IT Investment Governance With EPM Solution

2. IT Investment GovernanceWith EPM Solution Mike Gruia Principal Program Manager Lead Microsoft Corporation I would like to welcome everyone on behalf of Microsoft to today�s briefing on IT Investment governance Many scientist and economists �.. I would like to welcome everyone on behalf of Microsoft to today�s briefing on IT Investment governance Many scientist and economists �..

3. Agenda:  Discuss IT investment governance Demo MOPPS with emphasis on governance Point out software support for the key governance mechanisms Discuss a case study focused on redesigning the governance framework Uncover some challenges Provide recommendations Q&A We'll go through the agenda by first talking about �.. Then, we will go into�.. t Next, we will turn into �.. Then will go into�. and finally we�ll come back with recommendations on how to meet the challenges. Key topics Why is IT governance important? What are the elements of IT Investment governance What are the key governance mechanisms How software supports the governance mechanisms Learn from reengineering of the IT governance at a financial service company What are the challenges Things to remember We'll go through the agenda by first talking about �.. Then, we will go into�.. t Next, we will turn into �.. Then will go into�. and finally we�ll come back with recommendations on how to meet the challenges. Key topics Why is IT governance important? What are the elements of IT Investment governance What are the key governance mechanisms How software supports the governance mechanisms Learn from reengineering of the IT governance at a financial service company What are the challenges Things to remember

4. Why Is IT Governance Important? Top management is realizing the significant impact that IT can have on the success of the enterprise Top management is concerned with the complexity and the high cost of IT Capital and resources are scarce An assertive wave of stakeholders is concerned about the sound investment management Furthermore, regulations establish board responsibilities: SOX, Klinger Cohen Act Value creation does not depend only on innovation, but also on discipline The economics of good IT governance are clear Read and use the phrases before to summarize. Use the phrase is about�. IT Impact or lack of impact � IT relevance � Fear, complexity and --- possible Lack of control- total US It spending is estimated at 1.6 trillion. Today the IT budgets represent for some industry 8% of the revenues � fin serv 8%, chemicals 3%, retail 4%, insurance5% Constraints - Scarcity Pressure Stakeholders ---I was not aware does not cut it anymore Regulations ---concerned with compliance. Regulators want to prevent another Enron, Tyco, Global Crossing or WorldCom Innovation often fails to translate into shareholders value. To capture the value organizations must follow a discipline to ensure that the innovation is linked to excellence in execution Return on governance is awesome� savings from 5% to 30% of the investment size. A company with 200mill of investment may save 40mil/year. Over 3 years they will realize over 120 mill with a possible investment of 3 mill �40X return!!!! Read and use the phrases before to summarize. Use the phrase is about�. IT Impact or lack of impact � IT relevance � Fear, complexity and --- possible Lack of control- total US It spending is estimated at 1.6 trillion. Today the IT budgets represent for some industry 8% of the revenues � fin serv 8%, chemicals 3%, retail 4%, insurance5% Constraints - Scarcity Pressure Stakeholders ---I was not aware does not cut it anymore Regulations ---concerned with compliance. Regulators want to prevent another Enron, Tyco, Global Crossing or WorldCom Innovation often fails to translate into shareholders value. To capture the value organizations must follow a discipline to ensure that the innovation is linked to excellence in execution Return on governance is awesome� savings from 5% to 30% of the investment size. A company with 200mill of investment may save 40mil/year. Over 3 years they will realize over 120 mill with a possible investment of 3 mill �40X return!!!!

5. What Is IT Governance? An operational framework delineating the processes, decision domains, organizational rights and governance mechanisms which will encourage the right behavior to achieve effective and efficient investment in IT. Key Learning: The essence of governance is not compliance, but making good decisions. Governance is based on three disciplines: economics, organization and internal corporate law Key The framework should describe the right operational behavior which will induce the right individual behavior The objective of governance is not compliance but good decisions. Balance effectiveness and efficiency Governance is based on three disciplines: economics, organization and internal corporate law Key The framework should describe the right operational behavior which will induce the right individual behavior The objective of governance is not compliance but good decisions. Balance effectiveness and efficiency

6. How Can We Build A Best In Class IT Governance? Four key questions to consider and answer in the next 15 minutes: Use the slide Additional Questions to consider What is a good decision? What are the investment economics? What are the behavioral assumptions? How we measure success? We will concern with: economics, microanalysis ie. process and workflows, organizational rules and structures. Why we concerned? Because we suspect that individuals have bounded rationality, biases and distortions and perhaps lack of knowledge about governance rules.Four key questions to consider and answer in the next 15 minutes: Use the slide Additional Questions to consider What is a good decision? What are the investment economics? What are the behavioral assumptions? How we measure success? We will concern with: economics, microanalysis ie. process and workflows, organizational rules and structures. Why we concerned? Because we suspect that individuals have bounded rationality, biases and distortions and perhaps lack of knowledge about governance rules.

7. 1. Create governance maps that delineate decisions, information 2. Create teams Why Organizations will use teams? Diversity � need to handle multiple processes, products and LOBs Rapid change � Interdependence of units Speed � cycle time reductions for decisions and new product development 3. Understand what questions and decision they need to be able to perform 4. Integrate decision domains, organizations by using governance mechanisms 1. Create governance maps that delineate decisions, information 2. Create teams Why Organizations will use teams? Diversity � need to handle multiple processes, products and LOBs Rapid change � Interdependence of units Speed � cycle time reductions for decisions and new product development 3. Understand what questions and decision they need to be able to perform 4. Integrate decision domains, organizations by using governance mechanisms

8. What Are The Investment Domains? Key It�s not only about excellent economics (1,2) but also about the right organizational behavior(3,4,5). Key It�s not only about excellent economics (1,2) but also about the right organizational behavior(3,4,5).

9. What Decisions Need To Be Made? Explain each domain. What are the key questions for each IT decision? What are the assumptions? What is the role of IT in the business? Based on the type of industry, culture� How the IT will share budgets and resources? What are the key business metrics? Who owns the outcomes and institute changes to ensure the value? Key These three domains are like links in a chain. Each domain is required and the quality of an overall decision is no better than the quality of the weakest link. Explain each domain. What are the key questions for each IT decision? What are the assumptions? What is the role of IT in the business? Based on the type of industry, culture� How the IT will share budgets and resources? What are the key business metrics? Who owns the outcomes and institute changes to ensure the value? Key These three domains are like links in a chain. Each domain is required and the quality of an overall decision is no better than the quality of the weakest link.

10. Who Should Make These Decisions? Explain the chart. Consider three different perspectives (economic, organizational, audit) to start the thinking about decision rights: 1. Economic: The economic perspective focuses on maximizing the value of the decisions. 2. Organizational: This perspective is similar to the economic, but focuses on making decisions efficiently by decreasing the costs of decisions. Ideally will be to co-locate decision rights with the individual who possess specific knowledge, 3. Audit: focuses on minimizing the firm�s exposure by ensuring standardization and control of processes and financial reports. The challenge is to balance effectiveness and efficiencyExplain the chart. Consider three different perspectives (economic, organizational, audit) to start the thinking about decision rights: 1. Economic: The economic perspective focuses on maximizing the value of the decisions. 2. Organizational: This perspective is similar to the economic, but focuses on making decisions efficiently by decreasing the costs of decisions. Ideally will be to co-locate decision rights with the individual who possess specific knowledge, 3. Audit: focuses on minimizing the firm�s exposure by ensuring standardization and control of processes and financial reports. The challenge is to balance effectiveness and efficiency

11. What Are the Roles and Responsibilities? Who should make these decisions? In most organizations, decision quality is not achieved as they use an advocacy/approval process where a decision is arrived at by a lower level and then simply sold to a senior level. These roles are: a) Approval Authority � This is where the ultimate decision rights reside as this individual or group has full authority to approve an action with no further review. b) Decision Quality Responsibility � This is where responsibility resides for assuring that the decision recommendation meets the decision quality criteria. c) Input and Execution Resources � These resources provide facts and judgments necessary to understand the consequences of a decision. Key Extremely important to consider all the people involved in the decision process. For examples bringing the implementers earlier in the decision process avoids many downstream failures.Who should make these decisions? In most organizations, decision quality is not achieved as they use an advocacy/approval process where a decision is arrived at by a lower level and then simply sold to a senior level. These roles are: a) Approval Authority � This is where the ultimate decision rights reside as this individual or group has full authority to approve an action with no further review. b) Decision Quality Responsibility � This is where responsibility resides for assuring that the decision recommendation meets the decision quality criteria. c) Input and Execution Resources � These resources provide facts and judgments necessary to understand the consequences of a decision. Key Extremely important to consider all the people involved in the decision process. For examples bringing the implementers earlier in the decision process avoids many downstream failures.

12. 1. Create governance maps that delineate decisions, information 2. Create teams Why Organizations will use teams? Diversity � need to handle multiple processes, products and LOBs Rapid change � Interdependence of units Speed � cycle time reductions for decisions and new product development 3. Understand what questions and decision they need to be able to perform 4. Integrate decision domains, organizations by using governance mechanisms 1. Create governance maps that delineate decisions, information 2. Create teams Why Organizations will use teams? Diversity � need to handle multiple processes, products and LOBs Rapid change � Interdependence of units Speed � cycle time reductions for decisions and new product development 3. Understand what questions and decision they need to be able to perform 4. Integrate decision domains, organizations by using governance mechanisms

19. What are the decision catalysts?What are the decision catalysts?

20. Compliance Mechanisms What are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? Consistency, agreement, standardization and efficiencyWhat are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? Consistency, agreement, standardization and efficiency

21. Coordination Mechanisms What are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? Accountability, authority, wholistic view, colaborationWhat are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? Accountability, authority, wholistic view, colaboration

22. Feedback and Control Mechanisms What are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? What are we trying to accomplish? Control investment economics, alignment, performanceWhat are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? What are we trying to accomplish? Control investment economics, alignment, performance

23. Exceptions Mechanisms What are trying to accomplish? Provide a mechanism to deal with exceptions.What are trying to accomplish? Provide a mechanism to deal with exceptions.

24. Process Transitions and Action Mechanisms What are we trying to accomplish? Provide a mechanism to manage the flow, how you move, what are the conditions and what are the actions that you take once you move thru the gate.What are we trying to accomplish? Provide a mechanism to manage the flow, how you move, what are the conditions and what are the actions that you take once you move thru the gate.

25. Communications Mechanisms What are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? What are we trying to accomplish? Communicate rules, communicate results, get individuals to participate and get them informed, reduce violations and violations. Get their attention, get them envolved, educate, inform and due process for violators and violations What are the assumptions? What are the behaviors that we are trying to prevent? What behavior we encourage? What are we trying to accomplish? Communicate rules, communicate results, get individuals to participate and get them informed, reduce violations and violations. Get their attention, get them envolved, educate, inform and due process for violators and violations

26. Additional Factors To Consider Type of business and industry Role of IT: Utility, Dependent or Integral Maturity of the organization Culture Geography Does One Governance Type Fit All ?Does One Governance Type Fit All ?

27. Microsoft Office EPM Solution

28. EPM Solution

29. MOPPS � Focus On Governance Aspects demo

30. How the Software Supports the Governance Mechanisms? Compliance Coordination Feedback and Control Exceptions Transitions and actions Communication How technology could enable the governance framework? Technology will help to manage the white space integrating all decision domains and linking all the organizational Better Collaboration across decision domains Increased Accountability Faster decisions Better decision making productivity Better Business priorities tradeoffs Reaching consensus faster Better project valuation Better Project selection Resource allocation Better tracking performanceHow technology could enable the governance framework? Technology will help to manage the white space integrating all decision domains and linking all the organizational Better Collaboration across decision domains Increased Accountability Faster decisions Better decision making productivity Better Business priorities tradeoffs Reaching consensus faster Better project valuation Better Project selection Resource allocation Better tracking performance

31. Compliance: Follow the Agreed Process Challenge: Many decision makers view the issue of content vs. process. There is a tremendous impatience with process, and some think that if you had the content you�d have the answer. Key: Customize the process. We start by recognizing that not every investment needs the same type of rigor. Multiple work streams. Perhaps, we may define multiple processes and workflows, based on the investment size and the strategic importance of the project. Reengineer the process Think about efficiency Software Unique value : Enable collaboration Enforce governance rights Speed � reduce time between processes Challenge: Many decision makers view the issue of content vs. process. There is a tremendous impatience with process, and some think that if you had the content you�d have the answer. Key: Customize the process. We start by recognizing that not every investment needs the same type of rigor. Multiple work streams. Perhaps, we may define multiple processes and workflows, based on the investment size and the strategic importance of the project. Reengineer the process Think about efficiency Software Unique value : Enable collaboration Enforce governance rights Speed � reduce time between processes

32. Compliance: Follow the Agreed Logic Software Unique value: enforce discipline and set limits Software Unique value: enforce discipline and set limits

33. Compliance: Define Business Focus, Boundaries And Priorities

34. Compliance: Enforce Budgets and Resource Limitations

35. Compliance: Consider Architecture Fit Or Risk

36. Compliance: Ensure Consistent Data Requirements

37. Coordination: Define Input And Decision Rights

38. Feedback and Control: Evaluate Business Priorities vs. Investments Challenge: Human consciously or unconsciously do what come naturally and easy, rather than what is important. Process: backward analysis of the investments � what would we accomplish if we follow the proposed investment decisionsChallenge: Human consciously or unconsciously do what come naturally and easy, rather than what is important. Process: backward analysis of the investments � what would we accomplish if we follow the proposed investment decisions

39. Feedback and Control : Evaluate Portfolio Performance vs. Targets Key: Transparency ControlKey: Transparency Control

40. Feedback and Control : Workflow Progress Key: Transparency ControlKey: Transparency Control

41. Exceptions: Resolve Divergence Of Opinions Explain Software Unique value � objective and accurate prioritization that leads to consensus. Agreed and consistent process - Impacts the behavior Explain Software Unique value � objective and accurate prioritization that leads to consensus. Agreed and consistent process - Impacts the behavior

42. Exceptions:Allow Forced In/Forced Out

43. Governance Transitions And Actions: Verifications and Actions Verification for data that must be completed before a project can move to the next lifecycle step, ie. Complete High Level Cost Estimate - verifies if level 1 of the cost structure is completed Triggered action - triggered when a project is moved from one lifecycle step to another, ie. Save Requirement Values When Approved Verification for deliverables � specified data that must be completed before a project can move to the next lifecycle step Complete Project Information Tab - verifies if all mandatory fields are completed Complete High Level Cost Estimate - verifies if level 1 of the cost structure is completed Complete Detailed Cost Estimate - verifies if lowest level of the cost structure is completed Complete Strategic Impact Tab - verifies if Strategic Impact values are completed Triggered action - triggered when a project is moved from one lifecycle step to another. The 5 Pre-defined action choices are: Save Requirement Values When Approved � This action copies all resource requirements values from planned to forecast and computes tracking values. This action should be triggered when the project moves to the first workflow stage where it is considered approved Copy Planned Cost To Forecasted � Copies budget cost values into forecast cost values and computes tracking values. This action should be triggered when the project moves to the first lifecycle step where the project is considered approved Save Requirement Values When Rejected � Resets resource tracking and forecast data to zero. This action should be triggered when the project moves from a stage where is considered approved into a stage where is considered non-approved. Redistribute Budget Cost Data Across Project Period � Redistributes the annual cost and resource numbers across the months/quarters. Save Cost Values When Rejected � Resets tracking and forecast data to zero . This action should be triggered when the project moves from a stage where is considered approved into a stage where is considered non-approved � Verification for deliverables � specified data that must be completed before a project can move to the next lifecycle step Complete Project Information Tab - verifies if all mandatory fields are completed Complete High Level Cost Estimate - verifies if level 1 of the cost structure is completed Complete Detailed Cost Estimate - verifies if lowest level of the cost structure is completed Complete Strategic Impact Tab - verifies if Strategic Impact values are completed Triggered action - triggered when a project is moved from one lifecycle step to another. The 5 Pre-defined action choices are: Save Requirement Values When Approved � This action copies all resource requirements values from planned to forecast and computes tracking values. This action should be triggered when the project moves to the first workflow stage where it is considered approved Copy Planned Cost To Forecasted � Copies budget cost values into forecast cost values and computes tracking values. This action should be triggered when the project moves to the first lifecycle step where the project is considered approved Save Requirement Values When Rejected � Resets resource tracking and forecast data to zero. This action should be triggered when the project moves from a stage where is considered approved into a stage where is considered non-approved. Redistribute Budget Cost Data Across Project Period � Redistributes the annual cost and resource numbers across the months/quarters. Save Cost Values When Rejected � Resets tracking and forecast data to zero . This action should be triggered when the project moves from a stage where is considered approved into a stage where is considered non-approved �

44. Governance Communications - Email Notifications and Alerts Notifications - email notifications to pertinent users at particular points in the work flow. Include: Feedback notifications are associated to automatic lifecycle steps. No-feedback notifications are associated to manual lifecycle steps. Alerts - Acts primarily as a means for setting auto-respondent emails for users who may not be present Notifications - For email notifications to pertinent users at particular points in the work flow. The template can be modified at any time in the process, without impacting existing projects. Every step has a notification to an associated user group. Users belonging to this group can move the project forward to the next step Alert subscriptions � Acts primarily as a means for setting auto-respondent emails for users who may not be present at certain points in the process where their attention is required. Notifications can be with feedback or without feedback Feedback notifications are associated to automatic lifecycle steps,. This ensures that every lifecycle step in the workflow is confirmed by a user. Notification with feedback. Recipient has to respond to the email signing off with Approval or Rejection. Feedback notifications have 2 types of response techniques: with multiple-user sign-off and single-user sign-off Notification without feedback are associated to manual lifecycle steps. Recipient is only informed about the state of the project; no explicit response to approve or reject is needed Notifications - For email notifications to pertinent users at particular points in the work flow. The template can be modified at any time in the process, without impacting existing projects. Every step has a notification to an associated user group. Users belonging to this group can move the project forward to the next step Alert subscriptions � Acts primarily as a means for setting auto-respondent emails for users who may not be present at certain points in the process where their attention is required. Notifications can be with feedback or without feedback Feedback notifications are associated to automatic lifecycle steps,. This ensures that every lifecycle step in the workflow is confirmed by a user. Notification with feedback. Recipient has to respond to the email signing off with Approval or Rejection. Feedback notifications have 2 types of response techniques: with multiple-user sign-off and single-user sign-off Notification without feedback are associated to manual lifecycle steps. Recipient is only informed about the state of the project; no explicit response to approve or reject is needed

45. Measures of Success�

46. The Tale of IT Governance at a Financial Service Company Projects are created by IT PMO and lower level management prepared the business case and sold it to the LOB senior level The C level is involved sporadically in project approvals What is key? Understanding the organization focus Aligning organization focus and culture to the IT Governance.What is key? Understanding the organization focus Aligning organization focus and culture to the IT Governance.

47. The Tale of IT Governance at a Financial Service Company What they did Segment the investments by size and responsibilities and answer three key questions: How many projects are in each bucket? What�s the cost of each money bucket? Who controls the budgets and how many projects they need to review? Key Striking the right balance between the need for control, autonomy and ability to make decisions in a timely and efficient manner. What they did Segment the investments by size and responsibilities and answer three key questions: How many projects are in each bucket? What�s the cost of each money bucket? Who controls the budgets and how many projects they need to review? Key Striking the right balance between the need for control, autonomy and ability to make decisions in a timely and efficient manner.

48. The Tale of IT Governance at a Financial Service Company

49. The Tale of IT Governance at a Financial Service Company

50. Imperfect Rationality Coupled With Conscious Or Unconscious Biases Impact Governance Inertia or comfort with Status quo � Do what comes naturally, rather than what is important Motivational The desire to look good. Biases include overconfidence, undue optimism. Personal interest: Power and influence, Incentives and compensation, Biases in perception Personality Differences - Each of us has a set of traits, habits, and natural tendencies that shape our approach to decision-making. �Myers-Briggs Type Indicator (MBTI) dimensions. Fallacies in Reasoning Our brains are not wired for tackling problems that are complicated by complex structure, compound uncertainties, or large numbers of options. Group distortions biases can come into play: groupthink, obedience, and conformity. Communication deficiencies: Frame of reference, different interpretations based on previous experience, selective listening, semantic problems � people use words differently Inertia or comfort with Status quo � Do what comes naturally, rather than what is important Motivational The desire to look good. Biases include overconfidence, undue optimism. Personal interest: Power and influence, Incentives and compensation, Biases in perception Personality Differences - Each of us has a set of traits, habits, and natural tendencies that shape our approach to decision-making. �Myers-Briggs Type Indicator (MBTI) dimensions. Fallacies in Reasoning Our brains are not wired for tackling problems that are complicated by complex structure, compound uncertainties, or large numbers of options. Group distortions biases can come into play: groupthink, obedience, and conformity. Communication deficiencies: Frame of reference, different interpretations based on previous experience, selective listening, semantic problems � people use words differently

51. Factors to Consider in the Governance Design

52. Connecting the Dots�

53. Summary: Things to Remember Focus on business purpose Redesign the decision framework: domains/ decisions, structures/rights and governance mechanisms Leverage the power of the software Build the required competencies Distortions can have significant impact Time phased implementation with clear success indicators Focus on business purpose. Governance design should focus on business purpose while assuring compliance; many companies today focus on compliance and governance is not adequately focused on business purpose. Focus on the right domain and decisions - Don�t start with decision rights; instead, focus on the right decisions to maximize value. Redesign the decision process: aligned, simple. The process must be tailored to the unique organization needs and the nature of the decisions Enabled gated funding. Release funds based on achievements Optimize decision rights � for example an advocacy/approval culture will not result in the best decisions. Most organizations are designed for operational effectiveness and efficiency; most important strategic decisions are cross-organizational and don�t fit with the org chart. Software is the translator and the engine Build the required competencies - Realizing the full value of good governance entails making DQ a competency Distortions can have significant impact Be aware of the implementation costs , Time phased implementation with clear success indicators Focus on business purpose. Governance design should focus on business purpose while assuring compliance; many companies today focus on compliance and governance is not adequately focused on business purpose. Focus on the right domain and decisions - Don�t start with decision rights; instead, focus on the right decisions to maximize value. Redesign the decision process: aligned, simple. The process must be tailored to the unique organization needs and the nature of the decisions Enabled gated funding. Release funds based on achievements Optimize decision rights � for example an advocacy/approval culture will not result in the best decisions. Most organizations are designed for operational effectiveness and efficiency; most important strategic decisions are cross-organizational and don�t fit with the org chart. Software is the translator and the engine Build the required competencies - Realizing the full value of good governance entails making DQ a competency Distortions can have significant impact Be aware of the implementation costs , Time phased implementation with clear success indicators

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