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