effective it governance - report

AN IMPLEMENTATION MODELFOR

EFFECTIVE IT GOVERNANCE

ByScott Lang & Rajeshwer Subramanian

October 24, 2006

TABLE OF CONTENTS

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STRATEGY

TABLE OF FIGURES.............................................................................................................................3

1 EXECUTIVE SUMMARY....................................................................41.1 BACKGROUND................................................................................................................................41.2 VISION...........................................................................................................................................51.3 SCOPE.............................................................................................................................................51.4 TECHNICAL, MANAGEMENT, AND COST PLAN OVERVIEW...........................................................5

2 TECHNICAL PROPOSAL...................................................................72.1 PROJECT PURPOSE.........................................................................................................................72.2 PROBLEM STATEMENT...................................................................................................................72.3 PROJECT BENEFITS........................................................................................................................72.4 STATEMENT OF WORK...................................................................................................................72.4.1 SCOPE.............................................................................................................................................72.4.2 DELIVERABLES...............................................................................................................................82.4.3 CRITICAL SUCCESS FACTOR..........................................................................................................82.5 PROJECT PLAN...............................................................................................................................8

3 MANAGEMENT PROPOSAL...........................................................103.1 CORPORATE ORGANIZATIONAL STRUCTURE...............................................................................103.2 PROJECT ORGANIZATIONAL PLAN...............................................................................................113.2.1 WORK BREAKDOWN STRUCTURE................................................................................................113.2.2 PROJECT ORGANIZATIONAL STRUCTURE.....................................................................................113.2.3 PROJECT TEAM RESPONSIBILITIES...............................................................................................123.3 MANAGEMENT SYSTEMS.............................................................................................................143.3.1 SUPPLIER SELECTION AND MANAGEMENT..................................................................................143.3.2 MONITORING QUALITY, COST, AND SCHEDULE..........................................................................143.3.3 MANAGEMENT OF SCOPE AND CHANGE ORDERS........................................................................143.4 RISK MANAGEMENT....................................................................................................................153.4.1 POTENTIAL RISKS........................................................................................................................153.4.2 RISK MANAGEMENT PROCESS.....................................................................................................163.5 CORPORATE STRENGTHS.............................................................................................................163.5.1 BUSINESS AND FINANCIAL...........................................................................................................16

4 COST PROPOSAL..............................................................................164.1 SUMMARY....................................................................................................................................164.2 ESTIMATED PROJECT COSTS........................................................................................................164.2.1 PROJECT DEVELOPMENT COSTS..................................................................................................174.2.2 PROJECT OPERATING COSTS........................................................................................................184.3 ESTIMATED PROJECT BENEFITS...................................................................................................204.4 BENEFITS & COSTS OVERVIEW...................................................................................................214.5 RETURN ON INVESTMENT ANALYSIS...........................................................................................234.6 COST SENSITIVITY ANALYSIS......................................................................................................23

5 PROJECT UPDATES..........................................................................245.1 SCOPE CHANGE............................................................................................................................245.2 EVENT & RESPONSE....................................................................................................................26

APPENDIX A: REFERENCES.............................................................................................................27APPENDIX B: Benefits & Cost Diagram – Optimistic (6%)...............................................................28APPENDIX D: PROPOSAL REVIEW WORKSHEET..........................................................................30APPENDIX F: CHANGE REQUEST TRACKING FORM...................................................................32APPENDIX G: IT DIVISION STRUCTURE......................................................................................33

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TABLE OF FIGURESFigure 1: IT Governance Institute's "The Val IT Framework"............................................7Figure 2: Preliminary Project Plan......................................................................................9Figure 3: John Kotter's Transformation Process4..............................................................10Figure 4: Corporate Organizational Structure...................................................................11Figure 5: Work Breakdown Structure (WBS)...................................................................12Figure 7: Potential Risks Matrix........................................................................................16Figure 8: Risk Ranking......................................................................................................16Figure 9: Max Wideman's Risk Management Process6.....................................................17Figure 10: Development Costs Estimate...........................................................................18Figure 11: Development Costs Pie Chart..........................................................................19Figure 12: Projected Operating Costs Pie Chart................................................................20Figure 13: Projected Operating Costs................................................................................20Figure 14: Estimated Project Benefits Table.....................................................................21Figure 15: Benefits & Costs - Normal (9%)......................................................................23Figure 16: Net Cash Flow (9%).........................................................................................24Figure 17: Net Cash Flow - All Options............................................................................25Figure 18: Project Plan Outline.........................................................................................26

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Article I.1 Executive Summary

Information Technology (IT) Division is one of the most important divisions in companies these days. The past decade has seen various previously unknown companies start from a modest beginning and reach to great heights as a result of smart ideas and application of technologies. EBay, for instance, started with the founder selling a broken laser pointer1. Now eBay sells everything from toothpicks to aircrafts.

This success story, however, is not something that is shared by all companies. In fact, many IT initiatives have failed to deliver on their promises. Many even fail to meet basic user expectations. Standish Group reports that only 29% of IT projects succeeded while the rest were either challenged or failed2.

Over the last several years, researchers and thought leaders have tried to figure out why IT projects have failed to meet expectations. It is now common knowledge among these thought leaders that IT Governance holds the key to the success of an IT Division and projects worked by that Division. In their book on “IT Governance”, Peter Weill and Jeanne W. Ross, say that “Effective IT Governance is the single most important predictor of the value an organization generates from IT”3.

In this proposal, we will review the problems that have plagued the IT Division in KIG Insurance Company for the past several years. We will review the decision made by executive management to implement IT Governance. We will also present a technical plan; management plan and cost plan for implementing IT Governance across this organization.

1.1 Background

KIG Insurance Company is one of the top insurers in North America. With over $25 billion in assets, it is one of the largest insurers in the region. KIG’s IT shop started out with a total of 10 staff. As the company grew, the IT staff was increased in various departments (Applications, Networking etc.) to support the business. At present, the IT team has grown to over 500 IT staff supporting the business.

As a result of challenges faced in several IT projects, Management at KIG Insurance Company (both Business and IT) has come to recognize some of the major issues KIG’s IT is facing at this time:

Several projects completed by IT fail to meet user expectations The value of any individual IT project to the business is not clear There is no clarity to how a particular project gets approved IT constantly seems to be involved in fire-fighting rather than creating value When a critical IT project is identified, IT is not able to work with the timelines

specified for the project due to lack of resource availability

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KIG’s Chief Information Officer (CIO) was tasked to come up with a plan to address these issues. KIG’s CIO brought in a Gartner consultant to review these issues and to provide recommendations. Based on these recommendations, and after approval from the Business Leadership, KIG’s CIO created an “IT Governance Office”. Both Business and IT Leaders agreed that IT Governance will be able to solve many of the issues identified.

The “IT Governance Office” was initially staffed with a Program Manager from the business side and an IT Governance Leaders from the IT Side. These two staff were entrusted to come up with an implementation plan for implementing IT Governance across the enterprise.

1.2 Vision In order to come up with a vision statement for implementing IT Governance, it was

important to identify what constitutes a successful IT Project. IT Project Managers typically define a successful project as something that is completed on time, within budget while meeting the requirements requested by the users. However, there have been several IT projects that fit this definition but were still called failed projects because they did not add anything to the bottom-line of the company.

To address this paradox, Business and IT have agreed to define a successful IT project as follows: “A successful IT project is one that creates the expected business value”. This definition means that Business has to define what value it expects from a particular project and IT has to make sure that it allocates resources to work on projects based on the expected business value. Implementing IT Governance will ensure these happen.

The vision for this effort, therefore, is: “To successfully execute IT projects that add value to the business by implementing IT Governance”.

1.3 Scope This proposal will detail an implementation model for implementing IT Governance

across the organization. Outside of the executive summary, however, the proposal will not cover why executive management decided to implement IT Governance.

As part of the implementation, hiring of staff for the IT Governance Office will also be completed.

1.4 Technical, Management, and Cost Plan Overview

From a technical perspective, IT Governance will be implemented as part of an Organizational change strategy. IT Governance is defined as specifying the decision

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rights and accountability framework to encourage desirable behavior in the use of IT3. John Kotter’s transformation process will be used to implement the change strategy. The first step of this strategy is to create a sense of urgency towards the change. Since both Business and IT recognize the need for change, this will be easy to do. Following this step, a guiding team needs to be put together to develop a shared vision. This vision is communicated with all leaders and stakeholders. As with any change initiative, the culture of the organization is one of the biggest risks that determine the success of this initiative.

Figure 1: IT Governance Institute's "The Val IT Framework"

The change strategy will utilize IT Governance Institute’s “Val IT Framework” throughout the project. The process will begin by identifying how IT business decisions are made at the strategic, architecture, delivery and value levels throughout the organization.

The project is estimated to take about 2.5 years to implement across the whole organization. After a planning and strategy phase of about 3 months, the overall plan includes implementation of IT Governance across all five business areas of the business. The project includes time and resources to set up a PMO office within the IT Governance Office. This office will act as the Center of Excellence for Project Management.

Before the rollout of IT Governance to business areas, a new project portfolio management tool (such as Clarity) will be implemented. This tool will help IT Management understand all the projects that are currently being worked, time spent by staff on an individual project and a report on IT-Business alignment among other things.

The total estimated cost of this project is $2.7 million, which includes $391K in initial development costs and approximately $500K of annual operating costs. The payback period is estimated to be 1.25 years with a projected Net Present Value of $2.42 million.

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Are we doing the right things?

Are we doing them the right

way?

Are we getting the benefits?

Are we getting them done well?

Value

DeliveryArchitecture

Strategy

2 Technical Proposal

2.1 Project Purpose

The purpose of this project is to develop best practices and processes for IT projects that will best utilize resources and bring synergy to projects across all business units in the organization.

2.2 Problem Statement

The high rate of IT project failure along with a lack of business project synergy have cost the company large amounts of money over the past decade. With a project success rate of just over 30%, the company is only slightly better than the 29% success rate reported in the Standish Group International, 2004 Third Quarter CHAOS Report. Additionally, each business unit develops projects based on their own desires and needs without any knowledge of what another unit may be working on. This has resulted in multiple efforts to accomplish similar projects. (See Appendix)

2.3 Project Benefits

Implementing governance across IT has many benefits. The most important of all is how governance can help IT “truly” align with business. This alignment will help business realize the value IT brings to the projects. IT projects will be selected mainly based on the value it brings to the business. More IT projects will be successful since projects will be monitored more thoroughly than before.

The overall vision of implementing IT Governance can be stated as follows:To successfully execute IT projects that add value to the business

2.4 Statement of Work

2.4.1 Scope

The following are the overall goals of this project: Make a business case for IT Governance Identify areas that need to be addressed Provide an implementation plan Explain how the plan will be implemented Provide timelines

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Identify resource needs, roles & responsibilities

2.4.2 Deliverables

The project deliverables will include a comprehensive project plan for implementing the project, cost plan that identifies cost involved in implementing IT Governance, and a Table of Organization.

2.4.3 Critical Success Factor

The following are the critical success factors for the project: All changes recommended should be implemented and institutionalized across

the organization within the first two years IT Governance brings control and structure to project decision while at the

same time improving staff morale and encouraging creativity Good mechanisms to monitor and track value of projects put in place within

the first 2 years.

2.5 Project Plan

A preliminary project plan was developed for the project that included identifying metrics that needed to be tracked and processes that needed to be changed. It also included a “pilot project” that would be implemented to showcase the value of IT Governance.

Figure 2: Preliminary Project Plan

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STEPS TRANSFORMATION SUGGESTIONS

Step 1: Increase urgency

Examine market and competitive realities Identify and discuss crisis, potential crisis, or major

opportunities Provide evidence from outside the organization that

change is necessary

Step 2: Build the Guiding Team

Assemble a group with enough power to lead the change effort.

Attract key change leaders by showing enthusiasm and commitment

Encourage the group to work together as a teamStep 3: Get the Vision Right

Create a vision to help direct the change effort Develop strategies for achieving that vision

Step 4: Communicate for Buy-in

Use every vehicle possible to communicate the new vision and strategies

Keep communication simple and heartfelt Teach new behaviors by the example of the guiding

coalition

Step 5: Empowering Action

Get rid of obstacles to the change Change systems or structures that seriously undermine

the vision Encourage risk-taking and non-traditional ideas,

activities, and actions

Step 6: Create short term wins

Plan for visible performance improvements Create those improvements Recognize and reward personnel involved in the

improvements

Step 7: Do Not Let Up

Plan for visible performance improvements Create those improvements Recognize and reward personnel involved in the

improvements

Step 8: Make Change Stick

Articulate the connections between the new behaviors and corporate success

Develop the means to ensure leadership development and succession

Figure 3: John Kotter's Transformation Process4

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3 Management Proposal

3.1 Corporate Organizational Structure

Figure 4: Corporate Organizational Structure

The IT Governance office will be placed under the Chief Information Officer. This is because the CIO will be working with the business units to understand their needs. CIO’s are typically externally facing while the CTO’s are internally facing.

IT Governance Office in turn will have its own organization structure that will be decided as part of the project.

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3.2 Project Organizational Plan

3.2.1 Work Breakdown Structure

Figure 5: Work Breakdown Structure (WBS)

3.2.2 Project Organizational Structure

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Figure 6: Project Organizational Structure

The project organizational structure will create a project alignment that does not currently exist. All projects will be funneled through a project steering committee which will decide on which projects to proceed with. The committee will be aware of the needs of the individual business units allowing them to choose projects that create the most value for the entire enterprise.

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Program Manager

PM

IT Governance Leader

Project Manager Project Manager Project Manager

Team Member

Team Member

Team Member

Team Member

Team Member

Team Member

Team Member

Team Member

Team Member

3.2.3 Project Team Responsibilities

The project team has various members reporting to the program manager. Some of these members have traditional roles (project manager, project team members). The additional role of interest is the role of “IT Governance Leader”. The following list shares the common roles and responsibilities of each of these members. The IT Governance Leader role is expanded5 to provide clarity to this role.

3.2.3.1 Project Manager Responsibilities Report to the IT Governance Leader Manages project team members Tracks project process as it pertains to the new governance processes Part of matrix organization

3.2.3.2 Project Manager Responsibilities Reports to Project Manager Fulfills roles and responsibilities as assigned by the PM Added as warranted by individual projects

3.2.3.2 IT Governance Leader Responsibilities5

IT Project Life Cycle Responsibilitieso Coordinating business interaction throughout the IT life-cycle. From

business requirements and request management to UAT and change management

IT Process Definition & Improvemento Defining and implementing internal IT process and procedures to help

ensure consistent delivery of quality services to meet business needso Manage IT Services request funnel and prioritization processo Apply experience and expertise with ITIL processes of service support,

service delivery, the service desk function, and security management within the context of a business focused IT service management approach.

o Apply knowledge of release and control processes and functions that are responsible for achieving control and stability within an IT infrastructure, including effective change and release management.

o Skills in managing repeatable processes and planning non-repetitive processes.

Business Process Definition & Improvemento Work with key business stakeholders to document and improve business

processes and related systemo Manage a team of Business Analysts

Project Portfolio Managemento 10yrs Trading Technology-Success implementing project portfolio

management system(s) and balanced scorecard/executive dashboards.

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o Experience in the development and implementation of a Governance Model

o Coordinate Project Management resourceso Responsible for constant focus on process and improvement and quality of

end products, noting such concepts as automation of IT Governance and forecast to actuals comparison

o Accountable for shaping the deliverables needed to build a Center for Program Excellence team, recognizing some immediate deliverables, such as a training curriculum, resource library and competency model for the project management community, and partnering to ensure successful delivery of major initiatives

o Responsible for managing three teams focusing on IT Governance, Center for Program Excellence and Program Management Services

IT Business Alignmento Within IT Governance, you are accountable for the Sub-Operating and

Operating Committee process which includes managing internal and external clients to capture, consolidate and report on the status of the Information Services Division (ISD) as a business unit

Communication & Negotiationo Responsible for constant communications to Senior ISD Management, to

middle ISD Management, remaining ISD employees, and to the business partners at senior levels.

o Negotiation and leadership skills with all levels of the organization, from junior to senior, and with all areas of the business.

Team Buildingo Must have excellent strategic thinking skills in establishing and building

new teams in a dynamic environment.

3.3 Management Systems

3.3.1 Supplier Selection and Management

Software and hardware suppliers will be selected based on the review of proposals in response to an RFP. All current and past suppliers in good standing will be given the opportunity to respond. A proposal review sheet will be used when judging proposals for each RFP. (see appendix)

3.3.2 Monitoring Quality, Cost, and Schedule

The project manager will be responsible for monitoring the cost variance, and schedule variance of the project. This monitoring will be done as part of an earned value

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calculation that is performed every two weeks. The results of this earned value analysis will be shared with the stakeholders and the IT Governance Leader on a scheduled basis.

Quality will be monitored throughout the lifecycle of the project. As part of the company’s commitment to Six-Sigma, quality improvement projects will be kicked off on an ongoing basis to decrease variance and improve quality in processes.

3.3.3 Management of Scope and Change Orders

It is proposed that a formal review of the pilot project take place at the completion of the project. After this review, changes will be made to the processes as needed before rolling out the project process to other business units. The changes within the individual projects are what have the potential to affect the scope of the Governance roll out. To control these changes, it is proposed that a formal change request process be imposed. All changes will need to be requested in writing and tracked. The PM and business unit manager must sign off on the changes before they can be acted upon. Any change that has the potential to affect the schedule by two months or more, or has a cost greater than $10,000, will need approval from the project steering committee. (see appendix for appropriate forms involved in this process)

3.4 Risk Management

3.4.1 Potential Risks

Risk ItemDescription of

RiskImpact Severity Contingency Plan

Process change Resistance to doing things differently

Morale, time line

High Track successes and reward accomplishments

Not enough business involvement

Training, Commitment

Schedule, if people are not

trained, the project

will take more time

Medium Track successes, survey those who have been trained – inform management to keep them committed

Changing organizational decision rights

Moving the decisions on projects out of the individual business units

Morale, time line

High Obtain clear support from upper management and have them inform all involved that they are behind the project

No clear metrics to Without a Time line High Build a metric from the

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measure measurement tool it is hard to gauge success and keep things moving in a timely manner

first task projects to apply to the remainder of the project

Figure 7: Potential Risks Matrix

RISK RANKING

High (risk severity is high and probability is high that it will happen)

Medium (risk is moderate and impact not so

severe)

Low (risk is low and impact low

even if it occurs)

Figure 8: Risk Ranking

Risks are inherent to any project; this project carries its major risks in cultural change. For this reason, it is proposed the Kotter’s change management model be implemented throughout the organization. (see Kotter’s change management table below) With the support of upper management, it is believed that by following the change model, the transition will be smooth and should help mitigate resistance.

3.4.2 Risk Management Process

To handle any issues that may come up unexpectedly, the project team will follow Wideman’s process6 for dealing with risk.

Figure 9: Max Wideman's Risk Management Process6

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3.5 Corporate Strengths

3.5.1 Business and Financial

KIG Insurance Company is one of the top insurers in North America. KIG has over $25 billion in assets and has a large customer base in North America.

4 Cost Proposal

4.1 Summary

The total estimated cost of this project is $2.7 million, which includes $391K in initial development costs and approximately $500K of annual operating costs. The payback period is estimated to be 1.25 years with a projected Net Present Value of $2.42 million.

4.2 Estimated Project Costs

Project cost can be divided into development costs that are incurred when the project is kicked off (year 0) and operating costs that are incurrent over the course of the project (2.5 years).

4.2.1 Project Development Costs

Development costs are incurrent year 0 and total to $391K. Majority of the cost incurred (67%) relates to personnel costs. Strategy Development cost involves the Program Manager and IT Governance Leader working with Executive Management on the strategy phase of this project. Implementation Plan Development deals with development of a realistic implementation plan by the Program Manager and IT Governance Leader. This plan is then reviewed and approved by Executive Management after which it is shared with the Section Chiefs in IT and Business sections.

Development CostsPersonnel - Strategy Development1 Program Manager (250 hrs @ $65/hr) $16,2501 IT Governance Leader (250 hrs @ $60/hr) $15,0002 Executive Management (85 hrs @ 240/hr) $40,750

Total Personnel - Strategy Development $72,000 Personnel - Implementation Plan Development1 Program Manager (250 hrs @ $65/hr) $16,2501 IT Governance Leader (250 hrs @ $60/hr) $15,0002 Executive Management (85 hrs @ 240/hr) $40,7506 IT & Business Section Chiefs (120 @ 100/hr) $72,000

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Total Personnel - Strategy Development $144,000 Expenses PMO Office Consulting Contract $100,000 Training Expenses $75,000

Total Personnel - Strategy Development $175,000

Total Development Costs $391,000

Figure 10: Development Costs Estimate

Development Costs

Personnel, $360,010, 67%

Expenses, $175,000, 33%

Figure 11: Development Costs Pie Chart

Expenses amount to 33% of the development costs. The first expense deals with a contract for the Project Management Office (PMO). As part of the initial rollout, a project management-reporting tool (such as Clarity) is rolled out and a maintenance contract is purchased for the tool for the length of the project. The rollout of this tool is very important to be able to measure IT-Business alignment and to track business value metrics of all the projects throughout their lifecycle.

4.2.2 Project Operating Costs

Project operating costs average around $525 K a year. Personnel costs account for most of this amount (95%). The reason for this is the heavy involvement of all members in the Governance office and project in activities relating to implementation of IT Governance. Additionally, after each business unit is transitioned, additional costs are

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incurred in post project lessons learned sessions and strategy sessions. These are important in order to ensure the success of the project.

After IT Governance implementation is completed for each business unit, additional training is provided to essential staff in order to disseminate lessons learned and changes to implementation plan. As we get more implementations under the belt, the training costs decrease over the course of the project. Training costs range from $50K for the first business unit to only $10K towards the end of the project.

It is important to note that the operating costs are more than the initial development costs. This is unlike traditional IT projects where the operational/maintenance costs are a smaller percentage compared to the initial development cost.

Projected Operating Costs

Personnel, $501,520,

95%

Training, $24,000, 5%

Figure 12: Projected Operating Costs Pie Chart

Projected Operating CostsPersonnel - Project Execution (per half year)1 Program Manager (2080 hrs @ $65/hr) $135,2001 IT Governance Leader (2080 hrs @ $60/hr) $124,8003 Project Managers (1040 hrs @ 48.2/hr) $150,5209 Team Members (200 hrs $45/hr) $81,000

Total Personnel $491,520 Personnel - Strategy Alignment (per half year)1 Program Manager (30 hrs @ $65/hr) $1,9501 IT Governance Leader (30 hrs @ $60/hr) $1,8002 Executive Management (10 hrs @ 240/hr) $4,8002 IT & Business Section Chiefs (7.25 @ 100/hr) $1,450

Total Personnel - Strategy Development $10,000

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Total Personnel Cost $501,520 Additional Training Cost Year 0.5 - Training Cost $50,000 Year 1 - Training Cost $30,000 Year 1.5 - Training Cost $20,000 Year 2 - Training Cost $10,000 Year 2.5 - Training Cost $10,000

Average Training Cost $24,000

Total Annual Operating Costs $525,520

Figure 13: Projected Operating Costs

4.3 Estimated Project Benefits

The project benefits derived from implementing IT Governance can be broadly divided into cost savings and additional revenue.

Estimated BenefitsCost savings due to effective Governance

Reduced number of IT products used results in cost savings

Usage of standard project methodology results in lesser rework and saves costs

Elimination of non-approved products results in cost savings

Employee productivity is increased since staff are not constantly waiting for decisions to be finalized

Additional revenue due to increased strategic focus

Product cycles are decreased due to efficient delivery resulting in increased revenue

Product cycles are decreased due to faster decisions resulting in increased revenue

Value increases due to tracking of business value metrics

Regular re-weighting of IT portfolio results in better balance of risk and return

Focus on strategic priorities, cognizant of the distinction between "must have" and "nice to have" results in better IT value

Formation of a Business-IT Strategic Steering Committee results in overall priorities being available at the overall business level increasing focus and revenue

Figure 14: Estimated Project Benefits Table

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Each initiative is estimated to save around $30K and create additional revenue of up to $50K. This denotes a medium size project based on the company’s experience with previous projects. Project selection during the pilot phase for each business area should be carefully made in order to meet these criteria. This is important to demonstrate success in the business area and encourage early adoption by other initiatives in that business area.

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4.4 Benefits & Costs Overview

Benefits and costs are calculated for a given discount factor. The discount factor is based on the normal rate of return of typical IT projects in the company. This factor is 9% for KIG Insurance Company. For each year, the benefits are calculated and a cumulative total is maintained.

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Benefits & Cost - Normal (9%)Year 0 0.5 1 1.5 2 2.5

No. of Business Areas under IT Governance 0 1 2 3 4 5

No. of Strategic Initiatives under IT Governance 0 5 10 15 20 25

Discount Factor 9% Benefits and Gains

Cost savings due to effective Governance $150,000 $300,000 $450,000 $600,000 $750,000

Addl. revenue due to increased strategic focus $250,000 $500,000 $750,000 $1,000,000 $1,250,000

Benefits before discount $0 $400,000 $800,000 $1,200,000 $1,600,000 $2,000,000

Discount Factor for 8% 1 0.9578 0.9174 0.8787 0.8417 0.8062

Time adjusted benefits $0 $383,131 $733,945 $1,054,488 $1,346,688 $1,612,366

Total time-adjusted benefits $0 $383,131 $1,117,075 $2,171,563 $3,518,251 $5,130,618 Costs and Expenses

Strategy Development ($72,000)

Implementation Plan Development($144,000

)

PMO Office Consulting Contract($100,000

)

Training Contract ($75,000)

Strategy Alignment Cost ($10,000) ($10,000) ($10,000) ($10,000) ($10,000)

Additional Training Cost ($50,000) ($30,000) ($20,000) ($10,000) ($10,000)

Staffing Cost (2 PMs, 1 Prog. M, 1 Proj. M) ($491,520

) ($491,520) ($491,520) ($491,520) ($491,520)

Costs before discount($391,000

)($551,520

) ($531,520) ($521,520) ($511,520) ($511,520)


Time adjusted costs($391,000

)($528,260

) ($487,633) ($458,280) ($430,536) ($412,379)

Total time-adjusted costs($391,000

)($919,260

)($1,406,893

)($1,865,174

)($2,295,710

) ($2,708,089)

Net Cash Flow (391,000) (536,130) (289,818) 306,389 1,222,541 2,422,529

Figure 15: Benefits & Costs - Normal (9%)

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4.5 Return on Investment Analysis

The return on investment for the project is calculated by offsetting the costs of the projects against the benefits due to cost savings and increase in revenue. The amounts are totaled after applying the discount factor. Based on the analysis of the results, the normal solution returns a Net Present Value of $2.42 million. The payback period for the investment is 1.25 years.

Net Cash Flow (9%)

$306,389

$1,222,541

0.5 1 1.5 2 2.5($289,818)

($391,000) ($536,130)

$2,422,529

0

($1,000,000)

($500,000)

$0

$500,000

$1,000,000

$1,500,000

$2,000,000

$2,500,000

$3,000,000

Year

Ne

t c

as

h f

low

Figure 16: Net Cash Flow (9%)

4.6 Cost Sensitivity Analysis

A cost sensitivity analysis was performed by varying the discount rates by 3% above and below the normal 9% value. Cost-sensitivity analysis will help executive management understand the risk of not meeting the expected returns.

As seen in the diagram below, while the cost of the pessimistic solution does show some difference towards the end of the project, the cost during the other times during the project are very similar. In fact, the payback for all three solutions (optimistic, pessimistic, and normal), are almost identical.

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Net Cash Flow

0 0.5 1 1.5 2 2.5

-1000000

-500000

0

500000

1000000

1500000

2000000

2500000

3000000

Year

Cas

h F

low

Figure 17: Net Cash Flow - All Options

5 Project Updates

5.1 Scope Change

Management requested that all business units across the enterprise be involved from the beginning instead of rolling out one business unit at a time. Once a pilot project has been completed and reviewed after completion, process corrections and additions will be made. From here, multiple business units will roll out projects under the new process. To accommodate this aggressive approach, project managers have been doubled on a few of the first projects for training purposes. As projects end, the project managers will go on to run their own projects under the new processes. All new projects will be undertaken with the new process as trained project managers come available, until all business units have adopted the new processes.

Time lines and schedules have been reworked and additional resources have been added. These resources have been hired sooner than anticipated, causing costs to rise in the beginning phases of the project before being absorbed by projected savings. All cost estimations have been created and budgets adjusted accordingly.

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Figure 18: Project Plan Outline

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5.2 Event & Response

The lead PM on the pilot project has had to take an unexpected leave of absence and will be out for 6 months. A project manager that had been shadowing him on the project was promoted to lead the project. One of the team members was promoted to project manager to work with him to complete the project. A project worker was taken from a less critical project that was nearing completion to replace the member on the pilot project. A new project worker will be hired and will start fresh on a new project team. This series of events has slowed the project some but has not had a critical impact because those promoted were familiar with what has been going on. Because the new scope called for a complete roll out in 3 years and the schedule was planned to come in 4 months early, the project will still be completed by the requested 3 year time frame.

29

APPENDIX A: REFERENCES

1 Hsiao, Aron, “How did eBay start? Your Guide to eBay”, WWW: http://ebay.about.com/od/ebaylifestyle/a/el_history.htm, 2006.

2 The Standish Group International, “2004 Third Quarter CHAOS Report”, WWW: http://www.standishgroup.com/sample_research/PDFpages/q3-spotlight.pdf, 2004.

3 Weill, Peter and Ross, Jeanne W., “IT Governance: How Top Performers manage IT Decision Rights for Superior Results”, Harvard Business School Press, 2004.

4 Kotter, John P., “Why Transformation Efforts Fail?”, Harvard Business Review, 1995, WWW: http://www.army.mil/aeioo/cm/model3.htm.

5 Monster job posting for IT Governance Leader, WWW: http://www.monster.com.

6 Wideman, Max R., “PMI’s Project & Program Risk Management – A Guide to Managing Project Risks & Opportunities”.

30

APPENDIX B: Benefits & Cost Diagram – Optimistic (6%)

Benefits & Cost - Optimistic (6%)Year 0 0.5 1 1.5 2 2.5







Discount Factor 1 0.9713 0.9434 0.9163 0.8900 0.8644





)


)





) ($491,520) ($491,520) ($491,520) ($491,520)


)($551,520

) ($531,520) ($521,520) ($511,520) ($511,520)

Discount Factor 1 0.9713 0.9434 0.9163 0.8900 0.8644


)($535,684

) ($501,434) ($477,873) ($455,251) ($442,179)


)($926,684

)($1,428,118

)($1,905,990

)($2,361,241

)($2,803,420

)

Net Cash Flow (391,000) (538,169) (284,886) 336,810 1,305,553 2,592,256

31

APPENDIX C: Benefits & Cost Diagram – Pessimistic (12%)

Benefits & Cost - Pessimistic (12%)Year 0 0.5 1 1.5 2 2.5












)


)





) ($491,520) ($491,520) ($491,520) ($491,520)


)($551,520

) ($531,520) ($521,520) ($511,520) ($511,520)



)($521,137

) ($474,571) ($439,991) ($407,781) ($385,316)


)($912,137

)($1,386,709

)($1,826,700

)($2,234,481

)($2,619,797

)

Net Cash Flow (391,000) (534,173) (294,459) 277,955 1,145,685 2,266,923

32

APPENDIX D: PROPOSAL REVIEW WORKSHEET

Project Name:

TaskName: Number:

Deliverable:

Estimated Start Date: Estimated End Date:Acceptance Criteria

Vendor SummariesName Contact Phone # Fax

Competition Table

VendorMin. Req.

1Cost

2Quality

3Exp.

4Equip.

5Rep. Total

33

APPENDIX E: CHANGE REQUEST FORM

<Project Name>Scope Change Request

Date Submitted: <mm/dd/yyyy>Department: <Department>Focus Area: <Focus Area>Product or Process: <Product or Process>Investigator: <Investigator>Project or Organization Role: <Role>

Scope definition and impact on other projects and programs

Business and system drivers

Business and system impact

Scope change benefit

Implication of not making change

Scope change cost estimate

Related documentation

Scope change approved for investigation?

Assigned Investigator: <Investigator>Approved by: <Approver>Title: <Title>Date Approved: <mm/dd/yyyy>

Comments

34

Yes No

APPENDIX F: CHANGE REQUEST TRACKING FORM

[Insert Project Name]Last Updated: [insert date]

[Instructions: Enter the date, requestor and a description of the change request in the first 3 columns. Enter the priority of the change request in the fourth column. In column 5, enter a brief description of the impact assessment for the change request. Enter who the change request has been assigned to in column 6 (this is the person that will follow up to make sure the resolution is carried out). Enter the current status of the change request in column 7 and the date the status changed in column 8. Lastly, enter any comments or the resolution for the change request in column 9.]

No.

Date

Requestor

Change Request

Description

Priority

High Medium

Low

Impact, Deliverables Affected

Assigned to:

Status

Status

Date

Comment,

Resolution

1

2

3

4

5

6

35

APPENDIX G: IT DIVISION STRUCTURE

36

VP

Unit Manager - Property

Development Manager

Unit Manager - Auto Unit Manager - Life

Change Control Manager

Architect Systems Analyst

Developer

Developer

Systems Analyst

Developer

Developer

Developer

Developer

Systems Analyst

APPENDIX H: COMPREHENSIVE PROJECT PLAN

ID Name Duration Start Finish Pred1 IT Governance Implementation Plan 715.d 2/1/2006 10/28/20082 Planning Phase 18.d 2/1/2006 2/24/20063 Identify Goals & Objectives 12.d 2/1/2006 2/16/20064 Identify Scope 2.d 2/17/2006 2/20/2006 35 Confirm Sponsor's Commitment 2.d 2/21/2006 2/22/2006 46 Identify Guiding Team 2.d 2/23/2006 2/24/2006 57 Strategy Phase 80.d 2/27/2006 6/16/20068 Identify Working Committee 3.d 2/27/2006 3/1/2006 69 Develop & Agree on Vision 10.d 3/2/2006 3/15/2006 8

10 Develop Technical Plan 30.d 3/16/2006 4/26/200611 Discuss & Define Change Items 14.d 3/16/2006 4/4/2006 912 Discuss, & Define Change Strategy 12.d 4/5/2006 4/20/2006 1113 Identify Critical Success Factors 2.d 4/21/2006 4/24/2006 1214 Confirm Sponsor's Commitment 2.d 4/25/2006 4/26/2006 1315 Develop Management Plan 20.d 4/27/2006 5/24/200616 Discuss, & Define Communication Plan 15.d 4/27/2006 5/17/2006 1417 Discuss, & Define Implementation Plan 15.d 4/27/2006 5/17/2006 1418 Identify Metrics 5.d 5/18/2006 5/24/2006 1719 Develop Cost Plan 10.d 5/18/2006 5/31/200620 Identify Costs & Benefits 5.d 5/18/2006 5/24/2006 1721 Calculate ROI, Payback Period 5.d 5/25/2006 5/31/2006 20

22Communicate Techincal, Management and Cost Plan 5.d 6/1/2006 6/7/2006 21

23 Present Findings & Plans to Sponsors 5.d 6/8/2006 6/14/2006 2224 Confirm Sponsor's Commitment 2.d 6/15/2006 6/16/2006 2325 Implementation Phase 617.d 6/19/2006 10/28/200826 Train Stakeholders 30.d 6/19/2006 7/28/2006 24

27Implement Project Management & Tracking Software 19.d 7/31/2006 8/24/2006

28 Define Product Requirements 4.d 7/31/2006 8/3/2006 2629 Evaluate Products 3.d 8/4/2006 8/8/2006 2830 Pilot Implementation 7.d 8/9/2006 8/17/2006 2931 Rollout Product 5.d 8/18/2006 8/24/2006 3032 Business Area 1: Life Insurance 24.d 8/25/2006 9/27/200633 Train staff 1.d 8/25/2006 8/25/2006 3134 Choose Pilot Project 2.d 8/28/2006 8/29/2006 3335 Startup 1.d 8/30/2006 8/30/2006 3436 Initiate Project 1.d 8/31/2006 8/31/2006 3537 Direct Project 2.d 9/1/2006 9/4/2006 3638 Plan Project 2.d 9/5/2006 9/6/2006 3739 Control Project 7.d 9/7/2006 9/15/2006 3840 Manage Project Delivery 4.d 9/18/2006 9/21/2006 3941 Close Project 4.d 9/22/2006 9/27/200642 Capture Lessons Learned 2.d 9/22/2006 9/25/2006 4043 Update IT Governance Strategy 2.d 9/26/2006 9/27/2006 4244 Implement other business area 1 projects 260.d 9/28/2006 9/26/2007 4345 Business Area 2: Automobile Insurance 24.d 9/27/2007 10/30/200746 Train staff 1.d 9/27/2007 9/27/2007 4447 Choose Pilot Project 2.d 9/28/2007 10/1/2007 4648 Startup 1.d 10/2/2007 10/2/2007 47

37

49 Initiate Project 1.d 10/3/2007 10/3/2007 4850 Direct Project 2.d 10/4/2007 10/5/2007 4951 Plan Project 2.d 10/8/2007 10/9/2007 5052 Control Project 7.d 10/10/2007 10/18/2007 5153 Manage Project Delivery 4.d 10/19/2007 10/24/2007 5254 Close Project 4.d 10/25/2007 10/30/200755 Capture Lessons Learned 2.d 10/25/2007 10/26/2007 5356 Update IT Governance Strategy 2.d 10/29/2007 10/30/2007 5557 Implement other business area 2 projects 260.d 9/27/2007 9/24/2008 4458 Business Area 3: Health Insurance 24.d 9/27/2007 10/30/200759 Train staff 1.d 9/27/2007 9/27/2007 4460 Choose Pilot Project 2.d 9/28/2007 10/1/2007 5961 Startup 1.d 10/2/2007 10/2/2007 6062 Initiate Project 1.d 10/3/2007 10/3/2007 6163 Direct Project 2.d 10/4/2007 10/5/2007 6264 Plan Project 2.d 10/8/2007 10/9/2007 6365 Control Project 7.d 10/10/2007 10/18/2007 6466 Manage Project Delivery 4.d 10/19/2007 10/24/2007 6567 Close Project 4.d 10/25/2007 10/30/200768 Capture Lessons Learned 2.d 10/25/2007 10/26/2007 6669 Update IT Governance Strategy 2.d 10/29/2007 10/30/2007 6870 Implement other business area 3 projects 260.d 9/27/2007 9/24/2008 4471 Business Area 4: Workers Compensation 24.d 9/27/2007 10/30/200772 Train staff 1.d 9/27/2007 9/27/2007 4473 Choose Pilot Project 2.d 9/28/2007 10/1/2007 7274 Startup 1.d 10/2/2007 10/2/2007 7375 Initiate Project 1.d 10/3/2007 10/3/2007 7476 Direct Project 2.d 10/4/2007 10/5/2007 7577 Plan Project 2.d 10/8/2007 10/9/2007 7678 Control Project 7.d 10/10/2007 10/18/2007 7779 Manage Project Delivery 4.d 10/19/2007 10/24/2007 7880 Close Project 4.d 10/25/2007 10/30/200781 Capture Lessons Learned 2.d 10/25/2007 10/26/2007 7982 Update IT Governance Strategy 2.d 10/29/2007 10/30/2007 8183 Implement other business area 4 projects 260.d 9/27/2007 9/24/2008 4484 Business Area 5: Property Insurance 24.d 9/27/2007 10/30/200785 Train staff 1.d 9/27/2007 9/27/2007 4486 Choose Pilot Project 2.d 9/28/2007 10/1/2007 8587 Startup 1.d 10/2/2007 10/2/2007 8688 Initiate Project 1.d 10/3/2007 10/3/2007 8789 Direct Project 2.d 10/4/2007 10/5/2007 8890 Plan Project 2.d 10/8/2007 10/9/2007 8991 Control Project 7.d 10/10/2007 10/18/2007 9092 Manage Project Delivery 4.d 10/19/2007 10/24/2007 9193 Close Project 4.d 10/25/2007 10/30/200794 Capture Lessons Learned 2.d 10/25/2007 10/26/2007 9295 Update IT Governance Strategy 2.d 10/29/2007 10/30/2007 9496 Implement other business area 5 projects 260.d 10/31/2007 10/28/2008 56

38

effective it governance - report

Documents

project organizational

estimated project costs

project operating costs

project development

project updates

project purpose

particular project

preliminary project