delayed, since they depend on the data of the subproject “Logistics”. This
results in another option: Project delay: Stop the subprojects that depend on the logistics
project until the prerequisites for resumption have been achieved again.
The example documents the advantage of real options. Instead of rigid project planning
at the beginning of the project and a profitability analysis based on this, the evaluation of
the project can be adapted to the current situation.
The general business methods of investment appraisal have been expanded and adapted
with regard to their use for IT investments. In the meantime, a number of variants have
emerged, which are briefly outlined below on the basis of Malcher (2011). Section 6.3
presents the total cost of ownership analysis in detail, as it is of particular importance in
practice and has been widely used.
The Total Cost of Ownership analysis is a well-known procedure, of which there are vari-
ous models, which were developed by the analyst house Gartner (cf. Redman et al. 1998)
and with deviations in the calculation methodology by the analyst house Forrester. The
TCO analysis expands the scope of analysis of the classic IT investment calculation to
include additional cost components that arise from maintenance, support, further develop-
ment and replacement of the systems, among other things. In particular, direct and indirect
IT costs that arise during the life cycle are taken into account. The originally developed
standard method does not consider the benefits. A disadvantage is the complex determina-
tion of indirect IT costs, which is hardly feasible in practice.
The Total Economic Impact is a model of the Giga Group, which was later further devel-
oped by the analyst firm Forrester. It is mathematically very complex in terms of the analy-
sis of costs, benefits, flexibility and risk.
The Rapid Economic Justification Model was developed by Microsoft (Business Value
Center of Excellence). It aims to compare the value of an investment in a pragmatic way
to the necessary resources and costs.
6.2 Special Methods of IT Investment Accounting 85
The Total Value of Opportunity model was also developed by Gartner. It is based on the
Gartner TCO method and supplements it with benefits, risks and future developments.
Like the REJ model mentioned above, it is mathematically very complex.
The Business Value Index is a method of the company Intel. It considers material and non-
material criteria such as customer requirement, sales potential, strategic coverage and
risks, which are condensed into a key figure via weighted valuations.
The WiBe method is a procedure of the German Federal Ministry of the Interior. The
method is very widespread in the public sector and focuses on the evaluation of costs and
benefits of an IT measure using a very extensive catalogue of criteria. It is a version of the
net present value determination combined with a utility analysis that has been adapted for
public administration. The major advantage of the procedure is its very good documenta-
tion and software support, which is constantly being further developed by the ministry (cf.
Die Beauftragte der Bundesregierung für Informationstechnik 2014).
Cranfield’s Benefits Management approach is also a complex method. The basic assump-
tion is that a benefit never results from IT alone, but only from simultaneous changes to
organizational structures and processes. The benefit is defined as an advantage in the sense
of a stakeholder or a group of stakeholders.
Val-IT is a method of the IT Governance Institute (ITGI). It is based on the CoBIT frame-
work and consists of 3 core processes with 41 management practices. The advantage is
that concrete persons responsible are assigned to the individual practices (role model) (cf.
ISACA 2011).
86 6 IT Investment Calculation and Total Cost of Ownership Analysis: IT Standards…
The total cost of ownership (TCO) analysis is an IT controlling tool for determining the
total costs during the life cycle of an IT investment, e.g. the introduction and use of an ERP
system or an IT workstation (Grob and Lahme 2004, p. 157). The approach can be traced
back to the work of the analyst firm Gartner (cf. Treber et al. 2004, p. 18), which investi-
gated the question of what total costs the use of information systems entails. The model
was successfully placed on the market with tool support by an acquired software house
and allows companies to estimate the total cost of ownership (cf. Treber et al. 2004, p. 20).
• Gartner: Comprehensive assessment of a company’s costs over the life cycle of a sys-
tem: costs of procurement, installation, operation and maintenance of the com-
puter system.
• Bill Gates: The cost of owning, operating, and maintaining a computer system.
• Ellram: Approach to understanding all costs incurred and relevant along the supply
chain when doing business with a supplier for a particular good/service.
•Write-offs
Hardware •Updates
•Spare parts and supply goods
•other Hardware expenses
•Write-offs
Direct •miscellaneous software costs
In this section, two case studies on TCO analysis are presented, which concern different prac-
tice-relevant situations. They show how TCO analyses can be carried out in a real environ-
ment (e.g. system failure of an ERP system or introduction of a new warehouse system).
Output Data
• Müller GmbH operates an ERP system on its own server (on premise). The server is
mirrored to a backup server during operation (RAID 1 level).
• The probabilities that the servers are up and running are stochastically independent.
• The probability that the ERP server is in operation is (X): P(X) = 0.98.
• The probability that the backup server is up and running is (Y): P(Y) = 0.99.
• The failure of the operation of the ERP system causes sales losses of 100,000 euros per
working day. The variable costs of the company amount to 70% of the turnover.
Task
Determine the imputed TCO for 1 day of system failure, taking into account the probabili-
ties of occurrence.
Possible Solution
• Costs for system failure (fixed cost share) 30% * 100,000 euros = 30,000 euros/day
The probabilities of occurrence for the operation or failure of the servers are shown in
Table 6.3.
( ) ( )
P X ∪ Y = P (X) + P (Y) − n ⋅ P X ∩ Y , P (X) = 1 − P (X), P (Y) = 1 − P (Y)
( )
P X ∪ Y = (1 − 0.98 ) + (1 − 0.99 ) − 2 ⋅ ( (1 − 0.98 ) ⋅ (1 − 0.99 ) ) = 0.0296
( )
P X ∪ Y = P ( X ) ⋅ P ( Y ) = 0.02 ⋅ 0.01 = 0.0002
Output Data
The logistics department of a mechanical engineering company would like to introduce a
new IT-supported warehouse system to be used for 5 years. Based on an interest rate of
5%, determine the TCO for the following project proposal.
Costs of Use
Decommissioning/Disposal:
Additional Information
• You know from experience that the following “side effects” are to be expected: During
the start-up phase, overtime will be incurred due to duplication of work. They estimate
that the five employees concerned will each need 50 h of overtime at 80 euros each.
• During the first 2 years, frequent “colleague training” is to be expected. This will result
in a loss of working time of 80 h/year.
• Experience shows that systems fail several times during the introductory phase in the
first year (3 days p.a.). As a result, the authority loses tax revenue and fees worth
100,000 euros (80,000 euros direct costs).
Possible Solution
Conclusion: The project has a negative TCO, resulting mainly from the high indirect costs
(cf. Fig. 6.7) Determining the TCO for a new information system. It is not beneficial from
a financial point of view.
92 6 IT Investment Calculation and Total Cost of Ownership Analysis: IT Standards…
Note on system failure in the first year amounting to 20,000 euros. Only opportunity
costs are applied here: (100,000–80,000 = 20,000 euros), since the 80,000 costs are no
longer incurred.
6.4 Summary
• IT standards form the basis for a systematic reduction of IT costs in the direct and indi-
rect areas.
• IT controllers support IT management in the development and implementation of IT
standards.
• If necessary, they provide ad hoc analyses of indirect costs in order to determine a
holistic total cost of ownership for IT management.
References
Die Beauftragte der Bundesregierung für Informationstechnik (Hrsg) (2014) WiBe 5.0 Konzept zur
Durchführung von Wirtschaftlichkeitsbetrachtungen in der Bundesverwaltung, insbesondere
beim Einsatz der IT Version 5.0 – 2014. https://www.cio.bund.de/SharedDocs/Publikationen/DE/
Architekturen-und-Standards/WiBe_50.pdf?__blob=publicationFile. Accessed on 19.12.2017
Fiedler R (2001) Controlling von Projekten. Springer, Wiesbaden
Gadatsch A (1993) Der interne Zinsfuß für das Investitionscontrolling. Kos 6(1993):405–407
Gadatsch A, Juszczak J, Kütz M, Theisen A (2010) Ergebnisse der 3. Umfrage zum Stand
des IT-Controlling im deutschsprachigen Raum. In: Schriftenreihe des Fachbereiches
Wirtschaftswissenschaften Sankt Augustin, Band 29. Hochschule Bonn-Rhein-Sieg, Sankt
Augustin
Grob HL, Lahme N (2004) Total Cost of Ownership-Analyse mit vollständigen Finanzplänen.
Controlling 3:157–164
ISACA (Hrsg) (2011) Analyzing IT Management at KLM Through the Lens of VAL IT. https://
www.isaca.org/resources/isaca-journal/past-issues/2011/analyzing-it-value-management-at-
klm-through-the-lens-of-val-it. Accessed on 16.02.2021
Kesten R, Schröder H, Wozniak A (2006) Konzept zur Nutzenbewertung von IT-Investitionen,
Arbeitspapiere der Nordakademie, No. 2006-03, Nordakademie – Hochschule der Wirtschaft,
Elmshorn
Krischun S (2010) Total cost of ownership, Bedeutung für das internationale
Beschaffungsmanagement. Hamburg
Kruschwitz L (2005) Investitionsrechnung, 10. Aufl. München
Malcher M (2011) Mit TCO & Co den Wertbeitrag ermitteln, Welche IT-Investition zahlt sich aus?
Computerwoche, 02.08.2011. https://www.computerwoche.de/a/welche-it-investition-zahlt-
sich-aus,2491768,4. Accessed on 08.03.2020
Müller A, Lang J, Hes T (2003) Wirtschaftlichkeit von Controlling-Anwendungssystemen: Konzeption
und Erprobung eines Multiperspektiven-Ansatzes. Z Controll Manage 47(Sonderheft Nr. 2)
Redman B, Kirwin W, Berg T (1998) TCO – a critical tool for managing IT. Gartner Research,
12.10.1998
References 93
Remenyi D, Bannister F, Money A (2007) The effective measurement and management of ICT cost
& benefits, 3. Aufl. Amsterdam
Riedl R (2006) Analytischer Hierarchieprozess vs. Nutzwertanalyse: Eine vergleichende
Gegenüberstellung zweier multiattributiver Auswahlverfahren am Beispiel Application
Service Providing. In: Fink K, Ploder C (eds) Wirtschaftsinformatik als Schlüssel zum
Unternehmenserfolg. DUV. https://doi.org/10.1007/978-3-8350-9122-1_6
Treber U, Teipe, P, Schwickert AC (2004) Total cost of ownership, Stand und Entwicklungstendenzen,
2003 Giessen, Arbeitspapiere Wirtschaftsinformatik 1/2004
IT Standards: IT Standards as a Tool for IT
Controlling 7
Abstract
The chapter addresses the effects that IT standards have on the level of direct and indi-
rect costs in the context of the entire life cycle of information systems. IT standards also
support the regulations of an IT governance, which are established for the control and
monitoring of IT.
IT governance is a concept for the control and monitoring of the information economy,
which essentially goes back to the work of Weill and Ross (2004) and was later further
developed by other authors and organizations.
Hansen et al. (2018) defines IT governance as measures, processes and structures that
make the IT services of a company more transparent and easier to control. Among other
things, IT governance is intended to ensure that the IT strategy is in line with the corporate
strategy (IT alignment) and that regulatory requirements are adhered to (compliance). IT
governance encompasses all strategically relevant decisions regarding the IT infrastruc-
ture, IT services and IT risks (cf. Hansen et al. 2018).
The issues of IT governance overlap with those of IT controlling and IT management.
Helmke and Uebel (2013, p. 61), for example, define the following central processes of IT
governance:
• IT Strategy,
• IT Architecture Management,
• IT Demand Management,
• IT Portfolio Management,
IT standards are familiar to many users. Anyone who has ever used a computer keyboard
will wonder why the key arrangement is not alphabetical, but on US keyboards the first six
keys are QUERTY, on the German variant QUERTZ. The background for this situation is
an invention from 1873 by the engineer Christopher Soles at the “Remington Sewing
Machine Company”. Originally, the keyboards of the typewriters were arranged according
to the alphabet, but the types of the typewriters became jammed when words were used
whose letters were directly behind each other in the alphabet (e.g. “... ab ...”). So the sec-
retaries had to be slowed down in their “typing speed” by a different letter arrangement.
The “standard” prevailed. Other manufacturers of typewriters, despite better solutions,
were forced to follow the “standard” until the present day of laptops, smartphones, etc. (cf.
e.g. Kühl 2015, pp. 133–134).
IT standards are already very widespread in the public sector and there is also still
unused potential (Heuermann et al. 2018, p. 44). For example, on a training computer in a
public institution there is an information sheet with the specialist procedures available on
the computer. These are all standards from the IT environment:
• Software: MS Windows,
• Processes: V-Modell XT,
• Methods: Wibe Calculator,
• Information: Juris,
• Encryption: Cryptotool.
The federal IT consolidation projects can also be classified as a standard in the broadest
sense. It includes a vision (federal IT consolidation) as well as a mission (“Federal IT will
be bundled and standardised by 2025 so that the federal administration can operate more
economically and securely.”) (cf. BMI 2018). The central IT service provider ITZ Bund is
currently working on numerous standardisation projects; within a period of 10 years, the
federal IT is to be bundled and standardised (cf. Schweizer 2019). The goals are ambi-
tious, as an example from the documentation shows: By 2025, only a maximum of two IT
7.2 IT Standards as an Approach to TCO Reduction 97
solutions per functionality are to be provided for the federal administration. This means,
for example, that there will only be one IT procedure for electronic file management
(e-file) or personnel management (cf. BMI 2018).
A historically grown IT infrastructure with numerous solutions for similar problems (e.g.
use of different ERP systems, e-mail programs or operating systems, use of different PC
types, purchasing from different PC manufacturers) leads to high costs for maintaining
operational readiness. Many companies are faced with the challenge of reducing the num-
ber of different solution variants. In the context of IT strategy development, information
management issues (IT processes, IT project management, quality management, IT secu-
rity) must be selected from numerous, sometimes competing external standards (manufac-
turer standards, standards of standardization bodies and legally regulated standards) as
in-house IT standards, adapted and applied if necessary.
The goal of standardization is to define appropriate and meaningful IT equipment for
the majority of IT users in the company and not to comprehensively cover the IT
98 7 IT Standards: IT Standards as a Tool for IT Controlling
Areas of Standardization
IT organization
Hardware Software
and IT processes
Workstations
Computer languages Supply and servicing of Encryption
(e.g. Standard office
(e.g. C++, Java) IT workstations methods(e.g. PGP)
computer)
Workstation
Standardized office Process models for IT- Cost-estimating
accessories
software Projects methods (e.g. Function
(e.g. card reader,
(e.g. MS Office) (e.g. V-Model, ASAP®) Point)
PIN-Generator)
Fig. 7.1 Fields of standardization for information technology in the public sector
focused on the public sector and its special requirements, but can be used in several
authorities (see the product list at https://www.itzbund.de/DE/Produkte/produkte_
node.html).
Standards for IT organization and processes in IT are becoming increasingly important.
In addition, market standards, as known from the areas of hardware and software, are less
prevalent here. Therefore, numerous examples of standardization can be found. For exam-
ple, the processes for the provision, maintenance and disposal of computer workstations
are tasks that often do not exist in standardized form and generate comparatively high costs.
Process models for software development (V-Modell XT) and their documentation can
be found in software houses and larger organizations. The same applies to methods of
profitability analysis that are to be used in the projects, such as the WIBE calculator that is
widespread in the public sector.
If an organization uses the possibility of exchanging e-mails and other electronic docu-
ments in encrypted form, uniform encryption methods are required. If business process
models are created in the organization, it makes sense that the modeling methods used for
this purpose (e.g., the PICTURE method frequently used in the public sector) are used
uniformly.
A good example of software and process standardization in the public sector are the
directory services of the Informationsverbund Berlin-Bonn (IVBB) and the
Informationsverbund der Bundesverwaltung (IVBV). They provide overlapping infor-
mation for connected authorities (telephone numbers, addresses, certificates).
Collaboration &
Coordination
Information Standardization
Management Requirements
Board
upon IT-Standards
Blanket
Order
Information Collaboration
IT-Standards & Framework
Functional offer
requirements
IT- Order
Service Provider Consumer
(internal/external)
Delivery
management within the scope of a contract to develop IT standards and to provide them
later. The requirement management orders after realization and availability of the IT ser-
vices from the offer provided by the IT service provider.
This provides a binding framework for all parties involved. The company can exploit
cost advantages from standardization. But here, too, there is a latent danger of overregula-
tion and an incentive for the affected organizational units to think about intelligent alterna-
tive measures.
References 101
7.3 Summary
• IT standards form the basis for a systematic reduction of IT costs in the direct and indi-
rect areas.
• IT controllers support IT management in the development and implementation of IT
standards.
References
Abstract
The ongoing evaluation of projects is an important tool for IT controlling. This section
presents the earned value analysis tool, which was designed for controlling projects It
is particularly suitable as an easy-to-use tool for multi-project management, but requires
consistent planning and actual data feedback. It can be used within the framework of
classic and agile project management methods.
A central task of the IT controlling concept is IT project controlling. It ensures that the IT
project goals are achieved by aligning them with the corporate goals. For this purpose,
classic controlling tools are used, such as target/actual comparison, variance analysis and
initiation of corrective measures.
Typical tasks of project controlling are (cf. in detail Fiedler 2020, p. 9 f.):
• Project planning: Support in the preparation of the project planning and the project
description,
• Project maintenance to ensure consistency with planning and check for completeness
of activity account assignments,
• Assisting in the preparation of presentations and monitor assignments from the Steering
Committee,
• Preparation of evaluations for the control of the project,
• Reporting: Preparation and review of status reports,
• Risk management: Keeping the risk list,
• Monitoring of project costs,
In the classic model, IT projects are broken down into phases in order to separate techni-
cally different activities and simplify control. Figure 8.1 shows a phase model for IT proj-
ects that was designed with project controlling in mind and describes points in time at
which cost estimates are performed. The model contains the core phases of a project (pre-
liminary study, project application, project start, as-is recording, target conception, imple-
mentation and project completion) as well as the project-accompanying cross-sectional
phase of project controlling.
8.1.1 Pre-study
• The preliminary study enables the project management to submit a project application.
It clarifies the following questions, for example:
• Is the right problem being pursued?
• Can it be solved with standard software or is in-house development necessary?
• Do external consultants have to be used or is your own know-how sufficient?
• How long will the project take to implement?
• What are the estimated costs?
• What are the expected project benefits?
The project proposal is a formal request to the management to release a project for imple-
mentation and to provide the necessary resources. An approved and released project pro-
posal is the “project order”, i.e. the basis for action for the project manager. The application
usually contains the following information: Project name and objective, start and end
dates, main tasks, budget, commissioning body, project manager (if known), project team
members, organisational units affected, connection to other projects in terms of content
or time.
To start the project, a “kick-off meeting” is often held to gather all key stakeholders and
determine the next steps. The goals are:
(rough) (detailed) Actual project data (up to present day) Actual project data
estimated estimated + detailed estimated project data (Structure,
project data project data (Structure, Resources,
Input (Structure, (Structure, Resources, Appointments)
Resources, Resources, Appointments)
Appointments) Appointments)
1 2 3 4 5 6 7
Point in time Preliminary Project Actual Target Project
Approval Execution
Study application state conception completion
The kick-off meeting is a motivational and marketing tool. In addition, it serves to clarify
open questions to a large group of people who rarely come together again in this constel-
lation. The creation of personal relationships is indispensable for later teamwork. Unknown
weak points in the previous project preparation become transparent.
The objective of the As-Is phase is to determine the current status. This includes the opera-
tional organizational structure, the work processes, the IT and personnel deployment as
well as a detailed profitability analysis. Another important aspect is the analysis of weak-
nesses and potential for improvement in the aforementioned areas.
In the target concept, a technical solution design is developed on the basis of the as-is
analysis. The target concept includes the following contents:
• Objective: What objective is to be pursued, taking into account the real restrictions?
• Scope of tasks: Which tasks are to be realized in detail?
• Solution: Propose possible solutions to accomplish the tasks.
8.1.6 Implementation
Project completion includes the proper handover of the project result to the client, e.g. the
handover of the finished software system to the specialist department. After the project has
8.2 Structure of the Earned Value Analysis 107
been completed, the creation and analysis of the post-calculation is an important task. It
serves to evaluate the completed project and to gather experience for future projects. If
necessary, measures can be initiated, such as improving the cost estimation methods used
in the company. The last task is the formal dissolution of the project team. From a human
resources perspective, this involves finding successor positions for the project team mem-
bers and the project manager. This also includes the dissolution of rooms and return of
resources (vehicles, etc.).
The project pre-calculation serves as a rough estimate of the project costs. The result of the
preliminary study requires as input the rough project structure (tasks), necessary resources
and key dates.
A detailed project plan calculation is required for the project application. is required. It
requires detailed information. The project budget estimate is the basis for the subsequent
project approval.
The concurrent project costing provides the necessary control information on the status
and development of the project cost situation. It requires detailed feedback on actual costs
(license fees, consultant invoices, employee hour records, etc.).
After the project has been completed, it is advisable to create a project post-calculation.
Which serves as a basis for a final consideration of the economic efficiency of the project
and as a basis for later preliminary project costings.
For project management metrics are needed to show the progress and benefits of the mea-
sures (Hartmann et al. 2019, p. 19), because project managers are regularly confronted
with the following questions in practice:
Suitable basic data is often lacking to answer these questions. A comparison of the actual
costs of a project with the planned costs leads to incorrect results, since a proportionality
of time progression and cost progression that does not exist in practice is usually assumed.
108 8 Project Controlling with Earned Value Analysis: Plan, Monitor and Control Projects
To avoid this problem, the earned value analysis determines target costs that indicate the
theoretically achievable cost value and thus the project value and compares these with the
actual costs. It measures the project performance based on the originally planned costs
(Werkmeister 2008, p. 171). In addition, key figures are formed for analysis (cf. Kesten
et al. 2007, p. 101 ff. as well as Linssen 2008, p. 87 ff.).
The earned value analysis as an instrument for project controlling answers the follow-
ing questions, for example:
The output value corresponds to the actual value of the service provided, the target costs
of the project. It therefore corresponds to the level of costs as they are likely to be accord-
ing to the planning status of the project (Linssen 2008, p. 89). The project performance
(=earned value) is determined by comparing the progress valued at planned costs with the
planned costs (Stelzer and Bratfisch 2007, p. 62).
A simplified example will illustrate this:
The following basic data can be taken from the project progress:
The time efficiency is the quotient of the earned value and the original planned costs. If the
time efficiency is greater than 1, the project progress is faster than planned:
The cost efficiency is the quotient of the earned value and the actual costs incurred. If the
value of this ratio is above 1, the project is cost-effective:
The earned value analysis can only be used if complete and detailed project planning is
available (project structure, deadlines, costs) and this has been prepared in detail at the
level of subtasks or work package level. In addition, realistic effort estimates are neces-
sary. In particular, it can no longer be used if the following characteristics apply to the
project (cf. Stelzer and Bratfisch 2007, p. 69):
The following arguments are cited as advantages of the method (Linssen 2008, p. 100):
possibility of setting up an early warning system, key figures enable supervisory bodies
(project steering committee) to be informed quickly, relief for managers by defining
threshold values that indicate a need for action by managers. The IT controlling toolbox
has numerous elements (cf. Gadatsch and Mayer 2013 for a detailed discussion), but they
are not always used consistently. In practice, classic milestone trend analyses and profit-
ability calculations dominate. Earned value analysis is used more frequently than before
after a 10-year long-term analysis, although there is still potential to be seen here (cf.
Gadatsch et al. 2013, p. 20).
110 8 Project Controlling with Earned Value Analysis: Plan, Monitor and Control Projects
Planned sprints 10
Sprints still to be performed (estimate) 6
FG% = (10–6)/10 * 100 = 40%
8.3 Application Examples 111
PV EV
AP1 (4th Week, AP2 (8th, €40.000) AP4 €20.000
AP3 (16th Week, €80.000)
€10.000)
0 1 2 3 4 5 6 7 8
A wholesale market chain is developing a new Internet presence based on a content man-
agement system. A total of four work packages (WP) are planned (duration, costs):
• After 3 weeks the preliminary study is ready. The costs incurred amount to 9000 euro.
• Work package 2 is delayed by 1 week, so that after a total of 3 months the concept
is ready.
• The conception (work package 3) caused 50,000 euro due to disputes between the tech-
nical side and the project management. At the end of the fourth month, the development
management states that about 50% of the website has already been completed. However,
external developers had to be employed because the company’s own employees were ill
and a total of 70,000 euro has been spent on WP3 to date.
A schematic representation of the course of the project with an indication of the relevant
variables is shown in Fig. 8.2.
How is the project to be assessed at the end of the fourth month. For this purpose, the
key figures “cost variance”, “schedule variance” “cost efficiency” and “time efficiency” of
the earned value analysis are to be calculated.
(continued)
10,000 + 40,000 + 25% of 80,000 = 70,000
EV earned value/Completion value (end of fourth month) 90,000 euro
10,000 + 40,000 + 50% of 80,000 = 90,000
AC actual cost 29,000 euro
9000 + 50,000 + 70,000 = 129,000
A software company develops a new “app” for its software developers. They should be
able to record their project hours via smartphone. A total of five work packages (WP) are
planned:
PV
EV
AP1 €40.000 AP2 1st Week, €80.000 AP3 3rd Week, €120.000 AP4 €20.000 AP5 3rd Week, €180.000
0 1 2 3 4 5 6 7 8 9 10
• Work package 3 needs 4 weeks, instead of 3 weeks, the costs amount to 150,000 euro
• Work package 4 proceeds according to plan (same duration, costs as planned)
• Work package 5 has been stopped due to technical problems.
Figure 8.3 shows the course of the project with some key figures.
8.4 Reporting
The earned value analysis is very well suited for the creation of overview reports with the
most important key figures for several projects (cf. Fig. 8.4) or of project portfolios (cf.
Fig. 8.5). For this, the use of suitable tools is required to automate the creation effort.
8.5 Summary
The earned value analysis was developed for project controlling and provides key figures
for controlling and analyzing the course of the project (especially costs and time).
The EVA methodology can also be used in agile projects by determining the degree of
progress by comparing storypoints or sprints (cf. Fiedler 2020, p. 162).
Project Total Residual Costs Planned Costs Actual Earned- Time Cost
planned Actual costs 0-t (t) costst Valuet efficiency efficiency
costs Active Planned costst-n
P1
P2
P…
Costs
CPI >1
Cheap P3
P1 P2
CPI =1
P4
CPI <1
Expensive Length
SPI <1 SPI =1 SPI >1
Slow Fast
Fig. 8.5 Reporting with the EVA methodology – project portfolio. (cf. Ceplak 2017)
References
Ceplak C (2017) Earned value management, controlling von Projektportfolios mit Hilfe der Earned
value analyse, Masterarbeit, Alpen-Adria-Universität Klagenfurt, März 2017. https://netlibrary.
aau.at/obvuklhs/content/titleinfo/2413199/full.pdf. Accessed on 11.03.2021
Fiedler R (2020) Controlling von Projekten, 8. Aufl. Springer, Wiesbaden
Gadatsch A, Mayer E (2013) Masterkurs IT-Controlling, 5 Aufl. Springer, Wiesbaden
Gadatsch A, Kütz J, Juszczak J (2013) Ergebnisse der 4. Umfrage zum Stand des IT-Controlling im
deutschsprachigen Raum, Bd 33. Schriftenreihe des Fachbereiches Wirtschaft Sankt Augustin,
Hochschule Bonn-Rhein-Sieg, Sankt Augustin
Hartmann K, Lange P, Bauer T. (2019) IT-Management im öffentlichen Sektor. Erfolgsfaktoren
für Großprojekte in Behörden und Verwaltungen. eGOVERNMENT Computing, ohne Jahrgang,
007, 19.06.2019, 19, ISSN 1618-3142
Kesten R, Müller A, Schröder H (2007) IT-controlling, Messung und Steuerung des Wertbeitrags der
IT. Vahlen Verlag, München
116 8 Project Controlling with Earned Value Analysis: Plan, Monitor and Control Projects
Abstract
This section shows the structure and application of decision-oriented IT cost and per-
formance accounting from the perspective of IT controlling, without going too deeply
into cost accounting details. First, various concepts of IT cost and activity accounting
are presented. Subsequently, selected questions concerning the recording, allocation
and analysis of costs are dealt with. Afterwards, case studies are used to illustrate con-
crete application possibilities.
The share of direct and indirect IT costs in total costs is rising as business processes
become increasingly digitalized. IT costs often reach a significant proportion of process
costs, such as in online shops, insurance, telecommunications or banking services.
Many companies recognize that IT cost allocation is necessary in order to obtain basic
data for decisions (e.g. outsourcing, relocations, acquisitions or sales of parts of the com-
pany). The charging of IT services has increased significantly compared to previous years:
72% of companies in the German-speaking world carry out IT service charging (Gadatsch
and Mayer 2013, p. 14).
Shaping of
Influencing the
Insourcing-/
Governance extent of costs
Outsourcing
(quanty x price)
decisions
Assessment of IT
Activiation of self-
Legal products for
affiliated companies
rendered IT products
Requirements both domestic and
(e.g. Introduction of
an ERP system)
abroad
The goals of IT cost and service allocation can be divided into three groups: Creating
transparency with regard to IT costs and the services provided for this purpose, the pos-
sibility of controlling measures and projects, and fulfilling legal requirements. The
objectives and some examples are shown in Fig. 9.1.
As an example of practice-relevant goals, a presentation by the energy supplier EnBW
at a specialist conference can be cited, which gives the following reasons for a cause-
related allocation of IT costs and services (cf. Baumgart 2019):
In practice, IT costs and services are typically charged at three levels: Business Services,
Technical Services and IT Infrastructure (see Fig. 9.2 and Serviceware 2018). The tech-
nical infrastructure includes, among other things, basic technical services, data centre
operation and security services. Billing can take place, for example, via distribution keys
to the next higher level (Technical Services). Technical services include the provision of
9.2 Methods of Charging IT Costs and Services 119
Operation Data-
Technical Base Wi-Fi Network
of
computing Security base …
Infrastructure services centre update
applications (such as an SAP workstation, managed desktop apps, managed client hard-
ware). These can be allocated to the upper level of business services after they have been
used (possible allocation objects are the IT work center, HR services, logistics services,
and so on) and represent the interface for allocation to the business side. The business side
only orders the “business services” mentioned.
The general and rather complex “TBM Framework” can be used as a reference for the
formation of an own allocation structure (TBM Council n.d.). In the public sector, the
topic of IT cost and activity allocation has been implemented operationally for some time,
for example in Rhineland-Palatinate, whose state government (Ministry of Finance) has
published a comprehensive manual specifically for this purpose (cf. Rheinland-Pfalz 2000).
The allocation of IT costs and services can be divided into two major groups: Lump-sum
and analytical approaches (cf. Dittus et al. 2017). Flat-rate approaches can in turn be sub-
divided into approaches for “non-allocation or partial allocation” (type A) and “apportion-
ment allocation procedures (type B)”. In the case of analytical methods, there is
“performance-based allocation based on an IT service catalogue” (type C) and “process
driver-based allocation” (type D). The four variants are shown in Fig. 9.3.
The procedures presented in Fig. 9.3 are characterised below in keywords with regard
to the effort involved, the allocation system and the possible control effect.
• Effort
–– Simplest form of (non-)allocation, therefore requires little or no effort.
• Offsetting
120 9 IT Cost and Activity Accounting (IT-KLR): Numbers for Rational Decisions
Type C:
Type A: Type D:
Type B: Performance based
No-neng approach or Process driven
Surcharge-allocaon allocaon
paral clearing method allocaon
(IT service catalogue)
–– IT costs are posted to the central IT cost center and remain there.
–– The total IT costs are included in the profit and loss account as a lump sum via the
administrative overhead surcharge (percentage).
• Control function
–– No possibility to control IT costs
–– No IT product costing (costs of IT products are not known)
–– No influence on the cost awareness of IT and business departments
• Practice
–– According to one study, Type A accounts for a very high proportion: 40% of the
companies surveyed stated that they did not carry out any IT cost and activity alloca-
tions (cf. Gadatsch et al. 2017). ◄
• Effort
–– simple form of distribution, requires only little effort (distribution key)
• Offsetting
–– Direct costs are posted to the originating cost centers (for example, costs for a pur-
chased PC, mobile phone contract).
9.2 Methods of Charging IT Costs and Services 121
Overhead costs are distributed to non-IT cost centers via quantity or value keys (e.g.
based on the keys “number of employees”, “number of PCs”, “personnel costs”)
• Control function
–– No possibility to control IT costs
–– No IT product costing (costs of IT products are not known)
–– Hardly any influence on cost awareness on the part of IT and business departments
• Practice
Type B is practiced, for example, by the Lanxess company in Leverkusen (cf.
Schuster 2012). ◄
• Effort
Complex billing, requires data preparation, processes and IT tools
• Offsetting
–– IT department creates an IT service catalogue and plans quantities and prices for all
services (multi-level IT product costing for each IT service)
–– IT costs are booked to the central IT cost center, the customers can book the IT ser-
vices, and their cost centers are debited monthly.
• Control function
–– Possibility to control IT costs (connection between consumption of IT resources and
their use becomes transparent)
–– Promotes economic thinking and raises awareness of costs among IT and business
departments, benchmarking with external IT providers is possible
• Practice
–– Type C is practiced by Rolls-Royce Power Systems, for example (cf. Siems 2014). ◄
• Effort
–– Very complex accounting, requires extensive data determination, processes and IT
support (usually only feasible with complex tools)
122 9 IT Cost and Activity Accounting (IT-KLR): Numbers for Rational Decisions
• Offsetting
–– Determination of cost blocks and allocation of cost drivers (e.g. allocation of all
costs for “IT service” and determination of the cost driver “number of tickets for IT
service”)
–– Allocation of IT costs to originating cost centers based on the cost drivers (take over
the role of the “distribution key from type B”, but with meaningfulness)
• Control function
–– Very good visibility of cost causation (cost drivers) and cost utilization
–– Possibility of displaying the IT cost shares in business processes
• Practice
–– Due to the high effort involved, type D is at best relevant for state-regulated compa-
nies that have to report their process costs differentiated by cost type (including IT
costs). ◄
The illustration in Fig. 9.5 shows different data supplying systems (senders) as they are
frequently encountered in practice (cf. Gadatsch and Mayer 2013, p. 163). From financial
accounting, for example, incoming invoices, from materials management material with-
drawals (e.g., replacement of a keyboard) and from human resources personnel costs and,
if applicable, activity quantities (e.g., hours incurred by software developers for IT proj-
ects) enter IT cost type accounting.
Special software systems, such as IT asset management or IT activity allocation, pro-
vide inventory data and movements on IT assets (hardware, software, accessories) and
time consumption for IT projects or troubleshooting. IT cost centre accounting distributes
the IT costs incurred to cost centres according to their origin. IT job accounting is used to
collect and distribute longer-running or particularly important measures, especially IT
projects or license costs for ERP systems.
IT cost unit accounting determines the calculations for the IT department’s IT products,
e.g. the price for a consultant hour, etc. In the IT income statement, the contribution of IT
to the overall success of the company is determined. The IT management recognizes what
share its performance achieves in the results of the company. In addition to reporting, the
data recipients of IT cost and performance accounting are billing (if the IT department also
9.3 IT Cost Element Accounting 123
High
Type D:
Type B:
Process driver based
Cost allocaon offse ng
offse ng
Relevance and
amount of IT
costs Effort Effort
(in proportion
to
total costs) Type C:
Type A:
Performance based cost
No cost allocaon OR
allocaon
paral cost allocaon
(IT service catalog)
Effort Effort
Low
Low Necessitiy for IT-control High
(Cost Awareness, Demand Management, Benchmarking)
High
Type B: Type D: Process driver
based offse ng
Cost allocaon offse ng
Type A: Type C:
No cost allocaon OR Performance based cost allocaon
paral cost allocaon (IT service catalog)
Low
Low High
Necessitiy for IT-control
(Cost Awareness, Demand Management, Benchmarking)
Fig. 9.4 Portfolio for the selection of allocation methods for IT costs and services
generates external sales outside the company) and financial accounting. IT reporting takes
data, prepares it for the recipient, and distributes it to the managers in the company.
Cost element accounting structures the IT costs incurred and prepares them for further
processing. The structure of the IT cost elements depends on the organizational form of
information processing and the desired level of detail. Differences result, for example,
124 9 IT Cost and Activity Accounting (IT-KLR): Numbers for Rational Decisions
IT-cost center
Adminstrative accounting IT- cost unit Billing
Accounting Based on full costs or
accounting
marginal costs
Based on full costs or
Standard Systems
marginal costs
Allocation
Human Resources IT-cost-type- of IT-costs Cost estimation of
Management (e.g. per user) IT-Reporting
accounting IT products
(product costing)
Gathering of all
and
Materials- amounted IT-costs
(e.g. according to Adminstrative
Management special IT-cost-types)
IT profit and loss
IT-order statement Accounting
accounting (period costing)
IT-Asset- Based on full costs or
marginal costs
Specialized Systems
manage-
ment Allocation ...
of IT-costs
(e.g. per IT-Projects)
IT-Activity-
Recording
A distinction must be made between primary cost elements (e.g. invoice from a software
house for programming and consulting services) and secondary cost elements for internal
activity allocation (e.g. charging the project costs of the above-mentioned software house
to the departments involved).
Based on IT cost type accounting, IT costs are split into direct costs and overheads. Direct
costs can be directly assigned to sales products without further allocations, such as IT
products of a software house or IT consulting company (e.g. invoice of an external consul-
tant for a software system developed on behalf of a customer are IT direct costs for the IT
product “software system”).
9.4 IT Cost Centre Accounting 125
IT overhead costs that cannot be directly allocated are distributed to the IT products via
IT cost center accounting using different methods. For example, software developers in
the IT department use the Internet for research. However, the fees incurred for this cannot
be allocated to individual projects of the developer’s work. They must be allocated accord-
ing to appropriate criteria. Cost center accounting is used for this purpose. First, the IT
costs of the IT preliminary cost centers (e.g. computer center, PC service, application
consulting) are collected and distributed to the main cost centers (also called final cost
centers). Main cost centers are the end users of IT services, e.g. sales, production, person-
nel, etc. Overhead costs can be allocated to products using costing rates. The allocation of
costs to the final cost centers takes place in the so-called operational settlement sheet.
“Interface GmbH” has set up three IT preliminary cost centres to account for its extensive
IT costs: Computer Center, Application Consulting and PC Service. The costs for person-
nel, hardware, Internet use and imputed depreciation are allocated to the company’s cost
centres as follows:
Other cost types are not considered further for reasons of simplification, as the IT costs
are the main focus. The costs of the IT preliminary cost centers are to be allocated to the
final cost centers using the apportionment method. The IT cost centers are allocated
according to the following criteria:
Cost Object Controlling consists of two components, product costing and profitability
analysis. It is normally only used in the context of IT cost accounting if the IT products are
also end products, as is the case with an IT service provider, for example.
126 9 IT Cost and Activity Accounting (IT-KLR): Numbers for Rational Decisions
Product costing determines the price for IT products, which is made up of different cost
components. Internal costs are, for example, personnel costs for software developers.
External costs are, for example, consulting fees, acquisition costs for hardware and soft-
ware licenses, maintenance fees, data backup costs. However, product costing can also be
used within the framework of internal activity allocation in cost center accounting to deter-
mine internal transfer prices for internal “IT products”.
Examples of typical IT products are:
02 + material overhead costs % premium on top of 01 1.25 Euro 10% of 12.50 Euro
04 + Licenses for standard applications 8.33 Euro operating system and Office
(operating system, Office u.a.) 100 Euro + 300 Euro = 400 Euro
/ 4 years / 12 months
05 + installation of Network Flat rate included 1.04 Euro 50 Euro / 4 years / 12 months
06 + Licenses for additional components 58.33 Euro SAP 700 Euro / 12 months
07 + Flat rate charge for IT services 30 Euro 30 Euro (already fixed monthly rate)
(Installation, Hotline, error correction, Software
updates)
10 + CIO cost allocation % premium on top of 09 22.29 Euro 20% of 111.45 Euro
The instrument of contribution margin accounting is used to summarize fixed and variable
costs step by step to an overall result. It can be used to carry out analyses of the profit
contribution of projects, departments or areas. The contribution margin is the difference
between the revenue and the directly attributable variable costs.
128 9 IT Cost and Activity Accounting (IT-KLR): Numbers for Rational Decisions
• Proceeds
–– IT service: 30,000 euros,
–– Project A: 7000 euro,
–– Project B: 18,000 euros.
• Variable costs
–– IT service: 70 h,
–– Project A: 100 h,
–– Project B: 200 h (each at 80 euro/h).
• Fixed costs
–– Areas:
IT service: 5000 euros,
Projects 500 euros,
• Company: 20,000 euros.
“cloud”. It has heard from other companies that a move to the cloud is “cost effective” and
flexible. Cost information is available for “in-house” operation as well as a quote from a
cloud provider. The company management would like to know from you from or up to
which number of employees an “on-premise solution” or a “cloud solution” makes sense
from a cost perspective.
9.6.1.2 In-House/On-Premise
In addition to in-house operation of the application, the “cloud computing” variant must
also be considered.
One possible solution is shown in Fig. 9.9 Solution to Case Study: Cloud versus On
Premise.
9.6.2.2 Company A
• A employs ten people in IT (10% of the workforce). The personnel costs amount to 1
million euros.
130 9 IT Cost and Activity Accounting (IT-KLR): Numbers for Rational Decisions
• A operates an “operation support system”. The costs of 2 million euro are not included
in the IT budget.
• Depreciation on IT hardware and software is not included in the IT budget. They
amount to around 1 million euros p.a.
• Costs for telecommunications are integrated in the “Facility Management” budget.
These amount to approx. 100,000 euros p.a.
• Cloud applications are paid for by the specialist departments. IT estimates the amount
at approx. 500,000 euros p.a.
• An IT service desk is missing, the work is done in the department. The costs are esti-
mated at 500,000 euros.
• The company employs 20 external temporary workers, who are included in the number
of employees.
9.6.2.3 Company B
• B employs 30 people in IT (25% of the workforce). The personnel costs amount to 3.3
million euros.
9.6 Case Studies 131
Administraon A Administraon B
No. of IT employees 10 30
Total No. of employees 80 120
(10/10% = 100 – 20 leased labour)
• The costs for all IT systems are budgeted centrally at IT. They amount to approx. 6 mil-
lion euros p.a.
• Depreciation on IT hardware and software is included in the IT budget at approx. 2
million euros p.a.
• Costs for telecommunications and cloud applications are already included in the budget
for IT systems.
• An IT service desk is operated by IT with existing staff, the costs are included in the
above figures.
• The company does not employ any temporary workers.
Create a simple allocation model based on an IT service catalog and allocation based
on planned costs and perform an allocation. Consider at least the allocation levels: IT
infrastructure (cost elements), IT services (cost centers), and business unit (cost objects).
The data for performing the allocation is shown in Tables 9.1, 9.2, and 9.3.
Table 9.2 Data on the allocation of IT costs to technical IT services (IT products)
IT cost elements for the creation of IT products
IT product Power Staff data centre Consulting Licenses
IT service 5000 h/p.a. 800 h 10% – –
IT-APS 500 piece 400 h 60% – 500 pc
Project A 800 h 800 h 20% 100 h
Project B 600 h 600 h 10% 200 h
Total 2600 h 100% 300 h 500 pc
Table 9.3 Data on the allocation of IT products to business services (business units)
IT product Offsetting GB X GB Y GB Z
IT service hours Hours 1000 h 1000 h 3000 h
IT workstation Piece 100 piece 200 pieces 200 pieces
Project A Hours 0 900 h 0
Project B Hours 0 0 800 h
9.6 Case Studies 133
allocation. All IT costs remain on the cost center “computer center”. The IT services are
implemented without a written agreement, but after consultation with the specialist depart-
ment, but are not charged on within the framework of internal activity allocation. A large
number of the applications have been developed in-house over the years. The new man-
ager for the “IT Controlling” department is given the task of optimizing IT costs in the
company and sustainably improving cost transparency. The management expects short-
term success in terms of cost reduction (quick wins), as the company’s earnings situation
is very tight, as well as a sustainable optimization of the IT cost structure.
9.7 Summary
• IT cost and performance accounting is necessary to provide basic data for decision sup-
port in the face of rising IT costs.
• Instruments are cost element accounting, cost center accounting and cost unit account-
ing consisting of product costing and profitability analysis.
• In cost element accounting, the costs are split into direct costs and overhead costs.
• Cost center accounting distributes the costs to the final cost centers, i.e. those areas that
have used the IT services, according to their origin.
• Product costing calculates end products, but can also be used for internal activity
accounting as a basis for transfer pricing.
• The contribution margin accounting assigns the costs to the revenues step by step as a
profit and loss account
References 137
References
Abstract
This section deals with IT sourcing controlling. Central aspects are different options of
sourcing, especially cloud computing and the resulting implications. Another topic area
is the service level agreements (SLA) necessary for IT benchmarking.
Location
Financial
Global Sourcing dependency
Degree of external Performance
Offshore Sourcing
Internal / Captive
Outsourcing Total Outsourcing
Nearshore Sourcing
Joint Venture
Selective / Smart Outsourcing
Onshore/Domestic Sourcing
Total
Outsourcing
IT -Sourcing
The term outsourcing refers to the external procurement of IT services that were previ-
ously provided by the company itself. External outsourcing is carried out by external IT
service providers. From an economic point of view, internal outsourcing is fictitious out-
sourcing in which internal service providers are used. From a legal point of view, however,
genuine customer-supplier relationships exist. Internal outsourcing is also referred to as
captive outsourcing.
Insourcing describes the internal production of services. Often the term insourcing is also
used as a consequence of a reversal of the outsourcing decision. Backsourcing is the pro-
cess that controls the reversal.
10.1 Clarification of Terms 141
Selective sourcing versus total outsourcing are terms that describe the scope of the out-
sourced tasks. Total outsourcing in the sense of 100% scope is rarely encountered in prac-
tice. Selective outsourcing can therefore often be equated with outsourcing. Alternative
terms with the same content are smart sourcing, right sourcing and outtasking.
Single sourcing describes outsourcing with a single service provider. This provider can
either provide the service itself or outsource it further. In multi-sourcing, the outsourcing
company is directly confronted with several service providers and suppliers. Multi-
sourcing is referred to as best-of-breed sourcing because the company selects the best
supplier for the respective IT service (data center, PC service, application consulting).
10.1.7 Modernization
In recent years, the focus has shifted towards “in-house operation” versus cloud comput-
ing, with self-developed software or standard software coming into play in both cases. The
topic of outsourcing has gained more momentum through cloud computing, as classic
outsourcing contracts tended to be of a longer-term nature. Cloud computing models, on
the other hand, tend to be more short-term in nature, although they can also be used for the
long term. The large number of practically relevant variants, which also change frequently,
often makes it difficult for controlling to assess the situation. In the operation of informa-
tion systems, five basic “sourcing options” can be distinguished (cf. Brassel and Gadatsch
2019), which are shown in Fig. 10.2 (based on Münzl et al. 2009 and Brassel and Gadatsch
2019). These basic forms can be used to classify the different variants commonly used in
practice and to evaluate them with regard to their central characteristics.
Managed Outsourced
Private Public
On Premise Private Private
Cloud Cloud
Cloud Cloud
Sourcing Options
Owner operated Solution External operated solution
Fig. 10.2 Cloud sourcing options. (Adapted from Münzl et al. 2009 and Brassel and Gadatsch 2019)
10.1 Clarification of Terms 143
The portfolio model shown in Fig. 10.3 can be used to identify a possible sourcing option.
The portfolio ranks the relevant processes according to the criteria “service integration
requirements” and “data autonomy requirements”. Service integration requirements con-
cern aspects such as flexibility, access on demand, pay as you use, and elasticity or scal-
ability. Data autonomy requirements relate to issues such as the ability to access one’s own
IT staff and, above all, control options as to who does what with the data and when. An
important aspect of outsourcing or cloud computing is that activities shift from the inside
to the outside and increased attention must be paid to the management of interfaces to the
high
Outsourced
Private
Requirement Private
Cloud
towards Cloud
Service-
Integration Managed
(flexibility, Private
on-demand access, Cloud
pay-as-use,
elasticity)
Public
Cloud On Premise
low
low Requirement towards high
Data-Autonomy
(Access to own employees,
possibilities of excercising control)
provider. Otherwise, there is a risk that the process chain will be more susceptible to dis-
ruptions (Kühl 2015, p. 116).
• Contract content from a business perspective (service content, form of service provi-
sion, prices and conditions, billing issues),
• Technical aspects (specifications, standards, etc.),
• Legal aspects (legal basis, contractual penalties, etc.) and
• Organisational arrangements (form of cooperation, information channels, etc.).
There is extensive literature on issues of IT contract law (sometimes still called “EDP
law”), such as Nitsch (2017) and the sources cited there. The subject of IT contract law is
legal issues dealing with the conclusion of contracts relating to hardware, software and
services in the IT environment. Since the legal issues far exceed the tasks of the IT control-
ler, further explanations are not given here and reference is made to the literature. However,
an intensive exchange between IT controlling and the organizational units of a company
entrusted with legal issues is important.
Planning
(Type,
Quality,
Quanty)
Disposal /
Re- Procurement
ulisaon
IT-
Asset-
Mana-
gement
Temporary
Maintenance
Storage
Installaon
and
configu-
raon
Fig. 10.4 IT asset management life cycle. (cf. Brassel and Gadatsch 2019)
The comparison (benchmarking) of cost and service structures has traditionally been an
important issue in the IT environment because the share of external services has continued
to increase. Service Level Agreements (SLA) are one of the tools used to manage internal
and external service providers (especially IT outsourcing service providers) and their ser-
vices (cf. Schäfermeier 2010). Service level agreements are content-based agreements on
service levels or standards (cf. Berger 2005, p. 12).
An important prerequisite for cost and performance management is a structured IT
catalog. It describes the IT products of an internal or external IT provider in the same way
as a shopping cart with product descriptions, conditions and prices. It is only fully effec-
tive if the service relationship between the IT department (IT provider) and its customers
is regulated by measurable agreements on service content, service quality and the level of
costs or remuneration. Internal agreements regulate the relationship between the IT area
(contractor) and the specialist department (client). External agreements regulate the
146 10 IT Sourcing Controlling: Outsourcing of IT Services
Business
Request process-steps
Disposal Procurement
IT-
Technical Licence-
process-steps Manage
ment
Use Delivery
Installaon
Fig. 10.5 Software management life cycle. (Adapted from Groll 2016 and Brassel and
Gadatsch 2019)
relationship between the IT department or the specialist department, both of which can act
as clients, and external IT suppliers or service providers, who act as contractors.
Numerous examples can be found in the IT environment, especially when multiple par-
ties are needed for service delivery. Typical examples are outsourcing and cloud computing.
10.4.1 Expediency
When defining an SLA, care must be taken beforehand to ensure that the agreements are
fit for purpose. A common mistake is made in practice with “desktop outsourcing” when
the service hotline that handles user requests is placed in the hands of an external service
provider. If the hotline is paid according to the number of user requests or the working
10.4 Benchmarking and SLA Analyses 147
Key
Under-
Licensing
Over-
Licensing
time required, there is a danger that users will avoid the hotline and resort to self-help.
However, the increase in self-help among colleagues can lead to a significant increase in
indirect IT costs (loss of working time, consequential errors). For this reason, IT hotlines
should, if possible, be remunerated by means of a monthly flat rate. In order to neverthe-
less achieve that the IT service provider shows interest in a high level of service, the asso-
ciated SLA should stipulate, for example, that 80% of the first calls lead to a problem
solution. After all, only users who receive immediate help will use a hotline in the
long term.
10.4.2 Contents
As a complex contract, an SLA controls the interaction between the contracting parties via
many regulations. It contains a lot of information about the service content, conditions,
organizational aspects and consequences of non-compliance.
• Service specification: This is the exact description of the type and scope of the service
to be provided (e.g. introduction, operation and maintenance of standard software).
• Dates and deadlines: Services are to be provided at specific times (e.g. report on ser-
vices provided on the tenth of the following month) or within specified deadlines (fault
rectification within eight working hours). Ideally, these are set in relation to priorities,
e.g. the elimination of critical faults (server downtime) within 2 h, elimination of less
critical faults (failure of a printer) within one working day.
• Conditions: Remuneration and contractual penalties must be specified in terms of
amount and calculation (e.g. discount scales) and invoicing (e.g. monthly invoice).
• Organisational framework conditions: Regulations on the handling of the service rela-
tionship must be made here. In particular, it must be clarified which working and
148 10 IT Sourcing Controlling: Outsourcing of IT Services
stand-by times are to be provided. It must be determined how an order comes about
(e.g. notification of the fault by telephone, by e-mail?).
• Proof of performance: The principle here is that the contractor must provide evidence
of the performance of the service. He must keep verifiable records of the type and scope
of the services rendered. In the event of disputes, a committee composed of partners
decides. Only measurable criteria are valid for the billing of services.
• Permissible outlier rate: Maximum proportion of performance units that may lie out-
side the agreed quality/schedule grid.
• Consequences of violations of the agreements: As long as the agreed outlier quota is
not exceeded, there is no violation. For the client, this means that he does not receive
any sanctions against the IT supplier in the event of annoying individual cases. Only
when the permissible outlier quota is exceeded can measures be initiated.
• Measures: A malus provision allows the contractor to reduce the service price for dam-
ages incurred due to the SLA violation. Since the malus eats into the contractor’s con-
tribution margin, it is interested in keeping the service level agreement. However, the
following basic rule should be observed: The “penalty” should hurt, but should not
force the service provider into bankruptcy.
10.5 Summary
References
Abstract
This section deals with the application, suitability and use of IT key figures. Based on
selected test criteria, IT key figures are checked for suitability. Furthermore, key figure
systems for IT controlling are presented and discussed.
First, a well-known definition for key figures will be presented: “Key figures are those
numbers that capture quantitative facts in a concentrated form” (Reichmann 2017, p. 39).
Key performance indicators (KPIs) are important elements in controller practice. Not
only in the private sector, but also in the public sector, KPIs are increasingly used for con-
trolling (cf. Hirsch and Weber 2018). They are used to regularly inform management
(business side and IT side) and to control projects. They enable a root cause analysis of
deviations between target values and actual values and signal necessary countermeasures
to achieve the goals of the IT strategy. The functions of key figures are summarized in
Table 11.1.
The control cycle associated with the use of ratios is shown in Fig. 11.1.
IT key figures can be divided into absolute key figures and ratio key figures. The latter
are differentiated into structure, relationship and index key figures (cf. Fig. 11.2).
In terms of content, categorizations into various dimensions such as strategic relevance
(ratio of new development to maintenance), economic efficiency (e.g., compliance with IT
budgets), cost structure (IT costs/total costs), performance (availability of systems), and
customer satisfaction (complaint rate), among others, are conceivable. For this purpose,
the WIPS concept shown in Fig. 11.3 was developed; it divides the key figures into four
analysis areas (W = economy, I = innovation, P = performance and S = structure).
Business-
Strategy
Deviation
IT-Strategy
analysis
Targets
Real value (Performance
indicators)
Measures
Key IT-Figures
Absolute Ratio
Indicator Indicator
Viability Innovation
Performance Structure
Availability
Verfügbarkeit vonofIT-Systemen
IT Systems
IT Anteil
costs as share
der of total
IT-Kosten am turnover
Umsatz
TotalAnzahl
no. of incidents
Incidents
Total IT IT-Umsatz
turnover
Budgetausschöpfungsgrad
Degree of budget utilization
Antwortzeiten vonofIT-Systemen
Response time IT systems
SLA-Erfüllungsgrad
SLA fulfillment level
2013
NoAnzahl Change
of. ”Change Requests
Requests” 2009
Customer Satisfaction
Kundenzufriedenheit 2007
2004
Share of Fremdleistungsanteil
Third-party services
ProductivityProduktivitätskennzahlen
performance indicators.
In practice, the question of “good” key figures often arises. However, these must be defined
against the background of the respective application. Misinterpretations are possible here,
which can be illustrated by the example of the key figure “IT costs/revenue”. Kütz refers
to the following example (cf. Kütz 2013, pp. 20–21):
A comparison of two retail companies showed that IT costs as a percentage of sales were
0.8% for Company A and 1.2% for Company B. This led to a decision proposal for a take-
over plan: Company B should acquire A’s IT systems to reduce its IT costs. Further
detailed analysis revealed, among other things:
Company A has an outdated IT architecture that has not been maintained for years. The
IT costs consisted mainly of costs for the maintenance of the legacy systems. Company B
had a modern, far more efficient IT architecture. The takeover of the IT systems was then
rejected.
11.2 Informative Value of IT Key Figures 155
The parameter “turnover” as part of a key figure is certainly not a suitable control
parameter for the public sector. But it is easy to find other control variables that could be
set in relation to IT costs. Examples are: IT costs/number of vehicle registrations, IT costs/
number of ID cards issued, IT costs/tax revenues. The basic problem with these ratios is
easy to notice: Numerator and denominator of the fraction must result in a meaningful
relationship, otherwise one compares “apples with oranges” or “incoherent parameters”
and comes to wrong conclusions. For this reason, it is necessary to apply “test criteria”
when using ratios in order to validate their suitability.
For each potential indicator, it should be possible to check the questionnaire listed below
(taken and modified from Kütz 2011, p. 52) with the main categories of quality, calcula-
bility/analyzability, economic efficiency and organization. If not enough positive
answers are possible, the indicator is not suitable for the respective application.
• Quality
–– What should be controlled with the key figure?
–– Does the metric measure the right effect?
–– What can be actively controlled with the key figure?
–– Are the key figures understandable for the recipient?
–– How is the quality of the basic data to be assessed (is processing necessary)?
–– Does the metric measure objectives relevant to the IT strategy?
• Predictability and analyzability
–– Can target values or expected values be defined?
–– Can corresponding actual values be determined?
–– How sensitive are the key figures to changes?
–– Can the necessary basic data be determined?
–– Are the key figures drill-down capable?
• Profitability
–– Is the effort required to establish baseline data economically justified?
–– Is the effort required to identify and prepare the data offset by an appropriate benefit
in the form of the possibility of taxation?
–– Can pragmatic surrogates be identified?
• Organization
–– Can persons responsible for data provision, calculation, reporting and for the con-
tent of the indicator itself be named?
–– Are the key figures tamper-proof?
–– How do the key figures react to organizational or technological changes?
156 11 IT Key Figure Based Reporting: IT Key Figures: Basis for Reporting
Key figures are to be documented by means of a key figure profile, e.g. in a database. The
fact sheet contains a meaningful description (name of the KPI, addressees, reporters,
essential contents, target values, tolerance values), information on data sources and their
preparation, form of presentation, responsibilities, and other organizational aspects (see
Kütz 2011, p. 45). Figure 11.5 shows an example of a key figure profile for the key figure
“Availability of SAP ERP systems”.
The benefits of IT KPIs or IT KPI systems can be viewed in particular from the perspective
of IT project management, IT operations and the perspective of the business department
(cf. Gadatsch 2012, p. 104 f.). Project management benefits from return and risk-oriented
KPIs in project selection through profitability calculations. In the context of project con-
trol, an ongoing target-performance comparison can help to ensure that the project goals
Aggregation levels, SAP ERP (Total), Data per SAP-Module group (FIN, CON, ….)
Archiving (Location, Media, Length), Values are stored in accountancy‘s “Data Warehouse“
Erasing of data not scheduled for the time being
are achieved. A subsequent target/actual comparison offers the possibility of using experi-
ence from completed projects for the planning of subsequent projects. Numerous key fig-
ures can be used to control the operation of information systems: IT department
performance, costs, and resource utilization. A detailed performance and cost record
enables the business side to make comparisons with other IT providers (benchmarking)
and to control the costs of the commissioned IT services.
Individual indicators can be contradictory and lead to different results. Individual key
figures only measure individual aspects, rather than the interrelationships between several
dimensions, and therefore have only limited informative value.
Therefore, KPI systems were developed to create an overall picture. They offer a compila-
tion of individual key figures that are logically related, cover several views and ensure the
consistency of the desired effects of the meaningfulness of individual key figures. Possible
applications include, for example, the target/actual comparison of metrics and variance
analysis as part of strategic and operational IT planning, as well as target agreements for
(IT) managers.
The requirements for performance measurement systems are complex. They comprise
numerous aspects (cf. Gladen 2008, pp. 92–93). An important criterion is “objectivity and
consistency”, which must be achieved by a suitable structure of the key figures and sup-
ports statements free of contradictions. For practice the criterion “simplicity and clarity”
is important, the simple structure supports the dissemination and use of the KPI system in
the company. Particularly in complex structures, “information aggregation” is important;
the key figures should be staggered according to management levels and allow top-down
or bottom-up different analyses. The individual values of the subordinate key figure values
result in the total value of the next level. Finally, the “multi-causal analysis” is important;
higher-level key figures should be split into different views at lower levels.
158 11 IT Key Figure Based Reporting: IT Key Figures: Basis for Reporting
One of the oldest known key figure systems for IT was developed by the Swiss Association
for Data Processing (SVD) (cf. Swiss Association for Data Processing 1980). It was devel-
oped for the central operation of systems in data centers and comprises the levels “man-
agement”, “user” and “information processing” and is divided into “management key
figures”, “user-oriented key figures” and “person- or machine-oriented key figures”. The
basic structure can still be found today in performance measurement systems based on the
balanced scorecard. The Zürcher Kantonalbank, for example, published such a system
some time ago (cf. Betschart 2005).
If the concept is transferred to the current situation, the key figure system shown in
Fig. 11.6 can be developed from it. It comprises the structural elements “analysis level”,
“analysis area” and “participants”. The VIPS concept, extended with examples of key
figures, is shown in Fig. 11.7.
Participants
Analysis Range
Level Participants Viability Innovation Performance Structure
Plan Demand Degree of Budget New projects / Project duration IT investment volume /
utilization overall projects (Average deviation total investments
time)
Supply Share of total customer Degree of services Attractiveness of the Share of customer
budget digitalization portfolio budget dedicated to
supplier
Built Demand Earned Value (cost- Share of agile Earned Value (time Mobile postions / total
efficiency) project teams efficiency) no. of positions
Run Demand TCO per application Share of new Response time Share in disruptions
applications in the Adherence to service Application disruption,
business times Total disruptions
Supply Contribution margin New services / Total Overall satisfaction of Degree of overtime
per product / service services IT customers Degree of retraining
In practice, it is helpful to select useful indicators for your own company on the basis of a
catalogue and to check their applicability. Table 11.2 lists some key figures that are fre-
quently used (taken from Kütz 2011, p. 215 ff.).
The list is only intended to provide suggestions for the development of own key figures.
In no case can it be assumed that all the indicators mentioned can always be used in a
meaningful way. Further indicators have been prepared, for example, in Thome et al.
(2011) or in Kütz and Wagner (2015) and can be used as additional suggestions.
11.5 Summary
• Good IT key figures are not available “ready-made”; their suitability depends on the
area of application, the goals and the organizational-technical conditions in the
company.
• Important test criteria are quality, predictability/analyzability, efficiency and
organization.
160 11 IT Key Figure Based Reporting: IT Key Figures: Basis for Reporting
References
Betschart A (2005) Konzeption, Einführung und Nutzung eines IT-Kennzahlensystems – auf was
kommt es wirklich an, Tagungsunterlagen COST IT, Bad Homburg, 21–24.11.2005
Gadatsch A (2012) IT-controlling. Springer, Wiesbaden
Gadatsch A, Kütz J, Juszczak J (2013) Ergebnisse der 4. Umfrage zum Stand des IT-Controlling im
deutschsprachigen Raum, Bd 33. Schriftenreihe des Fachbereiches Wirtschaft Sankt Augustin.
Hochschule Bonn-Rhein-Sieg, Sankt Augustin
Gladen W (2008) Performance measurement, controlling mit Kennzahlen, 4. Aufl. Springer,
Wiesbaden
Helmke S, Uebel M (Hrsg) (2016) Managementorientiertes IT-Controlling und IT-Governance.
Springer Gabler, Wiesbaden
Hirsch B, Weber J (2018) Kennzahlen als Mess- und Steuerungsinstrument in Behörden. ESV
Verlag, Berlin
Kütz M (Hrsg) (2011) Kennzahlen in der IT, 4. Aufl. dpunkt, Heidelberg
Kütz M (2013) IT-Controlling für die Praxis, 2. Aufl. dpunkt, Heidelberg
Kütz M, Wagner R (Hrsg) (2015) Mit Kennzahlen zum Erfolg. dpunkt, Düsseldorf
Reichmann T (2017) Controlling mit Kennzahlen, 9. Aufl. Vahlen Verlag, München
Schweizerische Vereinigung für Datenverarbeitung (Hrsg) (1980) EDV-Kennzahlen. Bern/Stuttgart
Thome R, Herberhold C, Gabriel A, Habersetzer L, Jaugstetter C (2011) 100 IT-Kennzahlen.
Wiesbaden
Exercises: Examination Exercises
for Training 12
Abstract
In this chapter, selected exam questions and solutions are presented that relate to the job
description of the IT controller and the methods of IT controlling. They are primarily
aimed at readers who are studying.
12.1.1 Task
Describe the job description of the IT controller and compare the tasks with those of the
chief information officer (CIO). Explain where there are similarities and who has which
responsibilities. What central tools are available for this in the strategic context. How is the
responsibility for this regulated?
The IT controller is responsible for the profitability and efficiency of IT management. The
CIO has overall responsibility for the IT strategy and its implementation in the company.
There is an overlap in that both people have the profitability of IT deployment as a com-
mon goal. IT controlling supports the CIO in an advisory and independent capacity. It
creates the transparency that is necessary for a CIO to make sensible decisions. The central
strategic instruments are the IT strategy and the standards derived from it, for which the
CIO is responsible. IT controlling controls the implementation of the IT strategy with the
help of the IT balanced scorecard. With the help of IT portfolio management, it controls
the life cycle of IT projects. Decisions about the project portfolio are made by the CIO
and, if necessary, a decision-making body initiated by him (e.g. IT board).
12.2.1 Task
Please justify the necessity and effect of standards in IT with regard to performance-
oriented IT controlling. Then analyse the effect of the trend “Bring Your Own Device”
(BYOD) with regard to this situation.
• Variant A: Employees are allowed to use any private hardware in the company. In this
case, the complexity of maintenance increases because a wide range of devices have to
be integrated into the company network. The IT security costs increase.
• Variant B: Company provides employees with a limited selection of „modern“ IT end
devices. Although this model also increases operating costs and acquisition costs (due
to the lower number of units), it has advantages in terms of maintenance. The presum-
ably increased motivation of the employees may have a positive effect on work produc-
tivity and at least partially compensate for the higher costs.
12.3.1 Task
You are an assistant to the management of a medium-sized company with several European
locations. Until now, project applications for IT projects (e.g. introduction of new software
systems, implementation of release upgrades) have been approved on a “first come, first
served” basis, i.e. applications are approved until the annual budget is exhausted. You will
be instructed by management to design a more sensible procedure.
12.4 Task 4 Earned Value Analysis 165
Discuss the problem in terms of its impact on the company’s performance and design a
procedure that takes into account different influencing factors and interests. Outline a pos-
sible solution.
There is a great danger that projects are implemented without target control. Important
projects run the risk of not being realized because the budget is exhausted. In the long run,
the performance of the company decreases. It makes sense to determine a catalog of goals
and criteria for evaluating projects (profitability, payback period, strategic contribution,
risk, etc.). The target catalog can be integrated into a utility analysis-driven evaluation
procedure for the periodic determination of point values for projects that come into ques-
tion. The IT budget is consumed according to the ranking of the points. Projects are
approved through a formalized approval process moderated by IT Controlling. Decisions
are made by an IT board staffed with executives from various areas.
A software company is developing a system for the automated processing of online exami-
nations at a university. The project consists of several sub-packages (SP), which are gener-
ally to be processed one after the other; in exceptional cases, sub-packages can already
start, although previous steps have not yet been completed. The sub-packages are listed
below (duration in weeks and planned costs in brackets):
• The preliminary study is finished after 1 week and costs 5000 euro more because of an
external expert opinion.
• The conception takes 1 week longer at the same cost. The programming is still ongoing
and has already cost 30,000 euros. According to the programmer, 75% of the programs
have already been completed.
166 12 Exercises: Examination Exercises for Training
• The roadshow was brought forward 1 week and could be finished after 2 weeks, but the
costs were 5000 euro higher.
Evaluate time and cost efficiency using earned value analysis at time t = 6 and interpret the
metrics. Perform the same evaluation and interpretation at time t = 9. Explain the differ-
ence in the results of the evaluation between the two observation periods.
Time t = 6
Basic data
Actual Costs t = 6
Planned Value t = 6
Earned value t = 6
Key figures
Time t = 9
Basic data
Actual Costs t = 9
10, 000 + 20, 000 + 30, 000 + 10, 000 = 70, 000
Planned Value t = 9
5000 + 20, 000 + 40, 000 + 20, 000 + 5000 = 90, 000
Earned value t = 9
Key figures
12.4.2 Differences
In both cases, the project was classified as “slow”. At time t = 6 the project was still rea-
sonably well on time, but at the later time t = 9 it was further behind schedule because the
programming was not making any progress. The difference comes from the fact that pro-
gramming is still ongoing and software testing could not be started. Overall, the test can-
not be started until the software is ready. The roadshow being brought forward only
increases the Earned Value slightly (+5000).
12.5.1 Task
Discuss basic possibilities for the integration of IT controlling into the operational
organization.
In the partnership model, IT controlling reports directly to the company management and
is thus on the same hierarchical level as the CIO and corporate controlling. Only this
model ensures that IT controlling is largely independent of cross-influences, e.g. from the
specialist departments (finance, sales, human resources, etc.) or information management.
This approach is particularly recommended for companies where the use of IT is very
important for competitiveness. Examples can be found in banks and insurance companies.
The CIO employee model subordinates IT controlling to the CIO. IT controlling is part
of the CIO department. It is often a single employee who is responsible for IT controlling.
As an „IT insider“, the IT controller has good access to information within the IT depart-
ment. However, the problem of dependency on the CIO cannot be overlooked. This can be
168 12 Exercises: Examination Exercises for Training
12.6.1 Task
A globally active automotive supplier company operates a central data center in Germany
and uses several cloud services. The company’s management strives for a high level of
transparency regarding IT costs, a cost-oriented control of IT projects and the assurance of
all legal requirements. The head of IT controlling is given the task of developing a suitable
IT cost and activity allocation that meets these requirements. Discuss possible forms of IT
cost and activity accounting and describe how they function in relation to the allocation
mechanisms.
In the task, possible forms of IT cost and activity accounting are to be outlined and con-
cretely evaluated with regard to the facts of the case. The solution must therefore contain
a justified proposal for a decision.
An IT-CLR can support the following objectives, depending on the level of expansion:
Transparency of costs and services, control of measures and projects, and ensuring com-
pliance with legal requirements.
Flat-rate and analytical approaches are described in the literature. The lump-sum vari-
ants (type A non-allocation or partial allocation and B allocation procedure) are not suit-
able for the requirements in this scenario because they do not provide any control-relevant
information. The other two criteria of transparency and compliance with legal require-
ments are fulfilled at least to some extent.
12.7 Task 7 Determination of Net Present Value 169
The analytical approach of type C is the service catalogue-based allocation of IT costs and
IT services. For this purpose, an IT service catalog must be developed that describes in detail
the services to be provided by IT. This requires a calculation for each IT service or each inter-
nal IT product as the basis for the transfer price. Furthermore, quantity planning (to be carried
out worldwide in this case) and a (globally) applicable pricing system are required. If neces-
sary, country-specific regulations must be observed. The process is comparatively simple. The
IT costs are initially booked to a central IT cost center, and the recipients (customers) can
book or “buy” the IT services. Their cost centers are debited monthly.
The second analytical approach, Type D (process driver-based allocation), requires
very elaborate activity-based costing, which is more likely to be used in regulatory market
environments (e.g. telecommunications, energy market). Both Type C and Type D would
support the three objectives mentioned above.
12.6.4 Decision
The type C approach promotes economic thinking (cost transparency) and raises aware-
ness of costs (cost control) on the part of IT and specialist departments; benchmarking
with external IT providers is possible. The legal requirements are fulfilled with this
approach. It is therefore recommended here, as the effort for providing the data is lower.
12.7.1 Task
A company operates an enterprise resource planning system. The software can only be
connected to Internet applications with difficulty. Integration with mobile devices (smart-
phones, tablets, etc.) is hardly possible. Maintenance is expensive. The system should be
replaced by a modern standard software with more functionality. Determine whether the
new system makes sense from a purely financial point of view (period under consider-
ation: 5 years, interest rate 10%).
Legacy system
• Operating costs: 500,000 euros p.a. in arrears, increase by 5% annually
New software
• Investment at the beginning of the first year: 1.000.000 euro
• Operating costs: 400,000 euros p.a., in arrears, increase by 6% annually
Calculate the net present value of the following decision alternatives: Keeping the legacy
system and migrating to the new system.
170 12 Exercises: Examination Exercises for Training
12.8.1 Task
Consider the facts from Sect. 12.7 and additionally include the following qualitative argu-
ments in the decision
• Management is planning to radically “digitize” the company because the “legacy” sys-
tem from the 1980s that supports key processes is unreliable, inventory data is not up-
to-date, and customers frequently complain about delayed delivery dates.
• The integration of smartphones or other mobile devices is not successful for the rele-
vant processes. In addition, the maintenance of the system is dependent on a few older
employees who will soon retire. Their knowledge (e.g. programming in outdated pro-
gramming languages) is no longer available on the job market.
• The “New System” has not yet been tested, as it is based on the latest technology.
However, its architecture is capable of supporting processes that are largely paperless
and without media breaks. The use of standard software makes it easier to recruit
employees on the job market. The architecture is modular, so that extensions are easily
possible (expandable).
Perform a utility analysis and re-evaluate the previous decision, taking into account the
qualitative criteria: Reliability, Dependency, Expandability.
12.9.1 Task
An IT service provider has agreed the following service level agreement (SLA) with a
company: “The data center is operated with a guaranteed availability of 95% based on a
performance period of one year from Monday to Sunday, 24 hours a day. If the availability
falls below this level, a contractual penalty is due.” The managing director of the company
is positively impressed by this arrangement. From an IT controlling perspective, how do
you view this arrangement from the perspective of the engineering company? Does this
proposal make sense, assuming that the company would like to work as uninterrupted as
possible?
The main problem with this SLA is the reference period. With 52 weeks of 7 days, 342
working days of availability are guaranteed. This means that the data center can be shut
down for up to 18 days without interruption without any breach of contract by the service
provider. This is certainly not wanted by the company.
12.10.1 Task
A consulting firm is hired to develop measures to reduce the total cost of ownership (TCO)
of a company’s information systems. It makes the following proposals:
• In the future, only purchase used laptops that are at least 2 years old, as their acquisition
costs are significantly lower,
• Avoid daily backups, as they only take up storage space that can be better used for other
purposes,
• Reduction in the use of the fault hotline by introducing a “consultation fee” of 10 euros
per call plus 2 euros/min consultation time.
Critically comment on the suitability of the respective measures and show the effect on the
total cost of ownership.
The recommended measures are one-sided and only reduce direct IT costs. In particular,
the indirect, invisible costs increase. The effect of higher indirect IT costs may be higher
than the reduction of direct costs. The TCO may increase overall.
• IT training: Here, there is a risk of working time losses due to hey-joe effects, i.e. train-
ing by non-specialist employees and/or employees’ own trial-and-error experiences
with corresponding working time losses.
• Service life and old equipment: Here, higher maintenance costs may be incurred due to
total failures or operational faults, as older devices are often more susceptible to faults.
• Missing data backups lead to loss of working time in case of data loss, e.g. due to
manual re-entry of data.
• The consultation fee prevents calling the hotline in justified cases. This induces follow-
up costs, e.g. operating errors.
12.11.1 Task
purchase from various sources, i.e. wherever the devices can be procured at the low-
est price.
• During the year, the data center is not evenly utilized because the company’s products
are mainly sold in the winter months. In the months from October to January, the com-
puter capacities are rarely sufficient, and long response times annoy many users. In the
summer months, the staff of the data center and the development department is often
underutilized.
• Due to their high maintenance costs, in-house developments block more than 90% of
staff and take up almost 70% of the IT budget. This leaves little room for new innova-
tive IT solutions.
• Due to the lack of usable cost information, users are not very cost-conscious with
regard to IT services and order IT services as required. IT costs are only roughly
recorded in the company and are not made transparent to the user. Information, if avail-
able, is only available to the IT manager.
• User training in the IT area (PC software, business management software) is rarely car-
ried out, as the management has “ordered” a 10% reduction in IT costs.
• The “Computer Center” and “Software Development” management are assigned to the
“Organization” management. These report to the “Finance” division management,
which also heads the controlling department.
The management commissions you with a weak point analysis and expects concrete pro-
posals for improving the situation. Analyze the situation systematically and create a struc-
tured catalogue of measures. Justify in detail each position of the catalogue of measures,
how the measures proposed by you affect the situation. Also mention any risks that have
to be accepted.
12.12.1 Task
Define at least four criteria that a useful IT key figure should fulfil and assess the suitabil-
ity of the key figures:
The interpretation of this key figure can vary. The higher the training costs, the better the
level of training. The IT training costs depend heavily on the informative value of the
accounting system. Here it is necessary to check whether these costs have been reliably
recorded and passed on. Indirect training costs (Hey-Joe effects) cannot be determined,
but only estimated. IT outsourcing distorts the key figure. The number of IT employees
(denominator) cannot always be determined. It depends on the degree of automation and
outsourced services. Another frequently encountered effect is IT staff „hidden“ in the spe-
cialist departments (e.g. macro programmers in the finance department).
12.12 Task 12 IT Key Figures 175
The key figure documents which faults were successfully processed by the IT department.
It can be recorded well if the company has a ticket system as part of a hotline that records
all error messages. However, IT faults can vary. Fault reports should be subdivided accord-
ing to impact (e.g. blemish, malfunction) or urgency (scheduling the change for the next
release upgrade, immediate response due to shutdown). The key figure can be easily ana-
lyzed with existing data material, according to the origin of the malfunction (department,
application system) and summarized for the executives.