Article outlining a deficiency in IT Controls and its impact on Value for Money Audits.

1. Business Model Program©
Deficiency in IT Controls
Why Now?
After decades of cost over-runs, late projects and portfolio mismanagement, it’s
time to change the controls we use for managing our IT Portfolios, Projects and
Outsource vendors.
The major deficiency in IT Controls is the complete lack of Unit Measurement. ISO
has defined a Unit Measurement for IT since 1996. The current standard is called
COSMIC Function Points. This is not new, we simply don’t use it.
Without Unit Measurement of IT the following devastating results impact our
budgets and shareholder wealth:
 Value for Money (VFM) Audits are flawed. The Cost Effectiveness and
Efficiency of IT can’t be accurately measured.
 Governance of IT Outsource contracts is mismanaged. The cost of a Change
Order or new Project can’t be accurately measured to determine if the
financial cost is reasonable.
 Annual Budgeting is flawed. The time (schedule), cost and resources needed
for IT can’t be accurately determined.
 Financial analysis of IT Assets is flawed. The size of the assets, replacement
costs, support costs and risk can’t be accurately determined.
 Procurement is forced to use Time and Materials contracts with IT Vendors.
A Unit Price Contract, like manufacturing, is not possible.
IT Control Deficiency – How Bad is it?
Without IT Unit Cost Measurement, your Outsourcing and IT Costs are probably 5X
what they should be and you don’t know it.
The international benchmarking organization, ISBSG, studies performance of
projects and operations in all types of organizations through the application of
Functional Size Measurement. Function Point sizing and analysis provide data
about productivity rates, support rates and unit costs.
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2. Business Model Program©
Deficiency in IT Controls
The following data provides insights into today’s IT Unit Costs, expressed in
Function Points (FP) and Canadian dollars:
 International Benchmark of Unit Cost = $1,000/FP
 Insurance Company (1) Unit Cost = $6,300/FP
 Insurance Company (2) Unit Cost = $6,700/FP
 Government IT Unit Cost = $10,000/FP
 Transportation Agency = $14,700/FP
 Average Government Cost = 12X International Benchmark
 Average Corporate Cost = 6.5X International Benchmark
IT Control Deficiency – Scenario
If you have outsourced all or part of your IT department:
 How do you know that you are getting Value for Money?
 How do you know that you are not being overcharged?
 Without Unit Measurement of IT, you don’t know.
The average Unit Cost of IT is summarized below:
 International Benchmark Unit Cost = $1,000/FP
 Average Government Unit Cost = $12,000/FP
 Average Corporate Unit Cost = $6,500/FP
So the critical questions to ask are:
 What are your IT Unit Costs?
 What are your Outsource Vendor Unit Costs?
If you don’t know these Unit Costs, then the ability to control contract and IT costs
has been completely lost, as demonstrated below:
 Project Size = 1,000 Function Points (FP)
 Project Cost (Benchmark) = $1.0M
 Project Cost (Government) = $12.0M
 Project Cost (Corporate) = $6.5M
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3. Business Model Program©
Deficiency in IT Controls
To be blunt, the same project with a size of 1,000 FP can vary in cost between
$1.0M and $12.0M.
This fiscal volatility affects all IT Work – Portfolios, Projects, Maintenance,
management of IT Assets.
Consequently, our Annual Budgets, Capital Expenditures, Operational
Expenditures, and Vendor Contracts will suffer from this massive fiscal volatility,
generating tremendous business operational and regulatory risk.
Is this not the situation we find ourselves in?
What to do?
The first step is to accept the fact that all current methods of estimation and
control are inadequate, thereby supporting this fiscal volatility.
The second step is to implement Functional Size Measurement and the
measurement of Function Points for the following business functions:
 Value for Money Audits
 Procurement Contracts
 Governance – executive management of IT investments
 Portfolio Management – management of IT projects
 Operations Management – management of IT assets
The third step is to automate the collection and management of this Functional
Size Measurement data.
Obstacles to Overcome
Evidence from 20 years of consulting projects has revealed that there are 2 main
obstacles to overcome when implementing Function Point Controls to manage the
Unit Costs of IT:
1. Management Resistance
2. Staff Resistance
Management, especially Project Managers, will be resistant to measurement of IT
Unit Costs as this will initially be seen as a threat to their position. Why? They
instinctively know that their performance is significantly under par.
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4. Business Model Program©
Deficiency in IT Controls
One response is to position the use of Function Point Controls as a Change
Program or Transformation to move the organization to a world class level.
Staff will be resistant to the measurement of IT Unit Costs because they will see
this as a threat to their status and job security. They will worry that they will be
seen as nothing more than automatons the produce code and, they will fear that
they will be held accountable for poor throughput.
One response is to institute the Change Program to implement Function Point
Controls as a learning experience where they will be helping to transform their
organization into a world class performer. A critical component is to implement
training and coaching of Function Point Controls and communicate that the focus
is their working processes, not themselves. We can then build a team to change
the process, thereby minimizing the perceived threat to job security.
In Closing
The critical nature of this “Deficiency in IT Controls” can’t be understated. Without Function
Points, running any project or IT function is like trying to fill up your gas tank with $100.00 and
not knowing the cost per litre for gasoline – how much gas did you buy? You don’t know.
And yet, this well known deficiency persists, destroying shareholder wealth and government
program outcomes.
JVG

5. Business Model Program©
Deficiency in IT Controls
JVG Consulting Inc.
We specialize in the full life-cycle of Enterprise Architecture: from Strategy and
Governance, to Architecture and Controls.
Our primary service is the Business Model Program©, which helps organizations to
create and maintain a fully populated repository describing their business
operating model.
The Business Model Program© provides a foundation for Strategy, Business
Planning, Governance and improvements to any organization’s Growth, Operating
Margin and Asset Efficiency.
The Business Model Program© eliminates organizational debt (strategic,
architecture and technical), duplication of business capabilities and organizational
waste, which result in significant cost reductions and growth.
To schedule a meeting to discuss your needs, please contact:
John Gardner CMC, TOGAF
Principal Enterprise Architect
Email: john.gardner@jvgconsulting.ca
Phone: 905-933-1372
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