Introduction to IT-CMF Financial Critical Capabilities


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The IT-CMF consists of 33 Critical Capabilities grouped into four Macro-capabilities: Managing IT like a business; Managing the IT budget; Managing the IT capability; and Managing IT for Business Value. This presentation focuses on describing the current status and likely future developments of the financial-specific critical capabilities in managing the IT Budget Macro-capability.

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  • Introduction to IT-CMF Financial Critical Capabilities

    1. 1. Measure. Optimize. Deliver.Phone +1.610.644.2856IT-CMF Financial Critical CapabilitiesHow to Get the Most Bang For Your BuckMichael HarrisPresident & CEO, David Consulting GroupTier 2 Accredited IT-CMG AssociateIVI Winter Summit 2013
    2. 2. ©2013 David Consulting GroupAgenda• Getting the most bang for your buck from IT-CMF: Why the FinancialCC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?
    3. 3. ©2013 David Consulting GroupWhy 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)
    4. 4. ©2013 David Consulting Group• DCG’s “The Business Of Value of IT,” published inMarch 2008, provided answers to the challenges ofmeasuring and managing the value of IT particularlyfor software development. Mike Harris, David Herronand Stasia Iwanicki of DCG shared their experiencesand lessons learned in this foundational analysis.“The challenge is to characterize how an IT investment, for newcapabilities or for “keeping the lights on,” helps the business that bearsthe cost to achieve its financial performance targets and businessobjectives.”“… The IT budgets of some organizations are a complete mystery to thebusinesses that pay for them and may not be delivering commensuratevalue.”Harris, Herron & Iwanicki, “The Business Value of IT,” page 15.Focus on The Business Value of IT… measured in $£€¥, etc.
    5. 5. ©2013 David Consulting GroupWhy another framework?In short, the other frameworks have strengths (DCG is an partner for CMMI)but identifying and enhancing business value is not one of themSource:
    6. 6. ©2013 David Consulting GroupHow does IT-CMF relate to the otherframeworks?Source:
    7. 7. ©2013 David Consulting GroupAssessment Focus – where to start?Examples of “clusters” of CC’sSource:
    8. 8. ©2013 David Consulting GroupCost Management - All 5 financial CC’s + PPP(Portfolio Planning & Prioritization) + BAR (Benefits Assessment & Realization)Source:
    9. 9. ©2013 David Consulting GroupAgenda• Getting the most bang for your buck from IT-CMF: Why the FinancialCC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?
    10. 10. ©2013 David Consulting GroupFinancial Critical CapabilitiesAA = Accounting & AllocationFF = Funding & FinancingBGM = Budget ManagementBOP = Budget Oversight &Performance AnalysisTCO = Total Cost of OwnershipSource:
    11. 11. ©2013 David Consulting GroupStrategicPlanningBusinessPlanningFundinglevelFunding &FinancingPortfolio Planning& PrioritisationTarget spendingby portfolioBudgetManagementTCOAccounting &AllocationBudget Oversight& PerformanceAnalysisCapacityForecasting AndPlanningCapex/OpexbudgetPerformancevs. budgetPlanned spendby PortfolioCost accounting modelCharge back modelVariance analysisIT intensity vs. BenchmarkFunding and Budgeting CCOther CCVariance analysisIT Leadership &GovernanceFinancingguidelinesCost Data and budgetrefinementsUpdatesCost informationNote: Simplified picture, additional dependenciesexistsAfter budget cycleDuring budget cycleBefore budget cycleOverview of Funding andBudgeting Process FlowSource:
    12. 12. ©2013 David Consulting GroupOverview of Accounting and AllocationDefinitionThe policies, processes and tools used for calculatingand distributing the costs of IT. A range of methods suchas chargeback, transfer pricing, and allocation are usedto manage the cost of IT services and to influence thedemand for IT services within an organisation.• Accounting platform capabilities• Policy for the allocation and chargeback of IT costs• Agreements on which IT services are covered by the Policyfor allocating and chargeback of IT costs• Business Planning of IT funding level and target spendingby IT portfolio (refer to BP).• Oversight of IT finance and overall budget performance(refer to BOP)• Variance analysis of IT intensity compared to abenchmark (refer to BGM)• The source and allocation of funds (refer to FF)What’s in scope What’s out of scopeUsage of Accounting ModelAccounting & AllocationGovernanceCost CoverageQuality of Accounting ModelTransparency of AccountingModelDeploymentModelPolicies,Processes,Tools
    13. 13. ©2013 David Consulting GroupOverview of Funding & FinancingDefinitionCompany-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 tooptimise IT effectivenessSeven dimensions• Funding source- Clear understanding of funding options and where funds are derivedfrom and why• Funding level- Clear strategic case for the amount of funds which should be soughtin order to meet organisational objectives- Clear strategic case for above the line (Capex) spend, versus belowthe line (Opex)• Allocation- Ensure that funds are allocated to the right IT activities in order tomeet organisational objectives• Governance, Decision Making Process, Communication- Processes and standards which ensure that funding and financing isopen, controlled and managed appropriately• Performance Management- Tracking and recording of the entire funding and financing domain toensure that lessons learned and under-performance issues areincorporated into the domainWhat’s in scope What’s out of scope• Day-to day budget management• IT Financial performance management• TCO• Funding processes, sources and alignment with alignmentwith strategic goals• Leadership understanding of IT funding and financingissues and options• Allocation of funds• Portfolio planning interface• Funding and financing performanceFundingSourcesFundingLevelsAllocationGovernanceCommunicationDecision-making processPerformance Management
    14. 14. ©2013 David Consulting GroupOverview of Budget ManagementDefinitionActive, on-going, company-wide process of reviewing andadjusting the IT spending plan to ensure that allocatedbudgets• Are being spent effectively• Remain within budget parameters• Are in-line with the governance modelThe goal of BGM is improved cost predictability for ITservices.What’s in scope What’s out of scopePlanningScopeAlignmentProcessGovernanceBudget GovernanceAccountabilityPerformanceManagementActive MonitoringVariance ManagementPredictability• Portfolio Management [see Portfolio Management]• Multi-year trending of projects and budget categories[see Budget Oversight and Performance Analysis]• Total Cost of Ownership Management Cost Analysis[see Total Cost of Ownership ]• Strategic planning process to set business/IT capabilitydevelopment [see Strategic Planning]• Funding & financing prioritisation [see Funding andFinancing]• Deciding on Costs and Revenue allocations [seeAccounting and Allocation]• Budget planning• Establishing an effective budget process• Assigning budget accountability• Day to day tactical monitoring of budgets• Month to month budget predictability and variancemanagement
    15. 15. ©2013 David Consulting GroupOverview of Budget Oversight and PerformanceAnalysis(BOP)DefinitionThe periodic offline comparison of IT spending versus the ITplan, which provides a stimulus for re-profiling orreprioritisation of budgets. BOP ensures that budget targetsare being met and it improves the quality of future forecasts.• Multi-year tracking and trending of IT projects and ITbudget categories• Strategic reviewing of budgets versus actual spend• Rebalancing and reprioritisation of budgets• Deciding on future IT funding levels and allocation• Communicating to key business stakeholders on ITbudget performance metrics• Day to day monitoring of budgets (refer to BudgetManagement)• Managing the portfolio (refer to Portfolio Planning andPrioritisation)• Managing TCO costs analysis (refer to Total Cost ofOwnership)• Establishing business/IT capability development (refer toStrategic Planning)• Prioritising of funding and financing (refer to Funding andFinancing)What’s in scope What’s out of scopeBudgetAlignmentandCommunicationAnalysisScope,Granularity, andSophisticationMetricsReportingImpact onPlanningTools andProcessesImpact onCostManagement7 DimensionsDataConsistencyAlignmentImpact and Value
    16. 16. ©2013 David Consulting GroupOverview of Total Cost of OwnershipDefinitionTotal Cost of Ownership tracks, compares, and controls alldirect and indirect costs (including people, processes andmethodologies) associated with IT assets (infrastructure andsystems) in order to maximise value. Accurate understandingof current and future TCO over the full IT asset lifecycle leadsto more informed budgeting and portfolio managementdecisions.• Cost calculation (Acquisition, Operating, Control, End of lifedecision making)• A normalised approach to IT asset cost comparison• IT planning using TCO• Communicating use and benefit of TCO• Refinement of IT spending plan (based on calculatedTCO) (BGM)• Allocation/chargeback of direct and indirect costs (AA)What’s in scope What’s out of scope
    17. 17. ©2013 David Consulting GroupAgenda• Getting the most bang for your buck from IT-CMF: Why the FinancialCC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?
    18. 18. ©2013 David Consulting Group• 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 outwith 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 practicefor the financial CCs?Feedback – Q&A – Show of hands
    19. 19. ©2013 David Consulting GroupAgenda• Getting the most bang for your buck from IT-CMF: Why the FinancialCC’s?• What are the Financial CC’s?• Feedback – Q&A• How can you get started on the Financial CC’s?
    20. 20. ©2013 David Consulting GroupNext Steps?• Assess your current status with an Executive Assessment– Review status against other companies• Decide what the most important and urgent CC’s are for you– Not everyone’s process needs to be at the highest level – youdecide, 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 waterby joining a CC Workgroup or with a CCValidation Workshop from a CC Workgroup …
    21. 21. ©2013 David Consulting GroupWhat is a CC Work Group?• IVI researches, develops, and disseminates the IT-CMF framework toenable more value from IT investments and practice• Open innovation / collaboration approach between academic andindustry practitioners to develop and sustain the CriticalCapabilities(CC’s)• IVI facilitates members interested in advancing knowledge ofparticular 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 week20
    22. 22. ©2013 David Consulting GroupWhy Get Involved?• Network with like-minded peers• Benefit to your organisation’s capability• The chance to contribute to IT-CMF development• Develop your expertise in the CC area• Add IT-CMF to your resume• Participate in a Validation Workshop [VW]• How? Contact an appropriate CC Researcher21
    23. 23. ©2013 David Consulting GroupCritical Capability Development Stages22Stage 1ReviewStage 2ReviewStage 3ReviewStage 4ReviewKeyLearningsUpdateKeyLearningsUpdateKeyLearningsUpdateKeyLearningsUpdateInitial background researchand scope suggestion• Industry and academic literature,business press, practitioner 1:1interviews• Architectural WG peer review prior toTC submissionProceed to develop initialblueprints and artefacts• Comparison with industryframeworks• Extensive references consulted(industry & academia) throughWorkgroup (WG) participation of keyopinion leaders (KOLs), subjectmatter experts (SMEs), industrypractitioners, academia• WG Peer ReviewExternal Audit Review, furtherblueprint & artefactsdeveloped• Peer reviewed with 3-5 externalorganisations and key opinionleaders of full blueprint material• WG Peer Review• Editor review*Case Studies Evaluation &Approval for WiderRelease/Publication• Pilot Assessment - Min threeindividuals at three organisationsformally assessed using artefactsand approaches validated/updatedOR• Validation Workshop - Min threeindividuals at three organisationsformally walk-through CCartefacts and approaches.Feedback validated usingqualitative methods.• WG Peer Review• Material & artefacts formally releasedfor wider distribution and use• Editor reviewIncreasing rigor applied
    24. 24. ©2013 David Consulting GroupA 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 group23
    25. 25. ©2013 David Consulting GroupFeedback 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 viewof the capability?2. Currency of concept - Does the CC material represent the most up-to-date thinking around the capability?3. Clarity of concept - Is the CC material clear in its message andeasy to understand?And …Share examples of CC best practices in the organization.24
    26. 26. ©2013 David Consulting GroupTest 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 completeassessment 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 feedback25
    27. 27. ©2013 David Consulting GroupCBB Current & Future Maturity Rankedby Importance261. Alignment (C2)Impact on StrategicPlanning (B2)Communication (C1)Tools & MethodsSophistication (A2)Reliability (A3)Scope Covered (A1)Impact on Cost (B1)ImportanceTargetCurrent
    28. 28. ©2013 David Consulting GroupCurrent Opportunities27Critical Capability WG V W Researcher EmailAA (Accounting & Allocation)   Catherine Crowley catherine.crowley@nuim.ieBGM (Budget Management)   Catherine Crowley catherine.crowley@nuim.ieBOP (Budget Oversight & Performance Analysis)   Catherine Crowley catherine.crowley@nuim.ieCAM (Capability Assessment & Management)   Marian Carcary Marian.Carcary@nuim.ieFF (Funding & Financing)   Catherine Crowley catherine.crowley@nuim.iePPM (Program & Project Management)   Una Downey Una.Downey@nuim.ieSD (Solutions Delivery)   Louise Veling Louise.Veling@nuim.ieSUM (Supplier Management)   Sinéad Murnane Sinead.Murnane@nuim.ieTCO (Total Cost of Ownership)   Catherine Crowley catherine.crowley@nuim.ieTIM (Technical Infrastructure Management)   Conor O’Brien Conor.Obrien@nuim.ieUED (User Experience Design)   Louise Veling Louise.Veling@nuim.ieUTM (User Training Management)   Eileen Doherty
    29. 29. ©2013 David Consulting GroupContact UsEmail: m.harris@davidconsultinggroup.comPhone: 1-610-644-2856http://www.davidconsultinggroup.com28@DavidConsultGrp/DavidConsultGrp/company/David-Consulting-Group Measure. Optimize. Deliver.Phone +1.610.644.2856Special Offer:Free IVIworkshop forTCO or BGM& BOP or FF& AA!