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IT Capital Planning & Governance

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Business Cases Justify Investment Decisions on Business Transformation Initiatives

Source: www.whitehouse.gov/omb/egov

OMB Exhibit 300 – OUTLINEPart I, Overview

Date of Submission; Agency; Bureau; Name of Investment; Unique Project Identifier; Type of Investment; First Year to OMB; Executive Committee Approval; PM Contact Info & Qualifications; Name of FM System; FFMIA Compliance Area

Part I, Section A: Brief Summary Section B: Summary of Funding Section C: Acquisition/Contract Strategy Section D: Performance Information Section E: Security Section F: Enterprise ArchitecturePart II, Cost & Schedule PerformancePart III, Operations & MaintenancePart IV, Multi-agency Collaboration

Security Plan/ Privacy Impact Analysis

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Clinger Cohen

Agency Guidance

Define Technical Alternatives-- Status Quo-- Make or Buy-- Process Re-engineering-- Technical/System/Reengineering-- Outsourcing

Benefit/Cost Assessment-- $ Benefits and Costs-- Business Benefits -- CFO/Budget Spreadsheet-- Risks

Business Line & IS InputsModernization Blueprint

IT Strategic Plan

Define Acquisition & Program Management Plans

Business

Case

Refine Selected

AlternativeITMRA (P.L.104-106)

OMB A-11

IT Investment Guidance

Define Business Needs-- Derived from Strategic Plan Performance metrics-- Enterprise IT Architecture-- Gap analysis (process, organization, IT Capability)-- Mission Derived Systems Reqts. Analysis

Under OMB A-11, IT investments are to be defined, selected, and managed on the basis of a well-founded Business Case

Risk ID, Assessment, & Define Risk Management Plan

SEC. 5122. CAPITAL PLANNING AND INVESTMENT CONTROL: .implement in the agency a process for maximizing the value and assessing and managing the risks of the information technology acquisitions

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Value Measurement Method for Analysis of Alternatives When Focus is Mission Performance Gaps

Value Risk

Cost

Results

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Establish Linkage to Strategic Plans, PART

Score, and Annual Performance Plans

Define Performance Gaps; link to

Performance Reference Model (PRM)

Define the Functional Requirements to Address the Gap

Define Alternatives

Conduct Benefit/Cost Assessment

Investment decision

Initiatives must clearly support business and mission objectives

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Functional requirements should be defined in business terms that allow the agency the flexibility to evaluate a variety of solutions

Criteria for Functional Requirements

Performance criteria of the function being acquired, developed, built, etc.

Definition of the common usage of the function

Ranking of requirements in order of importance

Decomposition of functional requirements into self-contained features

IT functional requirements should:– Support reengineered process– Reflect an "open" system architecture whenever possible– Establish a solid foundation using commercial items before customizing

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Define alternative approaches to meeting the business requirements and analyze each alternative

Status Quo: look at the cost and/or benefits for staying "as-is"For example, look at the costs associated with maintaining the current system for the

long term Outsourcing/cross servicing:

Contracting with a private company or a Government most effective organization to assume responsibility for the function

Current considerations: Cloud; Insourcing requirements Stay in Business: Make a minimal investment to continue to run the system

For example, replace worn out components or operating system with current software version

Upgrading: improve the existing systemFor example, reprogram the system and reengineer processes to perform functions

more in line with the strategic plan Full reengineering (process, organization, IT)

Identify Process, organization, and IT projects needed to revamp the way work is performed

Make or Buy? Make: use internal resources to build a new system Buy: purchase services from an external vendor to build a new system

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Once an alternative is selected, the next step is to define a set of plans for use in implementation

2. Develop the Project

Plan

– Identify what activities/ tasks need to be done

– Schedule Project Work– Task Duration– Assumptions/

Dependencies– Resources– Milestones– Potential Risks– Establish project review

schedules

3. Execute the Plan and Control Progress

– Task performance– Key Deliverables– Consistently monitor

progress– Document all major

actions/decisions– Measure interim results– Decide whether to

cancel, modify, continue or accelerate the project

4. Evaluate

– Conduct post-implementation reviews

– Document track record– Assess the project's

impact on future prospects for the project

1. Define the Project

– Determine project scope and objectives

– Identify project outcomes

– Develop Project Mission Statement

– Identify Project Sponsor

– Identify Stakeholders– Establish Project

Team

Program Management Process

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Acquisition Strategy and Management Planning: For a Federal Agency, alternatives need to be identified and assessed

SELECTION OF ALTERNATIVE

Modularity

Cost & Schedule Risk

COMPARE ALTERNATIVES

Technical Risk

Financial Mgmt.

Accountability

Impact on Operations

Other

Contract Type

Competition

Contract Administration

DETERMINE PROGRAM

MANAGEMENT & ACQUISITION

ALTERNATIVES

Interoperability

Establish Oversight Reporting

Establish IPT

Risk Management Plan

Transition Plan

Performance Plan

ADMINISTER & MANAGE

CONTRACT

Earned Value Tracking System

Multiple Award ID/IQ

Full and Open

CONDUCT COMPETITION

Performance Based

Competitive Demos

Organization

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Performance Based Contracting techniques are emerging as a best practice to obtain IT solutions

Continuous Competition

Use of Past Performance as a Selection Criteria

Performance-Based Progress Payments

Incentive Fee Awards

Contract Administration System

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Risk Management Planning Requires identification of risk factors, impact assessment, and contingency plans

Risk Assessment: Identify Key Risks

Risk Analysis: Define Potential Implications of

Risks

Risk Treatment: Prepare/Update Risk

Management Plan

Risk assessment and management continue throughout the life cycle of a

program as additional information becomes available and additional risks

appear

Documentation and effective use of lessons learned will improve future

acquisitions and help address recurring problems in existing programs

A Strategic Management Approach

Integrated Framework for Alignment Organizational AlignmentAligning with priorities of the agency

GovernanceIndustry studies and practices overview

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Framework for Effective Performance

Establish Policy

Execute Programs

OversightAssess

ProgramResults

•Mission Outcomes•Targets•Initiatives•Strategy•Budgeting

•Funding Strategy•Process Efficiency•Acquisition•IT as Enabler•Workforce strategy

•Program Management •Governance•Compliance Review•Risk Management

•Metrics•Program Assessment•Program Decisions•Accountability•Transparency

Programs, CFO, CIO, HR, Acquisition, Performance Management Office

Agency Priorities & Initiatives

Direction Set by White House, Congress and Agency Leadership

Program Offices and Management Offices Interaction Required to Enable Program Performance

Integrated Performance Management Framework

Change Management

Agency’s culture will be critical to achieving effectiveness

Requires continuous collaboration by leadership who establish policy direction and strategic initiatives and workforce who will be implementing programs.

Requires agency leadership to drive a performance orientation into the fabric of the entire organization

A significant change management effort. Leadership participation can’t just be an executive reporting exercise Performance orientation has to become part of the cultureTake action during the delivery cycle as opposed to an end of period scorecard reviewMonitored in a near continuous way

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Change Management

Back office initiatives of the CIO, CAO, CHCO, CFO have to support programs.

The right IT investments that enable program delivery have to be funded and tracked, Human capital competencies and recruiting goals have to align with program needs, Procurement capability has to align with contract management requirements,Financial management needs to develop approaches to fund and track true costs

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• Stakeholder Impact- IS People & Organization- Business Lines- Employee Unions

• Change Management - Stakeholder Buy-In- Leadership- Training- Tracking, Measurement & Management

Responsibility and Accountability

- emphasize consequences of achieving program results, effective oversight and transparency

A Transition plan is usually required

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Change Management helps companiesminimize the depth andlength of performancedisruptions brought about by transformations

Performance

H

LTime

The focus of change management is to help companies to accommodate change and to help people adapt to new environments

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Once IT investments are selected and captured in the business plan, apply an investment monitoring process is applied to the portfolio

A set of standard criteria is applied to assess program, technical, and mission-related factors Business cases are used, and updated, to monitor the progress on ongoing initiatives against

projected cost, schedule, and performance measures The investment monitoring process helps to:

– Manage risk and identify and correct potential problems early in the life cycle– Ensure benefits are being accomplished and incorporate lessons learned during early phases

of implementation– Provide information to enhance overall IT performance and support to business managers– Meet external program management requirements, such as 90% cost and schedule

compliance

The principle objective of periodic reviews is to proactively monitor the investment

INVESTMENT CONTROL

GoWatchStop

Updated IT Plan &Performance Info

Approved Business

Case

Updated/ Approved Business

Case

Governance and Value

Survey after survey has revealed that from 20 to 70 percent of large-scale investments in IT-enabled change is wasted, challenged or fails to bring a return to the enterprise 1

A 2002 Gartner survey found that 20 percent of all expenditures on IT is wasted—a finding that represents, on a global basis, an annual destruction of value totaling about US $600 billion.4 • A 2004 IBM survey of Fortune 1000 CIOs found that, on average, CIOs believe that 40 percent of all IT spending brought no return to their organisations. A 2006 study conducted by The Standish Group found that only 35 percent of all IT projects succeeded while the remainder (65 percent) were either challenged or failed

1 ENTERPRISE VALUE: GOVERNANCE OF IT INVESTMENTS – IT Governance Institute and Val IT

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Six Typical Challenges in Creating Value

1. Problems in delivering technical capabilities—Often an enterprise’s delivery processes and competencies within its IT function are not mature enough. This challenge highlights the need to improve IT governance and management processes.

2. Limited or no understanding of IT expenditures—Rarely do executives enjoy a sufficiently transparent view of IT expenditures and IT-enabled investments.

3. Business abdication of decision making to the IT function—When the roles, responsibilities and accountabilities of the IT function and other business functions are unclear.

4. Communication gaps between the IT function and the business—Close collaboration between the IT function and other business functions is crucial to value creation. When such a partnership is absent, communication suffers, inefficiencies

5. Questioning of the value of IT—Ironically, while most enterprises continue to invest more and more in technology, many of their key executive decision makers continue to question whether value is actually realised from these investments.

6. Major investment failure—When IT projects stumble, the business costs can be enormous—and highly visible. Project cancellations can trigger unexpected ripples of impact across the business. Delays can cost millions.

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Value Delivery

Provide strategic direction for investment decisions Define the characteristics of portfolios required to support new

investments and resulting services, assets, and other resources Improve value management on a continual basis, based on lessons

learned COBIT’s Val IT: a comprehensive approach to value delivery

Val IT provides a consistent, repeatable, and comprehensive approach to governing BT investments

Mission and business become equal shareholders because Val IT helps management to answer the following key questions

Source: ISACA, Val IT

Structure and Goals of Val IT

There are three overall domains in Val IT: Value Governance, Portfolio Management, and Investment Management.

Each domain comprises a number of processes and key management practices

Value Governance (VG)—The goal of value governance is to optimize the value of an organization's IT-enabled investments

Portfolio Management (PM)—The goal of portfolio management is to ensure that an organization's overall portfolio of IT-enabled investments is aligned with and contributing optimal value to the organization's strategic objectives

Investment Management (IM)—The goal of investment management is to ensure that an organization's individual IT-enabled investment programs deliver optimal value at an affordable cost with a known and acceptable level of risk

Source: ISACA, Val IT

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In Summary, Capital Planning and Governance should:

• Be integrated across the agency• Meet Performance Improvement• Link to OMB requirements and Capital Planning needs to

be supported with effective business cases that are not done for compliance but as a management tool

• Have a high probability of achieving cost, schedule, and performance objectives

• Formalize way to prioritize decisions• Oversight and Governance to review progress, be more

transparent with Dashboard and internal review teams

The OCIO as a Governance Entity to Facilitate Innovation

Traditionally, organizational structures were relied upon to align decision-making with enterprise goals and strategies Organizational structures have proved inadequate to the task Governance compensates for the limitations of organizations and transcends

organization charts Governance is made more effective by changing the status quo to

introduce improved organizational processes and practices Changes impact the organizational culture by altering the work and

management climate

Governance aligns resources and incentives with performance targets

Provide Direction

Compare

Measure Performance

Organization:Perform Activities

Governance:Set Objectives

An organization facilitates the planned, coordinated, and purposeful actions of people

Governance effects organizational, process, and cultural change by translating objectives into actions

Assessing the Enterprise’s Current State

One of the best ways to assess the enterprise’s readiness to undertake a value management program is to evaluate the degree to which management is aware of the need for value management approaches based on the adoption of the following principles:

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IT-enabled investments will Value delivery practices will

Be managed as a portfolio of investments. Recognize that there are different categories of investments that will be evaluated and managed differently.

Include the full scope of activities required to achieve business value.

Define and monitor key metrics, and respond quickly to any changes or deviations.

Will be managed through their full economic life cycle.

Engage all stakeholders and assign appropriate accountability for the delivery of capabilities and the realization of business benefits.

Be continually monitored, evaluated and improved.

Taking Action

Approach 1: Build Awareness and Understanding of Value Management

Approach 2: Implement or Improve Governance Approach 3: Undertake an Inventory of Investments Approach 4: Clarify the Value of Individual Investments Approach 5: Conduct Investment Evaluation, Prioritization and

Selection

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A Best Practice Description from Industry

Health Care InsurerMulti-State Business Process Teams setup for Governance Councils organized by business process – Member Services, Health Care Delivery, Information Technology, etc.Initiatives reviewed need to align with strategy and mission

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Process – Value to the Business

Starts with an “opportunity document” – an idea estimated at scale level, not yet detailedSubmitted to the project portfolio management team - reviews for completeness and for tracking purposesOpportunity documents are reviewed by appropriate business process council. Each comes up with a list of what they want to see as the TOP ListAt this point they are focused on the strategic impact and strategic support they will needAs the list of the TOP projects are compiled, then they do a business caseBusiness cases are prioritized by each business process council

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Decision Making & Governance

The business process council determines which investments will be advanced to the overarching governance councilAt this point there is a better understanding of costs, but still broadThe Portfolio Management Team (PMT) then looks and starts the fulfillment planning (resources, HR, Procurement, Financial, Schedule for execution)The overarching council, along with the PMT develops a priority list for

Active projectsNew projectsThe PMT will also look at changed business cases and changes to business priorities

For instance right now they would look at regulatory projects to the to the HC law.

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Other Items in Governance

Small Projects done differentlyIndividual business divisions have their own internal councils

CIO gets a pool of funding and spends as desirable for instance infrastructure – as long as it doesn’t cross boundaries and stays within boundaries

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Value Proposition

BeforeFirst Come First ServeDidn’t really prioritize strategic impact or even good link to strategy

TodayThey are able to do fulfillment planning – back to being on same page or integrated frameworkPeople have leverage on getting support as they focus on strategy and performance – projects are aligned

Change ManagementThis process has been refined over yearsPeople still learning

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Closing

Final Discussion and QuestionHow you perceive next steps in your agency

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