Describes IT Governance Holistic Framework for establishing transparent relation between Business and IT environment. Describes Governance services and Risk Management Methods

1. Understanding
about
IT Governance and Risk Management
Jiri Cejka,
Senior Manager, dipl.El.-Ing, CISA
jiri.cejka@is-governance.com

2. Outline
1. IT Governance Market Issues
Business Management and dependence on IT Technology
IT Governance Situation;
2. Holistic Framework for IT Governance
Approach; Scope
Objectives
–
IT Processes: Alignment Business and IT
–
IT Risks: Value/Cost Relationship and Risk measurement
–
Operational Excellence
Client Benefits
3. Benefits of IT Governance framework
4. IT Governance Services & Methodologies
Risk Management Services
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Methodologies and Tools
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3. 1. IT Governance
Market Issues
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4. Business Management and
dependence on IT Technology
Today’s management:
More dependent on IT technology to run its business to
achieve competitive advantage
The IT responsibility of corporate executive is growing:
to ensure that systems and processes are properly
controlled
required level of governance is in place
Businesses are continuously looking towards lower costs
and value-for-money – from all aspects of business
IT is becoming a significant expenditure – second after
staff costs.
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5. Example: What management need to know
before investing into SW development
Are funds available?
Will the investment save us money? What is project payback period and ROI?
Is this ROI higher then those who propose the alternative uses for money?
What are the implications to business? (business processes, tax)
Can SW be depreciated? If so can be used declining balance or straight
depreciation schedules?
How can the development engineer answer these questions?
Solution by using the method to measure to produce numbers in terms of:
productivity improvement
cost reduction/avoidance
quality improvements, and/or time-to-market reduction strategies
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6. Situation
The requirement coming from businesses:
IT processes must be appropriately controlled
Management is under pressure from regulators and the
capital markets:
Competitive advantage is gained from IT investment
As a result companies seek incremental advantages from
use of cutting edge technology:
By turning to the third party providers
By implementing optimising programs
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7. Issues to be solved
The reliance IT raises number of issues:
How can management effectively manage its
organisation?
How can management understand the control structure?
How can the external auditor gain sufficient audit
evidence?
“How could Business understand the impact of IT?”
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8. 2. IT Governance
Holistic Framework
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9. Outline
Approach
Value of IT to Business - Examples, View
What do we need
Framework IT Governance - Objectives
Objective 1: Business - IT Alignment; IT Processes Analysis
Objective 2: Value /Cost Relationship; Risks Measures
Objective 3: Operational excellence
Implementation of Infrastructure, Outsourcing
Condition of success
Benefits
Communication channels
Summary of benefits
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10. Value of IT to Business: Examples
To measure value of IT is not a new idea - Examples:
1.
What Added Value is your IT giving?
–
–
1.
IT involvement in the business imperatives
Vision of IT that could be shared by business and IT leaders
More money wasted in IT that created?
–
1.
IT System will pay off only if design and management are based upon culture
and politics that are intended to support
Focus on strategic instinct of Business Mgrs?
–
Evaluating IT based on ability to improve operations?
Right ideas but:
business does not derive benefits it needs from spending on IT
required level of business-IT alignment and integration not good
enough.
As a result the Business leaders still have difficulties:
lack of understanding of how IT could contribute to business
difficult to reconcile IT costs with the value received.
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11. Value of IT to Business: View 1
Since decades business-IT alignment has been emphasized - with
focus on management of IT projects
however they represent normally 25-30% of IT Budget only
To manage IT properly Value/Cost relationship need to be focused on
other IT components that project development:
operation of business applications
support service - marketing, sales, utility application
Example: operational and support services are production phase of IT
project
project not ready with acceptance tests but following maintenance,
operation support are included: project costs less relevant
Framework with value metrics to organize project, operation and support
phase:
integrated Project portfolio with development and production activities
accounting perspective: capital vs. operating expense
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12. Value of IT to Business - View 2
Business value of new functionality delivered by IT project
created by both development nor production
shared and consistent approach to manage value/costs
Project management: post-implementation phase to be extended
continuing relevance/value to business
efficient and reliable operation is part of project
Benefit of this holistic approach:
limited focus on project as an “investment” is stopped:
–
–
management has continuous cost/value overview
–
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success/failure of project measured with operational work
the monitoring results are applicable to future projects
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13. What do we need?
Challenge of governing enterprise’s IT is recognized since
years, however the results do not give the required level of
alignment and integration.
An approach is needed that is inclusive – with a scope
reflecting range of activities and responsibilities of IT –
and specific.
Holistic Framework addressing three Primary Objectives:
1.
2.
Relates costs of IT with the value brought to
business
3.
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Fosters strategic and tactical alignment of IT with
Business
Support drive toward operational excellence
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14. Objective 1: How to align IT Business?
Goal:
“Identify the strategic important elements of business value to
which IT can significantly contribute:”
Two classical views of IT for businesses, i.e. providing of
information vs. supporting information services has changed
–
Examples: Implementing new sales strategy, planning
responsive technology push of internet
Information is now an integral part of the business:
–
Role of IT expands: alignment even more important for
business
Step 1. Identify main value-adding activities and linked strategies
Identify the opportunities to use information services to support
business strategy
Add new activities as a part of IT portfolio - basis for alignment
Metrics for business value have to be identified and implemented by
both business and IT
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15. Objective 1: How to align ITBusiness?
Step 2. Ensure involvement of senior management: strategic planning
Ongoing dialogue necessary
Full understanding of planned use and impact of IT technology
Formal decision making - critical decision fully committed
Step 3. Organize the environment to optimise IT Processes
Implement process to perform planning by both IT and business mgr
–
Business leader develop IT fluency
–
IT leaders business fluency
Implement process of managing execution
–
–
Management commitments, contracts, project teams, deliverables
–
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division in phases, definition of decisions stages
develop of process to maintain and tune the strategy
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16. Objective 2: How to manage ValueCost Relationship and IT portfolio?
Goal: “How to institutionalise the developed way of alignment
Business - IT?”
Focus on active management of IT portfolio
Initial development of IT portfolio needs adaptations with changed
needs, opportunities and priorities
Step 1. Find way how to characterize the IT portfolio for
management
Collection of techniques that provide understanding
–
Risk-Business Transformation - Volume of value
measurement
–
Interpretation allows Management to make decisions
–
further views: Net present Value
Result balanced portfolio aligned with Strategy
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17. Objective 2: How to manage ValueCost Relationship and IT portfolio?
Step 2. Clarify process for managing the IT portfolio
Annual review, reviews depending on changes
Checkpoints, balance resources
Step 3. Make sure that decisions are based on organisation’s needs
Example: Resources allocated on relative strategic value of
competing projects is better than even allocation across all units
using different tools to describe projects and analysing both
–
risk profiles
–
potential business value
Result:
–
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Business-visible impact of alternative decisions
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18. Objective 3: Service management and
Operational Excellence
Goal: “By selection of right metrics that drive the performance provide
better understanding for management”
Step 1. Identify Elements of Business value
Step 2. Transform the Qualitative measures into Quantitative by setting
thresholds or targets
Step 3. Use metrics that are tied closely with business performance
predefined set of “interesting metrics” is not the right way.
Example 1: Install program where chosen measure is “higher yield”
Metric is ratio of products with higher quality: target financial benefit
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19. Objective 3: Service management and
Operational Excellence
Example 2: Improve customer focus with installed support sales
system
Metric is ratio assessment of customer satisfaction
Example 3: Implementation of Cost / Performance with
preventive measurement system
Several metrics needed (depreciation, maintenance cots, lease)
If scope of system changes slowly (list of equipment) - total
costs fine
If changes are rapid: volume adjustment and unit cost are
relevant
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20. Objective 3: Service management and
Operational Excellence
Required Implication for the organization:
Define formal organization structure responsible for service
–
Assigning product / service management
–
Positive effect: tightly focused responsibility and
accountability
Operation for business users requires both business and technical
expertise:
–
business and technical aspects correct evaluated
–
ensure accuracy, completeness, consistency
Ideal Goal: “Creating product-management organization including
both skills”
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21. Objective 3: Operational Excellence
Goal : “Achieve the measurable efficiency, productivity and reliability of
services in terms of business value”
Step 1. Divide the overall budget for IT operations and support into a
set of defined products/services
Step 2. All costs to be mapped into valuable business services
Step 3. Measure the productivity in terms of total organization business
orientation:
Classic technical orientation: costs of mainframe, desktop, split into
parts that are difficult to follow by senior management
New approach: Costs directly oriented with business results: cost per
transaction, cost of SCM, personal action.
Benefits Result: Only a few metrics are used, however they are
compelling for senior management:
1-2 value metrics, 1 cost metric and 1-2 service metrics
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22. Implication for Outsourcing
Benchmarking measurement of IT services with external providers
measurement of costs, volumes and quality of services
Further factors - dependency, hidden costs, flexibility
Two frequent factors for outsourcing:
The internal IT organization has failed to achieve cost/value
relationship required by management
Expectation that outsourcer performs task better
However two risks are frequent
the data to support these decision are missing
the approach to evaluate the outsourcer is not existing
Holistic approach developed can help to
Develop appropriate metrics to support necessary analysis
The same tool to be used to measure internal and external service
Management of outsourcing relationship and contracts
Business view: combination of costs, service level and quality
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23. Implementing the IT Governance
Framework
Two aspects for successful implementation of IT Governance
framework:
1.
Behavioural and procedural aspect
Disciplines involved in managing programs/projects must be
accepted
New practises of management ad reporting must be adopted
–
Approach: starting with visible project
–
Training new methods
2. Automation of data collection
Relying upon ad hoc methods is time and resources consuming
Automating allows more time to analyse and to communicate
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24. 3. Benefits IT Governance
Benefits of IT Governance
framework
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25. Benefit 1: Communication between
Business and IT groups
Senior Business management
Business improvement that results from their knowledge participation
in IT decision making
Mid-level Business manager position not sure that IT function will
justify given resources
1.
Win: IT governance management framework and tool to
communicate with senior management
2.
Win: to help communicate with IT management to ensure that
business services they are responsible will meet commitments
Senior IT manager
1.
Win: Communicate with senior business managers
2.
Win: Communication with IT staff
Clear focus on important strategic and operational issues
Project and Product Service managers - proposed framework helps to
explain the IT issue in business terms
develop realistic “service contracts”
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26. Benefit 2: Communication between
Business and IT groups
Senior IT
Management
Senior Business
Management
Middle IT Management
IT Projects,
Products & Services
Middle level
Business
Management
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27. Summary of Benefits of
IT Governance framework in place
Benefits extend business and IT functions
Facilitating communication about how IT contributes to the
business across levels and functions improves coordination and
cooperationManagers learns more about effort that they affect
Communication to leaders clear
Result
Synergy will increase
Duplication of effort reduced
Effectiveness of project delivery grows
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28. 4. IT Governance and Risk Management
Services, Methodologies
Services
Methodologies and Tools
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29. IT Governance Environment
Value for money:
is management getting value for money from their IT spend / IT
skills? is IT addressing the business strategy?; IT accountability;
KPIs in the business; managing constant change in IT; and project
directors increasingly being major budget holders.
Internal audit:
Internal IT audit skills
outsourcing of internal audit
Technology:
imaging, data capture and electronic document management; use of
the internet; and knowledge management.
Corporate Governance:
Governance of controls and risk self assessment
Initiatives on control and risk self assessment.
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30. Governance Services
Either in terms of the target of the review/advice, or the readership
of the report
Outsourcing:
continued outsourcing of IT (service level agreements);
outsourcing security administration; third party reviews.
Regulation:
Regulatory authority reviews; privacy/data protection laws;
Software licensing laws; Ethical IT; and health, safety and
environment issues.
Transactions:
Transaction Services, Corporate Finance;
Increased focus on IT security in commercial sector - new security
techniques.
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31. Governance Methods and Tools
Process Assessment and Improvement Tools
Business Management Process BMP
Strategic Analysis, Performance Analysis
Process Performance Improvement (BPI)
–
Balance Score Card (BSC)
–
Active Based Costing (ABM)
Risk Management Tools
Environment:
–
IT Risk Management Benchmarking (ITRMB)
Project:
–
–
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Project Risk Assessment: Project management Methodology (PMM)
Project management Control Method: Rational Unified Process (RUP)
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32. Business Management Process BMP
BMP is about assessing the risk our clients face. Business risks
are diverse and constantly changing:
as the business world becomes more and more reliant on
technology, technology risks become critical to manage
there are many points within the BMP audit in which the
technology component of business risk are addressed
Equations:
Business risk = Audit risk
Technology Risk = Audit risk
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BMP‘s added value: by assessing of client risk in all its forms and
delivering more valuable business solutions to meet the client's diverse
needs.
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33. Strategic Analysis
Strategic Analysis is the framework to process
the fundamental business risks associated with the client's
strategy
and their ability to execute that strategy
Review
Background
Information
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Understand
Bus. Objectives
Strategy
& Technology
Use
33
Identify
Significant
Strategic
Risks
Review
Findings and
Conclusions
Document
Findings and
Conclusions in
Workpapers

34. Business Performance Analysis BPA
Focused area:
risk assessment and process analysis,
utilising information on key performance indicators.
Strategic and Process analysis, Testing control.
Approach
involves identifying and gaining an understanding of the client's key
processes for identifying business risks,
understanding how the client mitigates risk.
Assist in BPA
for Key
Processes that
are Technically
Dependent
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Perform BPA
For Key
Processes that
are Highly
Techn. Dependent
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Review
Findings and
Conclusions
Document
Findings and
Conclusions in
Workpapers

35. Business Performance Improvement BPI
New Performance
Measurement
Design
Details
Design
High
Level Design
Design
Solution
Details
Conceptual
Solution
IT
Assessment
Focus
Focus
Build
New Org.
Structure
Build and
Test
Performance
Performance
Management
Management
Deploy
Implement
Program
Program
Management
Management
Enhance
Envision
Enhance
Envision
Awaken
Certification
Strategic Plan
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36. BPI: Visualization of Perspective
using Balanced Score Card (BSC)
How should we appear
to our customers?
Financial
Perspective
• Critical SuccessFactors
• Performance Indicators
• Targets
Customer
Perspective
Vision
and
Strategy
• Critical SuccessFactors
• Performance Indicators
• Targets
How do we appear to our
shareholders?
What financial outcomes
do we need to generate?
Organizational Learning
Perspective
• Critical SuccessFactors
• Performance Indicators
• Targets
Process/Product
Perspective
What business processes must
we excel at to satisfy our
customers and owners? Are these
processes effective (i.e. adding
value for customers)? Are
they efficient?
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• Critical SuccessFactors
• Performance Indicators
• Targets
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Are we able to sustain
innovation, change and
improvement? How will
we maintain our ability to
meet customer expectations?

37. BPI Approach: Process Improving
“Best-in-class”
product
delivery
times
9
7
1
6
9
Define
2
5
2
3
4
Develop
3
8
7
8
Produce
8
5
2
4
Market
9
1
2
2
Service
8
Identify focused areas
Consistently
competitive
pricing
2
Weighted average
Highly
accurate
customer
orders
2
Critical Success Factors
Rapid
development
and launch of
new products
9
Process Impact Analysis
Long-term
customer
loyalty and
satisfaction
2
3
9
6
Account
Critical
Success
Factors
Business
Processes
Total Elapsed Time
Customer
Process Workflow
Visualization of bottlenecks
This Segment
Elapsed Time
Opportunities
Estimating of Risks and Costs
Benefits of Priority Opportunities
Risks or constraints
Benefits
This Segment
Elapsed Time
Costs
• Eliminates cost of cutting a
• Comp-Sys can be used for
cheque. Savings of $1/claim
change at no cost; Time /
($110,000 a month)
Resources required to revise
• Increased customer satisfaction
forms
Risks/Constraints
• Need to create a link to Banks;
Banks require leadtime (3 and
15 days) to clear payments
• Implement a Document
Imaging Systemscanning and
processing to allow of forms,
receipts and related
documentation.
• Reduced time delays
• ~ $1,000,000 ;
• Reduced errors and inaccurate
Resources required to handle
payments to customers
the large volume of documents
• Reduced learning curve for new
staff
The new system must process over • Reduced hand-offs
30,000 documents/year.
• Enable Assembly Clerks to sort
and classify claim forms
associated with implementing
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• Establish an Electronic Funds
Transfer (EFT) system in order
to eliminate the need to
generate cheques.
This Segment
Elapsed Time
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• Reduced bottlenecks
• Greatly increased productivity
• Requires retraining of staff
• May require additional
resources
• Create an electronic catalogue
of existing reports. (Comp-Sys
could be used to enable this
change).
• Improved quality of reports
• Improved customer service
• The cost of enabling this
change with Comp-Sys is
$200,000.
• Requires method for updating
the catalogue; Use of different
platforms makes access for all
difficult
• Process ID cards in Sales
Offices (may require additional
printers)
• Reduced delays to process and
print cards
• Cost of forty new printers for
ID cards at a cost of $2,000
each, plus installation/tests
(~$10,000).
• Requires additional time to
install printers in offices

38. Risk Assessment Methods
Risk Assessment considers management's perceptions,
assumptions, and judgments about business risks and controls. It
delivers audit evidence through substantive audit procedures.
IT Risk Management Benchmarking (ITRMB)
Project Management Methodology (PMM) Project Risk Assessment
Project management and control: Rational Unified Process (RUP)
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39. IT Risk Management Benchmark
ITRMB
Scope:
provide an objective means of reviewing the risks in relation to use
of IT, and ensure that they are being controlled
provide a means of benchmarking organisation’s key IT Risks and
Controls against other organisations;
review organisations' IT Controls against the BS7799.
Benefits:
Substantiate issues reported to management
Allow management to benchmark corporate performance in the
fields of IT risk and IT controls.
Provide a high level assurance to management of their compliance
with the British Standard on IS Management;
Allow management to benchmark internally. i.e. between different
operations.
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40. Project Risk Assessment
Scope of Process:
involves the identification, analysis, management and monitoring of
risk
Approach after identification of potential risks:
determine the relative exposure in terms of time and cost, to reduce
the level of risk to an acceptable level.
identify both preventive actions and contingency actions (to mitigate
the impact of the risk if it materializes)
Benefits of Risk Management Process :
Is proactive, focusing on prevention rather than cure
Includes periodic risk assessments throughout the work lifecycle
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