Valuation of IT Initiatives – Business Case

March 22nd, 2007

This brief paper is based on concepts presented by www.isaca.org in their discussion of Val IT under the COBIT© framework.  Val IT is a governance framework that consists of a set of guiding principles, and a number of processes conforming to those principles that help guide where IT spends money. If implemented correctly it will help answer the following questions.

Are we spending money in IT that matches what the business wants?

Does the business stakeholder feel they have influence on spending levels?

Are we managing risk and getting the right return on IT investment (ROI)?

Does the business “own” the risks?

Does our spending investment prove itself over the course of time and can we look back and ensure that the ROI was really met? 

A business case is not a one-time, static document.  It is an operational tool that must be continually updated to reflect the current reality and to support the portfolio management process.The framework provides guidance to: 

  • Define the relationship between IT and the business with governance responsibilities,
  • Manage an organization’s  portfolio of IT-enabled business investments, and
  • Maximize the quality of business cases with emphasis on the definition of key financial indicators, the quantification of “soft” benefits and the comprehensive appraisal of the downside risk.

Definition of Guiding Principles

Guiding Principles are foundational concepts that will guide decision making as the company strives to achieve their future state.  Simply stated, a principle is defined as “a statement of organizational position that can be argued by rational people”.  The value of a “Principle based” Organization:

  • Ensures that an organization’s position is determined by conscious decision making at the highest level.
  • Aids in gaining alignment from all affected organizations and enables common goals to be achieved.
  • Unproductive discussions based on unknown positions are drastically reduced.
  • Projects are based on true alignment, not a set of unilateral non-validated assumptions. Several key points about principles:

    • Principles do not state what the current situation is; they state the desired positions to which an organization aspires.
    • There are clear reasons why the principle is valid for an organization

    Representative Guiding Principles

    • Investments will include the full scope of activities that are required to achieve business value.

    • Investments will include the full scope of activities that are required to achieve business value.

    • Investments will be managed through their full economic life cycle.

    • There are different categories of investments that will be evaluated and managed differently.

    • Delivery practices will define and monitor key metrics and will respond quickly to any changes or deviations.

    • Delivery practices will engage all stakeholders and assign appropriate accountability for the delivery of capabilities and the realization of business benefits.

Representative Processes

To obtain return on investment, the principles should be applied by the stakeholders of the IT-enabled investments in the following processes:

  • Value governance

  • Portfolio management

  • Investment management

Value Governance

The goal of value governance is to optimize the value of investments by:

  • Establishing the governance, monitoring and control framework

  • Providing strategic direction for the investments

  • Defining the investment portfolio characteristics

Portfolio Management

The goal of portfolio management is to ensure that the overall portfolio of IT-enabled investments is aligned with and contributing optimal value to the organisation’s strategic objectives by:

  • Establishing and managing resources (e.g., IT, third-party, business)

  • Defining investment thresholds

  • Evaluating, prioritizing and selecting, deferring, or rejecting investments

  • Managing through monitoring and reporting on portfolio performance

Investment Management

The goal of investment management is to ensure that a individual IT-enabled investments deliver optimal value at an affordable cost with a known and acceptable level of risk by:

  • Identifying business requirements

  • Developing a clear understanding of candidate investments

  • Analyzing the alternatives

  • Defining the components of the portfolio and documenting a detailed business case, including the benefit details 

  • Assigning clear accountability and ownership

  • Managing the through the full economic life cycle

  • Monitoring and reporting on performance

    ”RSS”

Technorati