Friday, December 3, 2010

Study notes on Cobit: Managing IT investment

Forecasting (planning) the business values and costs


Suppose that you're the CIO of a movie rental store chain with 10 stores at different locations. The CEO has selected your proposed IT strategy of implementing an enterprise wide collaboration system (e.g., Sharepoint or Alfresco) to enable document sharing and project management, using a SaaS solution. As discussed before, you (the CIO) have forecast (planned) the business values and costs as below.
Values:

  • Allow all the users to access the same documents even though they are on different sites. The information to be shared includes updated price list, current promotion programs, company policies, procedures and guidelines, document templates, best practices, staff phone number extension list.

  • Allow different project team members to see and update project tasks. Allow project managers to see the overall status of the projects.


Costs:

  • Subscription fee to the SaaS solution: MOP100 per user per year. There are totally 30 users, so the annual cost is MOP3,000.

  • Internet access: the company already has Internet access for all the sites. It is estimated that it will not require upgrading the bandwidth. If the Internet cost is significant, you may estimate the percentage that will be used for this service so that you can justify the Internet access. In this example, let's ignore it.

  • Service desk support: your service desk will provide support to the users. However, it is difficult to estimate how much of the service desk will be used for this service. But if you'd like to justify the value of existence of your service desk, you may need to estimate or measure it, to link the cost to the business value. In this example, let's ignore it.

  • PC clients: the existing PC clients can handle it easily as almost everything happens in the browser.

  • Testing by IT: it is estimated that an IT architect and the QA manager will spend 1 week to test the solution. Assuming that their hourly rate is MOP200, this will cost 2*5*8*200=MOP16,000.

  • PC client configuration: you will need to add a bookmark to the browser and a shared folder (to hold the document templates) for each user. This is not a good way, but let's suppose that you lack an automated solution. Let's say it will take 2 hours to visit and configure the PCs on each site, so it will take 2*10=20 hours. Assuming that the hourly rate of a technician is MOP100, this will cost MOP2,000.

  • User training: you will conduct two user training sessions at the headquarter. It takes 1 day (8 hours) for preparation and for each session 2 hours for delivery. It will also take each user 1 hour to travel to the headquarter and 2 hours to attend the session. Assuming that the hourly rate of the trainer is MOP200 and that of the user is MOP50, this will cost (8+2*2)*200+30*(1+2)*50=MOP6,900.


So, the CEO has accepted this IT strategy and approved the budget (once-off: MOP24,900. MOP3,000 annual).

Tracking the costs


So, some time later you start to implement the project. In the process, you should keep track of the costs to make sure they don't exceed the budget. For example, if the testing of the architect and the QA manager shows that the existing Internet bandwidth must be upgraded from the existing 256Mbps to 512Mbps for headquarter (due to the need to perform lots of uploads), this will cost an extra MOP300 per month.
When seeing this deviation, what should you do? There are a couple of options like:

  • Try to reduce the cost. For example, check if the bandwidth of the headquarter is being used wisely (e.g., many staff members watching unrelated videos on Youtube?). If so, cut those wastes.

  • Report to the CEO and other stakeholders about this bad news. They may decide to go ahead, to abort the project or to even suggest some other solutions for you.

  • Keep it secret. This is not really an option and you will pay dearly later! So, don't do that.


Tracking the business values


In addition to tracking the costs, you should also keep track of the business values to show to the CEO and other stakeholders. For example, after implementing the project, the users should start using it. But how to show or measure the business values? Usually it is very difficult to quantify the business values into money amounts. In fact, it is also very difficult to measure, qualify or describe business values. Here are some possible ways to "measure" the business values for this example:

  • show that the updated price list has indeed been put into the system and how frequently it has been accessed.

  • show the comments from the users regarding how much better they feel when getting the updated price list this way instead of the old way (e.g., fax).

  • show the comments from project managers regarding how much better they feel when managing projects with this system.

  • so on.


What happens when there are deviations? For example, if after implementing the system, nobody accesses the updated price list in the system? Then obviously you're in big trouble! Try to find out why they aren't using it. For example, if the guy in the headquarter is uploading the price list in a timely fashion, talk to him to find out why and try to resolve the problem.

Quantifying business values


In the official Cobit document, it is recommended that we quantify business values into amount of dollars and then prioritize or select IT strategies based on monetary comparison (e.g., ROI, net present value, payback period). While this may sound scientific, I seriously doubt its practical usefulness. For example, how to measure the value of easier project management by having a global and updated view? It really depends on the nature of the projects being managed, the people using the system and even the current business environment, etc.