Achieving Business Value from Technology

PRAISE FOR ACHIEVING BUSINESS VALUE FROM TECHNOLOGY

"Clearly, IT investments have never before played such a critical part in business growth. The book addresses the weakness existing in most management systems involving the lack of a systematic process to realize the economic benefits of the IT investment and provides a clear A-Z methodology for business to bridge this gap. This book is clearly written for all levels and backgrounds in business management and is a must-do for those whose business involves IT, is considering IT, or would like to significantly tailor IT investments for their economic advantage."
—Professor Richard P. Wool, University of Delaware, President and CEO, Cara Plastics Inc.

"Tony Murphy addresses the difficult question of the value of IT investments head on. He translates an elegant theory into effective practice. The case studies in the book effectively reinforce his key messages."
—Dr. Dermot Moynihan, Senior Vice President, World Wide Chemical Development, GlaxoSmithKline

"This book is the answer to most CIOs' need for a well-structured, pragmatic, and easily implemented set of tools and practices designed to answer the universal problem of managing and measuring IT's contribution to the business. Tony Murphy's unique blend of practical experience, industry best practice, and excellent communication skills provides the reader with a valuable-and highly readable-guide on how best to achieve that elusive objective of reliably realizing the business benefits of IT investments."
—Michael Rice, oup Director of IT, Kerry Group plc

"At Oxfam we are one year into a three-year IT strategy based on the principles Tony Murphy lays out in this book, and there is a real, positive difference in how IT is perceived, and in its real strategic position within the organization. If you have ever wondered just how you can gain strategic alignment for your IT function, and then how to make the practical link to IT investment for the organization, Tony has provided a framework that joins them both."
—Simon Jennings, Head of Information Systems, Oxfam GB

Introduction xi

Chapter 1: Industrial Age Thinking for Information Age Problems 1

Business Value from Information Technology (BVIT)—A Large and Growing Problem 2

Learning from Case Studies 3

What Do These Case Studies Have in Common? 11

Some Historical Perspective 12

Drawing Conclusions from These Changes 23

Revisiting the Case Studies 27

Industrial Age Thinking for

Information Age Problems 30

The Limitations of Financial Metrics 30

The Value of Financial Techniques for IT Investment Appraisal 36

What Else Do We Need? 36

Summary 38

Chapter 2: The Five Pillars of Benefits Realization 39

Pillar 1: Strategic Alignment 42

Pillar 2: Business Process Impact 45

Pillar 3: Architecture 52

Pillar 4: Direct Payback 61

Pillar 5: Risk 66

Summary 76

Chapter 3: P2—Process 77

Step 1: Setting the Ground Rules 81

Step 2: Defining IT Value Standards 90

Step 3: IT Value Analysis 95

Step 4: IT Value Project Management 113

Step 5: IT Value Achievement 118

Step 6: IT Value Management 127

Selecting Specific Products and Vendors 140

Refinements 142

Sensitivity Analysis 146

Investment Scope 147

Summary 148

Chapter 4: P3—People 151

Roles—A Foundation Stone of Effective Governance 153

The IT Council 155

The IT Investment Board 157

The Office of Architecture and Standards 159

The Project Office 163

Summary and Next Steps 165

Appendix A: Sample Value Standards 169

Strategic Alignment 169

Payback 171

Architecture 173

Business Process Impact 174

Risk 174

Appendix B: Sample Value Standards Scoring Metrics 177

Business Process Impact 177

Architecture 180

Risk 181

Appendix C: Completed Weightings 183

Appendix D: From the Field—Investment Case Worked Example 185

Appendix E: Quantifying End-User Benefits 201

Preliminary Information 201

Opening the Meeting 202

Resolution of Inconsistencies 202

Quantifying the Benefits 203

Refine Quantification 205

Cross-Verification 205

Appendix F: Gartner Recommended Approach to Risk Management 207

Collaborative Risk Management 207

Risk Assessment Processes 208

Predictability and Complexity of Risks 215

Summary 216

Appendix G: Analytical Hierarchy Process/Analysis 217

Appendix H: Probability Analysis (Monte Carlo Simulation) 227

Appendix I: Gartner Approach to Change Management: Strategic Planning Assumption 231

The Need for Change Management 231

The Human Response to Change 233

Appendix J: Financial Metrics 239

Net Present Value (NPV) 239

Internal Rate of Return (IRR) 239

Index 243

TONY MURPHY, PhD, is a Vice President in Consulting and a thought-leader in the field of IT investment appraisal and benefits realization at Gartner, Inc., the world’s largest technology research organization. With nearly thirty years’ experience as CIO, software developer, project manager, consultant, and university lecturer, Tony is a sought-after advisor to many of the world’s leading corporations and public sector bodies. In addition, he has played an active role in the development of the Irish software industry and is a former vice president of the Irish Computer Society.

Achieving Business Value from Technology offers the expert guidance, real-world advice, and practical methodology managers need to ensure that their dollars aren’t wasted on IT disasters. It shows them how to assess projects in real time and decide whether to alter, abandon, or continue them with a clear understanding of likely impact on the business.

With the increasing importance of technology in a business world redefined by globalization, high-octane competition, and the shift from mass production to mass customization, it’s more important than ever that your IT dollars are well spent in pursuit of efficiency, adaptability, and market mobility. Knowing which initiatives offer real business value can be the competitive advantage your business needs to thrive. Simply put, no matter what your business is, IT is your business.

Achieving Business Value from Technology offers proven techniques, methodologies, governance mechanisms, and best practice guidelines to guarantee your money is transforming your current IT setup from potential value to real value. The approach offered in this book—and developed by the experts in Gartner’s Consulting and Measurement practices—has been proven to help managers make the right IT decisions every time.

Author Tony Murphy outlines a systematic process managers can use to identify, track, and realize benefits and value from their IT investments. This methodology helps management bridge the traditional gap between the business and IT sides of the organization and incorporates IT value metrics into conventional management reporting systems.

Managers will learn to monitor opportunities, risks, and impediments at all stages of the investment cycle and rest assured that the money they invest in IT will bring long-lasting and measurable benefits to the organization.

The author also provides guidelines for undertaking post-implementation benefit audits and IT sourcing, as well as tips and techniques for optimizing asset management and minimizing ongoing total cost of ownership.