IT-CMF Critical Capabilities: How to Get the Most Bang for Your Buck

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Presentation by Mike Harris, President & CEO of David Consulting Group, at the Innovation Value Institute Member Winter Summit in February 2013.

Presentation by Mike Harris, President & CEO of David Consulting Group, at the Innovation Value Institute Member Winter Summit in February 2013.

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  • The review against other companies is part of the output of the assessment ool

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  • 1. IT-CMF Financial Critical CapabilitiesHow to get the most bang for your buck Michael Harris President & CEO David Consulting Group Tier 2 Accredited IT-CMF Associate IVI Winter Summit 2013 © 2013 David Consulting Group ©2012 David Consulting Group
  • 2. Agenda• Getting the most bang for your buck from IT-CMF: Why the Financial CC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?© 2013 David Consulting Group©2011 David Consulting Group
  • 3. Why the Financial CC’s?Bob Woodward: The story is dry. All weve got are pieces. We cant seem tofigure out what the puzzle is supposed to look like. John Mitchell resigns as thehead of CREEP, and says that he wants to spend more time with his family. Imean, it sounds like bullshit, we dont exactly believe that...Deep Throat: No, heh, but its touching. Forget the myths the medias createdabout the White House. The truth is, these are not very bright guys, and thingsgot out of hand.Bob Woodward: Hunts come in from the cold. Supposedly hes got a lawyerwith $25,000 in a brown paper bag.Deep Throat: Follow the money.Bob Woodward: What do you mean? Where?Deep Throat: Oh, I cant tell you that.Bob Woodward: But you could tell me that.Deep Throat: No, I have to do this my way. You tell me what you know, and Illconfirm. Ill keep you in the right direction if I can, but thats all. Just... follow themoney.Memorable quotes for All the Presidents Men (1976)http://www.imdb.com/title/tt0074119/quotes© 2013 David Consulting Group©2011 David Consulting Group
  • 4. Focus on The Business Value of IT … … measured in $£€¥ etc.• DCG’s “The Business Of Value of IT”, published in March 2008, provided answers to the challenges of measuring and managing the value of IT particularly for software development. Mike Harris, David Herron and Stasia Iwanicki of DCG shared their experiences and lessons learned in this foundational analysis.“The challenge is to characterize how an IT investment, for new capabilities or for “keeping the lights on,” helps the business that bears the cost to achieve its financial performance targets and business objectives.”“… the IT budgets of some organizations are a complete mystery to the businesses that pay for them and may not be delivering commensurate value.”Harris, Herron & Iwanicki, “The Business Value of IT,” page 15.© 2013 David Consulting Group©2011 David Consulting Group
  • 5. Why another framework?In short, the other frameworks have strengths (DCG is an SEI Partner forCMMI) but identifying and enhancing business value is not one of them© 2013 David Consulting Group©2011 David Consulting Group Source:
  • 6. How does IT-CMF relate to the otherframeworks?© 2013 David Consulting Group©2011 David Consulting Group Source:
  • 7. Assessment Focus – where to start?Examples of “Clusters” of CC’s© 2013 David Consulting Group©2011 David Consulting Group Source:
  • 8. Cost Management - All 5 financial CC’s + PPP(Portfolio Planning & Prioritization) + BAR (Benefits Assessment & Realization)© 2013 David Consulting Group©2011 David Consulting Group Source:
  • 9. Agenda• Getting the most bang for your buck from IT-CMF: Why the Financial CC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?© 2013 David Consulting Group©2011 David Consulting Group
  • 10. Financial Critical Capabilities AA = Accounting & Allocation FF = Funding & Financing BGM = Budget Management BOP = Budget Oversight & Performance Analysis TCO = Total Cost of Ownership© 2013 David Consulting Group©2011 David Consulting Group Source:
  • 11. Overview of Funding andBudgeting Process Flow Before budget cycle During budget cycle After budget cycle IT Leadership & GovernanceStrategicPlanning Financing Variance analysis guidelines Accounting & Allocation Funding level Cost accounting modelBusiness Charge back modelPlanning Capex/Opex budget Budget Oversight Funding & Budget & Performance Financing Management Performance vs. budget Analysis Cost Data and budget Variance analysis refinements IT intensity vs. Benchmark Target spending by portfolio Planned spend Cost information Capacity by Portfolio TCO Forecasting And Planning Updates Portfolio Planning & Prioritisation Funding and Budgeting CC Other CC Note: Simplified picture, additional dependencies exists © 2013 David Consulting Group ©2011 David Consulting Group Source:
  • 12. Overview of Accounting and Allocation Definition Cost CoverageThe policies, processes and tools used for calculating Policies, Processes, Toolsand distributing the costs of IT. A range of methods suchas chargeback, transfer pricing, and allocation are used Model Quality of Accounting Modelto manage the cost of IT services and to influence thedemand for IT services within an organisation. Transparency of Accounting Model Usage of Accounting Model Deploy ment Accounting & Allocation Governance What’s in scope What’s out of scope• Accounting platform capabilities • Business Planning of IT funding level and target spending• Policy for the allocation and chargeback of IT costs by IT portfolio (refer to BP).• Agreements on which IT services are covered by the Policy • Oversight of IT finance and overall budget performance for allocating and chargeback of IT costs (refer to BOP) • Variance analysis of IT intensity compared to a benchmark (refer to BGM) • The source and allocation of funds (refer to FF) © 2013 David Consulting Group ©2011 David Consulting Group
  • 13. Overview of Funding & Financing DefinitionCompany-wide understanding of how, why and from where IT is funded.Determines the scale, scope and sources of funding for IT and assign financialresources to IT activities. Establishes a balance between Capex and Opex to Performance Managementoptimise IT effectivenessSeven dimensions • Funding source Funding Funding Allocation - Clear understanding of funding options and where funds are derived Sources Levels from and why • Funding level - Clear strategic case for the amount of funds which should be sought in order to meet organisational objectives Governance - Clear strategic case for above the line (Capex) spend, versus below the line (Opex) • Allocation Decision-making process - Ensure that funds are allocated to the right IT activities in order to meet organisational objectives • Governance, Decision Making Process, Communication Communication - Processes and standards which ensure that funding and financing is open, controlled and managed appropriately • Performance Management - Tracking and recording of the entire funding and financing domain to ensure that lessons learned and under-performance issues are incorporated into the domain What’s in scope What’s out of scope• Funding processes, sources and alignment with alignment with • Day-to day budget management strategic goals • IT Financial performance management• Leadership understanding of IT funding and financing issues and • TCO options• Allocation of funds• Portfolio planning interface• Funding and financing performance © 2013 David Consulting Group ©2011 David Consulting Group
  • 14. Overview of Budget Management DefinitionActive, on-going, company-wide process of reviewing Planning Performanceand adjusting the IT spending plan to ensure that Scope Managementallocated budgets Alignment Active Monitoring• Are being spent effectively Process Variance Management• Remain within budget parameters Predictability• Are in-line with the governance modelThe goal of BGM is improved cost predictability for ITservices. Governance Budget Governance Accountability What’s in scope What’s out of scope • Budget planning • Portfolio Management [see Portfolio Management] • Establishing an effective budget process • Multi-year trending of projects and budget categories • Assigning budget accountability [see Budget Oversight and Performance Analysis] • Day to day tactical monitoring of budgets • Total Cost of Ownership Management Cost Analysis • Month to month budget predictability and variance [see Total Cost of Ownership ] management • Strategic planning process to set business/IT capability development [see Strategic Planning] • Funding & financing prioritisation [see Funding and Financing] • Deciding on Costs and Revenue allocations [see Accounting and Allocation] © 2013 David Consulting Group ©2011 David Consulting Group
  • 15. Overview of Budget Oversight and Performance Analysis(BOP) Definition 7 DimensionsThe periodic offline comparison of IT spending versus the IT plan, Analysiswhich provides a stimulus for re-profiling or reprioritisation of Scope,budgets. BOP ensures that budget targets are being met and it Tools and Data Granularity, and Processes Consistencyimproves the quality of future forecasts. Sophistication Impact and Value Impact on Metrics Impact on Cost Reporting Planning Management Alignment Budget Alignment and Communication What’s in scope What’s out of scope • Multi-year tracking and trending of IT projects and IT • Day to day monitoring of budgets (refer to Budget budget categories Management) • Strategic reviewing of budgets versus actual spend • Managing the portfolio (refer to Portfolio Planning and • Rebalancing and reprioritisation of budgets Prioritisation) • Deciding on future IT funding levels and allocation • Managing TCO costs analysis (refer to Total Cost of • Communicating to key business stakeholders on IT Ownership) budget performance metrics • Establishing business/IT capability development (refer to Strategic Planning) • Prioritising of funding and financing (refer to Funding and Financing) © 2013 David Consulting Group ©2011 David Consulting Group
  • 16. Overview of Total Cost of Ownership DefinitionTotal Cost of Ownership tracks, compares, and controlsall direct and indirect costs (including people, processesand methodologies) associated with IT assets(infrastructure and systems) in order to maximise value.Accurate understanding of current and future TCO overthe full IT asset lifecycle leads to more informedbudgeting and portfolio management decisions. What’s in scope What’s out of scope• Cost calculation (Acquisition, Operating, Control, End • Refinement of IT spending plan (based on calculated of life decision making) TCO) (BGM)• A normalised approach to IT asset cost comparison • Allocation/chargeback of direct and indirect costs• IT planning using TCO (AA)• Communicating use and benefit of TCO © 2013 David Consulting Group ©2011 David Consulting Group
  • 17. Agenda• Getting the most bang for your buck from IT-CMF: Why the Financial CC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?© 2013 David Consulting Group©2011 David Consulting Group
  • 18. Feedback – Q&A – Show of hands• Who understands the difference between the Financial CC’s?• Whose companies have all these capabilities? Some? None?• Does anyone’s company have all these functions clearly separated out with different people responsible? BGM? TCO? AA? FF? BOP?• Does your company have all of these Financial CC’s “inside” IT? BGM? TCO? AA? FF? BOP?• Does anyone think their company has some examples of good practice for the financial CCs?• How many people would like to volunteer to participate in the Financial CC’s work group?© 2013 David Consulting Group©2011 David Consulting Group
  • 19. Agenda• Getting the most bang for your buck from IT-CMF: Why the Financial CC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?© 2013 David Consulting Group©2011 David Consulting Group
  • 20. Next Steps?• Assess your current status with an Executive Assessment – Review status against other companies• Decide what are the most important and urgent CC’s for you – Not everyone’s process needs to be at the highest level – you decide, not the model• Assess your capability in those CC’s• Determine and deliver improvement activities• Repeat regularly• AND/OR consider dipping a toe in the water by joining a CC Workgroup or with a CC Validation Workshop from a CC Workgroup …© 2013 David Consulting Group©2011 David Consulting Group
  • 21. What is a CC Workgroup ?• IVI researches, develops, and disseminates the IT-CMF framework to enable more value from IT investments and practice• Open innovation collaboration approach between academic and industry practitioners to develop and sustain the Critical Capabilities(CC’s)• IVI facilitates members interested in advancing knowledge of particular CC’s through participation in CC Workgroups• Individuals with expertise in the particular CC area join that Workgroup• Regular workgroup meetings• Review and contribute to the development of the CC outside meeting• Time commitment typically 1-2 hours per week © 2013 David Consulting Group ©2011 David Consulting Group
  • 22. Why get involved ?• Network with like-minded peers• Benefit your organisation’s capability• The chance to contribute to IT-CMF development• Develop your expertise in the CC area• Add IT-CMF to your CV• Participate in a Validation Workshop [VW]• How? Contact appropriate CC Researcher © 2013 David Consulting Group ©2011 David Consulting Group
  • 23. Critical Capability Development Stages Stage 1 Stage 2 Stage 3 Stage 4 Review Review Review Review Key Key Key Key Learnings Learnings Learnings Learnings Update Update Update UpdateInitial background research Proceed to develop initial External Audit Review, further Case Studies Evaluation &and scope suggestion blueprints and artefacts blueprint & artefacts Approval for Wider developed Release/Publication• Industry and academic literature, • Comparison with industry • Peer reviewed with 3-5 external • Pilot Assessment - Min three business press, practitioner 1:1 frameworks organisations and key opinion individuals at three organisations interviews leaders of full blueprint material formally assessed using artefacts and approaches validated/updated• Architectural WG peer review prior to • Extensive references consulted • WG Peer Review OR TC submission (industry & academia) through • Validation Workshop - Min three Workgroup (WG) participation of key • Editor review* individuals at three organisations opinion leaders (KOLs), subject formally walk-through CC matter experts (SMEs), industry artefacts and approaches. practitioners, academia Feedback validated using qualitative methods. • WG Peer Review • WG Peer Review • Material & artefacts formally released for wider distribution and use • Editor review Increasing rigor applied © 2013 David Consulting Group ©2011 David Consulting Group
  • 24. A Validation Workshop?Your opportunity to ‘test drive’ a CC and get • Wider exposure to IT-CMF in your organization • Wider understanding and support for IT-CMF • The chance to contribute to IT-CMF development • The opportunity to complete a self-assessment in the Critical Capability • Interaction with the IVI Research group © 2013 David Consulting Group ©2011 David Consulting Group
  • 25. Feedback Required• The reviewers respond from their perspective on: – Awareness Deck , Assessment questions and possible responses & Practices, Outcomes and Metrics[POMs] 1. Relevance of concept - Does the CC material represent their view of the capability? 2. Currency of concept - Does the CC material represent to most up to date thinking around the capability? 3. Clarity of concept - Is the CC material clear in its message, and easy to understand? And … Share examples of CC best practices in the organization © 2013 David Consulting Group ©2011 David Consulting Group
  • 26. Test and Validation: Stage 4 of CC development• Validate and Test by reviewing: • Awareness Deck contents [Central documentation of critical capability ] • Assessment questions and possible responses [Email link to complete assessment individually online ] • Practices, Outcomes and Metrics [Detailed POM list, by maturity level ] • Provide examples of CC best practice in the organization• Output • Informal assessment of the organisation • Revised CC materials through incorporating workshop feedback © 2013 David Consulting Group ©2011 David Consulting Group
  • 27. CBB Current & Future Maturity Ranked by Importance Business Alignment (C2) 5.0 4.0 Impact on Strategic Impact on Cost (B1) Planning (B2) 3.0 2.0 1.0 Scope Covered (A1) Communication (C1) Importance Target Tools & Methods Reliability (A3) Sophistication (A2) Current© 2013 David Consulting Group©2011 David Consulting Group
  • 28. Current OpportunitiesCritical Capability WG V W Researcher Email   catherine.crowley@nuim.ieAA (Accounting & Allocation) Catherine Crowley   catherine.crowley@nuim.ieBGM (Budget Management) Catherine Crowley   catherine.crowley@nuim.ieBOP (Budget Oversight & Performance Analysis) Catherine Crowley   Marian.Carcary@nuim.ieCAM (Capability Assessment & Management) Marian Carcary   catherine.crowley@nuim.ieFF (Funding & Financing) Catherine Crowley   Una.Downey@nuim.iePPM (Program & Project Management) Una Downey   Louise.Veling@nuim.ieSD (Solutions Delivery) Louise Veling   Sinead.Murnane@nuim.ieSUM (Supplier Management) Sinéad Murnane   catherine.crowley@nuim.ieTCO (Total Cost of Ownership) Catherine CrowleyTIM (Technical Infrastructure Management)   Conor O’Brien Conor.Obrien@nuim.ie   Louise.Veling@nuim.ieUED (User Experience Design) Louise Veling   eileen.doherty@nuim.ieUTM (User Training Management) Eileen Doherty © 2013 David Consulting Group ©2011 David Consulting Group
  • 29. Questions?Mike Harrism.harris@davidconsultinggroup.com+1.610.644.2856 AND … Free signed copy of my book Special Offer: if you sign up for Free IVI a FREE IVI workshop for Workshop today! TCO or BGM & BOP or FF & AA! © 2013 David Consulting Group ©2011 David Consulting Group