Governance of Programmes and Portfolios for Strategic Success

Project management success does not mean project success. There is an important distinction:

• Project management success occurs when the project deliverables are on-time, within budget and according to specification;
• Project success, on the other hand, occurs when the overriding strategic benefits are realized - after all, this is the reason projects are undertaken.

A Cranfield University study reported in 2006 that only 27% of projects deliver intended benefits, supporting earlier studies that suggested that fewer than 10-20% of projects ever deliver the expected benefits and 30-40% of projects are implemented without any discernable benefits whatsoever.

The limitations of project management must be understood to understand why so many projects do not succeed. Two key limitations are that:

1. Many benefits cannot be realized until after the project has ended yet benefits realization must be actively managed; and
2. Project management methods were designed to address the development of new products or assets, not "soft" initiatives, such as as organizational, business process and behavioural change.

A research paper by Raymond Young, Paul O'Conner and Simon Poon, Goverance of Programmes and Portfolios for Stategic Success - Implications from a study of the State of Victoria, demonstrates these issues very well. The paper reports on the results of a study commissioned by the Victoria Auditor General's Office (VAGO) in Australia to evaluate the role of projects within the Victorian public sector and to evaluate the appropriateness of the Victorian Investment Management frameworks:

"The Victorian public sector was expected to be at the forefront of practice but the study suggested billions of dollars are invested in projects with few of the expected strategic benefits being realized."

For example:

"A 2009 VAGO audit of literacy and numeracy found that 10 years of effort by the Victorian Education Department had only lifted literacy in the early childhood years and numeracy had actually declined. There seems to be a similar pattern for Health services where waiting times appear to have remained either static or increased...Our conclusion is that although the Victorian Investment Management frameworks focus on benefits, the emphasis is to ensure an asset is aligned to a benefit rather than the actual realization of a benefit and there is no focus on realizing higher order strategic goals...The high level strategic goals have been clearly defined and relatively stable for at least 10 years. If one of the best performers did not have the tools to help it achieve its strategic goals, what are the implications for the rest of us?"

The paper asserts that the Victorian Investment Management frameworks, though considered to be world class, are inadequate for achieving strategic goals:

"Their strength is that they emphasize a portfolio approach to choosing projects and using benefits as the selection criteria for investment rather than simply focussing on on-time on-budget delivery. Their weakness is that they are directed mainly at asset investments and do not focus on soft-projects even though the majority of project expenditure appears to be on soft-projects...The crucial deficiency seems to the absence of meaningful linkages to programme management."

Furthermore, the paper suggests that the innovations with the most potential to increase project success rates (portfolio management, programme management and project governance) are still too immature to gain widespread adoption:

• Project governance must be closer aligned with corporate governance principles so that top management provides the level of engagement projects need to succeed and have assurance that key governance issues are being addressed.
• Programme management has more potential to deliver strategic benefits but requires more flexibility to support strategic thinking and enable top management and programme management to engage in appropriate levels of questioning, feedback and dialogue.
• Portfolio management must be linked to programme management because strategic outcomes can only be achieved when a whole programme of change is undertaken (the programme then selects the individual projects that will contribute to outcomes).

This has significant implications for organizations that are counting on project management or project portfolio management to achieve IT project success. They need to consider how they will address these issues.

Val IT provides helpful guidance for the governance of IT investment portfolios. It is a coherent approach that can be used to complement existing practices and provides a set of principles, processes and practices for addressing the issues discussed here.

Leadership is seriously absent in governance

I gave a presentation to the NZ SAP User Group meeting this week. My topic was IT Value Management and my objective was to present the case for managing value from IT, rather than just managing IT, and to show the behaviours needed to achieve it and why this must start at the top.

Research by MIT's Center for Information Systems Reseach identified how firms successfully drive value from the use of IT and generate returns on their IT investments that are up to 40 percent greater than their competitors. These IT savvy firms have three obsessions:

1. Fixing what’s broken about IT. Behind a spaghetti IT architecture is a broken accountability framework and decision-making model (in other words, governance). There must be agreement and commitment on how the organization will operate and how resources will be focussed on enterprise initiatives rather than product silos. This determines the high level requirements for a digitized platform.
2. Building a digitized platform that standardizes and automates core data and processes. They start by identifying what is not changing and can be reused over and over again.
3. Exploiting the platform for profitable growth. Executive leadership leads organizational change to drive value from the new asset (the digitized platform).

For more about this, check out Weill & Ross' outstanding book for C-level executives, IT Savvy: What Top Executives Must Know to Go from Pain to Gain. (Businesses should hope their competitors do not read this book.)

On the eve of my presentation, a timely news article aired on national television that New Zealand’s governance bodies are increasingly out of touch with the organisations they are meant to guide. Dr Liliana Erakovic, of the University of Auckland Business School, says her studies on board processes and practices shows New Zealand has a problem with some under-achieving governors who are not prepared to offer leadership.

"Even more concerning is the lack of knowledge and understanding of major customers/suppliers, company dynamics, organisational processes and practices, staff and users within organisations - along with the absence of passion and some governors juggling too many board positions to be effective,"she says.

Contrast this with the three obsessions of IT savvy firms and you can see that under-achieving boards are a major barrier to a firm becoming IT savvy. Dr Erakovic's conclusions help explain the difficulty we have getting the subject of IT value management on the board agenda.

"Boards should be actively involved in the strategy formation of that organisation, yet many governors don’t know enough about the organisation and its major stakeholders, and are not active in enquiring about more information – sometimes because they simply don’t think it is their job to ask for information outside the board papers," says Dr Erakovic.

Strategic IT direction is a board responsibility. The Val IT governance framework provides useful guidance for boards and it can even be used to improve an organization's overall governance processes.
Behaviours must change at the highest levels if firms can ever hope to leverage IT to outperform their competitors. Strong, leadership commitment to strategic governance is needed to:

• Align IT decisions with business objectives so that the right investments are selected and managed throughout their full economic life-cycle;
• Monitor the performance of the IT portfolio;
• Ensure clear accountability for achieving benefits and the requisite business and IT-enabling changes.

News on ISACA's Value of IT Investments survey

Pick more winning IT investments and get the story straight from the horse's mouth, as it were:

ISACA have just issued their news release, Nine-country ISACA Survey: Two-thirds of Companies Not Fully Measuring IT Value, Neglecting Competitive Advantage, about the survey I mentioned in my post yesterday, Businesses failing to capture IT value.

The good news is that 76 percent of the survey respondents are aware of the Val IT framework.

The bad news is that only 44% have some kind of framework or guidelines in place to select the investment that will result in the highest value. What do the remaining 56% do? Even seasoned gamblers have a system.

Businesses failing to capture IT value

In this recent NBR article, which refers to a survey by ISACA and quotes John Thorp, one can identify at least five key issues that are preventing organizations from realizing value from their information system (IS) and information technology (IT) investments:

• The failure to establish a shared understanding of what constitutes value across the enterprise.
• The failure to focus on and measure the realization of benefits.
• The failure of business stakeholders to own the realization and measurement of benefits, and assign appropriate accountability for the changes needed to realize the benefits.
• The failure to adopt effective value delivery practices, such as Val IT, to manage IT-enabled investments as a portfolio of investments, to include the full scope of activities required to achieve business value, and to manage investments through their full economic life-cycle.
• The failure of boards and CEOs to accept accountability for the performance of their value delivery practices.

Organizations that persist with current value delivery practices cannot reasonably expect to achieve value from their IT-enabled investments, except by chance. In fact, they would problably do better if they gambled the investment in a casino! (A Cranfield Univerity study of the IS investment processes of large companies found that just 27% of projects delivered the benefits that justified the investment. This statistic has remained largely unchanged in 30 years despite the advancements in technology and IT professional practices - the things that IT can control.)

Introducing effective value management requires commitment to a change in behaviour and it is needed from the very top. John Thorp has more to say about this in his blog, Managing Change - The key to Delivering Value: "Individual board members and executives are being asked to change their behaviour – behaviour that they may feel has served them well in the past."

"It is difficult to get a man to understand something when his salary depends upon his not understanding it." - Upton Beall Sinclair, Jr. American novelist and polemicist, 1878-1968

Leveraging the Value of IT in Good Times and Bad

John Thorp's article, Leveraging the Value of IT in Good Times and Bad, published in IndustryWeek.com and discussed in his blog today, describes how between 20%-30% of current and new expenditures can be reduced or curtailed and the potential value of investments increased by two to three times. John's advice is for all business leaders:

• IT can no longer be managed as a black box because IT is now entwined in the business processes that make up an organisation's value chain and investments are not about IT but about change;
• Effective governance is needed to make the right decisions concerning investment in IT-enabled change, manage those investments throughout their full lifecycle so that they continue to create and sustain value, and letting go the ones that won't;
• ISACA's Val IT practices for value governance, portfolio management and investment management can be used selectively to improve the quality of decisions and reduce risk.

Val IT 2.0 is a new framework with supporting publications addressing the governance of IT-enabled business investments (see Getting Started With Value Management).

John Thorp is President of The Thorp Network (http://www.thorpnet.com/), author of The Information Paradox, and Chair of Val IT™ Steering Committee for ISACA.

The Business Case for implementing IT governance frameworks

Organizations that effectively implement IT governance frameworks achieve their IT and business goals more frequently, according to a recent study of 538 organizations worldwide by the IT Alignment and Governance Research Institute of the University of Antwerp (ITAG).

The study was commissioned by ISACA to explore and demonstrate the business value of implementing the COBIT and Val IT frameworks.

Implementing these frameworks is perceived as costly and complex but the research shows that it does ultimately create business value. This study revealed that:

• A strong, positive relationship exists between the implementation status of COBIT and Val IT processes and the achievement of IT goals - the more complete the implementation of these processes, the higher the achievement of IT goals
• A strong, positive relationship exists between the achievement of IT goals and the achievement of business goals - the higher the achievement of IT goals, the higher the achievement of business goals.

These strong, positive relationships would also imply that the opposite is true, so not implementing these frameworks across the enterprise is likely to have an adverse effect on business performance.

ISACA's executive briefing on the study, Building the Business Case for COBIT® and Val IT™, can be downloaded from www.isaca.org/downloads.

Recession causes rising IT project failure rates?

According to an article in CIO, Jim Johnson, the chairman of The Standish Group, says the recession is causing an increase in IT project failure rates. The Standish Group's latest report, CHAOS Summary 2009, reported a marked decrease in project success rates:

• 32% of all projects succeeded, i.e. delivered on time, on budget, with required features and functions [this is the Standish definition of success, which unfortunately perpetuates the focus on delivery of technology rather than benefits. For more about the problem with this definition refer to John Thorp's blog];
• 44% were challenged, i.e. late, over budget, and/or with less than the required features and functions; and
• 24% failed, i.e. cancelled prior to completion or delivered and never used.

In the CIO article, Johnson gives these reasons:

1. "People are more prepared to cancel projects than they have been in the past. When they see a project that's not going well, they have more political clout to cancel it and move on." Johnson admits this is a good thing, but he still counts it in the failure statistics.
2. Staff reductions within IT departments and other project stakeholders taking on increased workloads.
3. Risk aversion that has led organizations to "overemphasise compliance and governance - to such an extent that too many checks and balances are slowing down projects. And the longer a project takes the more likely it is to fail."

Unfortunately the article does not mention the critical role of good governance to achieving success. Research by Weill & Ross, of the MIT Sloan School of Management, concluded that, "Effective IT governance is the single most important indicator of the value an organization generates from IT."

Good governance enables good decision making. This does not mean bureaucratic processes, which do not enable good decision making.

Killing a project that is no longer viable is a good thing. It is a success for good governance. Busy executives can manage by exception if they have an up to date business cases on which they can make the right decisions. Projects should be governed this way, otherwise they will truck on and fail spectactularly with a huge commitment of resources and lost opportunities.

Not understanding what resources are needed to deliver strategic objectives and not understanding and prioritising their commitments will result in poor cost cutting decisions and create unbalanced and unsatisfactory workloads for remaining staff, thus threatening the organization's ability to deliver key strategic projects.

Good governance has oversight over the whole portfolio of projects, and manages resources and risks (including the impact of the economy) appropriately.

The article states that too many checks and balances are slowing down projects. It is bureaucracy and an immature approach to governance processes that slows down projects. This should not be confused with good governance, which will result in more speed in the long run:

• Good governance over the whole portfolio of projects leads to good decision making about which projects will result in optimal value being achieved, at an affordable cost and an acceptable level of risk.
• Good governance over individual projects leads to good decisions about the viability of projects. The business case is enabling, it allows good projects to continue so long as they can achieve their objectives within the stated parameters of the business case and stops as soon as it is apparant the business case will not be achieved.

Organizations are often able to invest huge amounts of resource in starting or rescuing ill-conceived projects.

If only these organizations would put this time into establishing the right governance structures, processes and leadership, to do the right projects the right way in the first place.

Refer to ISACA's Val IT framework for a best practice framework and supporting publications to address the governance of IT-enabled business investments.

The Conundrum of IT Management

I found a very good paper entitled "The Conundrum of IT Management" by Professor Joe Peppard, the Chair in Information Systems at Cranfield School of Management and one of the expert reviewers of the Val IT Framework. His paper succinctly explains why CIOs find it difficult to generate business value from IT investments and why organizations must not seek to merely manage IT but manage the delivery of business value through IT - "a subtle but profoundly different objective."

The paper compares the portrayal of the IT function as an island, separated from the rest of the organisation, to an island off the coast of North America: California. In 1705, Father Eusebio Kino sparked a raging fire of criticism by publishing a map showing it as part of the North American mainland. King Ferdinand of Spain, in 1747 eventually stepped in and declared, "California is not an island." Even the King couldn't change some minds though; DeVaugandy's maps of 1770 show California sitting off the coast of North America.

Prof. Peppard asks, "Is the orthodoxy that hindered the recognition that California as an island a reflection of the same myopia that is affecting how organizations currently choose to manage IT?" Research clearly indicates that IT cannot be managed as an island but must be fully integrated with the mainland. "Are managers navigating from a map that clearly is erroneous, but for whatever reason they still chose to follow despite all the evidence that it is inaccurate?"

"IT specialists can build the technical infrastructure and systems, but can never deliver the changes in organization processes, work practices and business models that will ultimately see the creation of business value."

"The key challenge they face is marshalling resources and people that are not under their direct control yet are fundamental to the delivery of business value. One CIO summed up this quest as "fighting against the tide" – attempting to come ashore but being pushed back by more powerful forces."

"In posing the question, 'how can the management of IT be improved', the solution inevitably leads down a route that is inappropriate. The task is not to 'manage IT', but to understand the role that IT can play in the production of business value and to therefore manage the delivery of this value through IT. "

"Focusing improvement efforts within the IT function and is premised on a belief that "the problem" lies there. However, in posing the question as to how the value the organization derives through IT can be improved leads to an altogether different response."

Prof. Peppard points out that the genesis of this problem can be traced back to how organisations have been structured and managed into functional silos, though a process-oriented approach would better capture how the work is actually performed.

Research by Cranfield University's Information Systems Research Centre identified six information competencies that all organizations must possess if they are to have any chance of IT investments delivering value:

1. Business Strategy: Creating and communicating strategy for the organization and defining the role of IT;
2. Defining the Information Systems Contribution (IS Strategy): Translating business strategy into processes, information and system investments and change plans that match the business priorities;
3. Defining the IT Capability (IT Strategy): Translating business strategy into long term information architectures, technology infrastructure and resourcing plans that enable the implementation of the strategy;
4. Supplying IT: Creating and maintaining an appropriate and adaptable information, technology and application supply chain and resource capacity;
5. Delivering Solutions: Deploying resources to develop, implement and operate IS/IT business solutions, which exploit the capabilities of the technology;
6. Exploiting IS/IT Investments: Maximizing the realization of benefits through the effective use of information, applications and IT services.

"Seeking to improve the performance of the IT function is likely to achieve little. A central question must be, how do you begin to develop these six competencies?

"For far too long 'IT' has not only been portrayed as an island, but also managed as one; at many organizations it has been designed and positioned as such."

The paper's key points are:

• Traditional organizational structures, authority patterns, processes and mindsets make IT difficult to manage and actually contribute to the IT-business divide
• The knowledge resources needed to successfully deliver value are distributed throughout the organization, presenting a challenge for the CIO for its integration and coordination.
• With the CIO having little or no jurisdiction over all required knowledge, its deployment will therefore be fragmented
• The conundrum of IT management is how to generate value through IT without having access and authority over necessary resources.
• To deliver value from their organization’s IT investment, more engagement is needed from executives and users from right across the organization. [I suggest, it would be helpful not to wait 42 years for an edict from the King to reinforce this.]
• CIOs are attempting to influence people and decisions as well as encourage involvement and actions that do not fall into their realm of authority and are wrestling with aspects of the organization that can encourage behaviours contrary to creating value.

"IT is not an island, but a part of the mainland. Until this fact is acknowledged and recognized on the organizational map, organizations will continue to struggle to generate value through IT. Equally, the challenge is not to manage IT, but to generate value through IT." - Professor Peppard.

The Information Paradox

John Thorp's book, "The Information Paradox", is about the conflict between widely held belief that investment in IT is a good thing and the reality that this, all to often, cannot be demonstrated. My own experience as a CIO affirms the challenges and experiences described in the book. It gives valuable insight into what needs to change to realize value from IT investments and how to go about it. The book describes the Benefits Realization Approach in terms of three fundamentals and three necessary conditions aimed at changing the way people think and manage. It extends this approach with the concept of Enterprise Value Management to stress that the major effort and challenge that organisations must face is implementing not technology but change.

The three fundamentals of the Benefits Realization Approach are:

• a shift from project management to program management to produce clearly identified business results;
• a shift from free-for-all competition for resources to disciplined, strategic portfolio management; and
• a shift from traditional methods of tracking project delivery to full cycle governance to turn concepts into realized benefits.

The three necessary conditions are:

• activist accountability that includes the concept of ownership;
• relevant measurements linked to contribution to outcomes and to lines of accountability;and
• proactive management of change that is visibly led by senior management.

This book was a key source for many of the concepts used in the IT Governance Institute's Val IT framework.

I suggest these works support another paradox: the conflict between the widely held belief that IT alone is responsible for achieving value from IT investments and the reality that 80% or more of the change needed to achieve this value rests with those who hold this view.

Some hard hitting quotes below from the book demonstrate the challenges faced by CIOs:

"Management thinking has failed to understand the implications of the evolving role of IT in business and how critical IT decisions will affect elements of the overall business system beyond technology."

"The persistence of the industrial-age mind-set leads to what we call 'silver bullet thinking' about the capabilities of IT - and, more specifically, about the power of IT alone to deliver business results. Organisations rush to purchase IT 'silver bullets' in the form of customised business solutions, enterprise application packages and other ready-to-wear IT solutions in the naive belief that they come neatly packaged and stamped benefits inside.' ... the magic bullet theory does not tell us who should aim and fire the gun."

"An industrial-age management practice that encourages silver bullet thinking is the use of one-off business cases to support IT investment decisions."

"Another facet of silver bullet thinking is that most, if not all, of the delivery and implementation focus is on the IT project, with blind faith that any other required changes will fall into place."

"Decisions are generally made in the environment of a competitive free-for-all among stand-alone IT projects, each championed by an executive sponsor interested in pushing his or her pet project....the result is that too many IT decisions are made with no greater chance of success than the average gambler in a casino."

"Tough questioning is critical to get rid of silver bullet thinking and lose the industrial-age mind-set that is proving extremely costly to organisations."

"Senior business sponsors must take ownership of the program and accept clear accountability for delivering benefits."

"... in the case of enterprise application packages, our experience suggests that of the work involved in delivering benefits, 80 to 95 percent lies in the areas of organisation, processes and people - on the business side."

"CIOs will have to leave behind some familiar roles - like chief magician of information technology, and honourable head scapegoat!"

"Business sponsors must join CIOs in leaving behind some outdated roles...that of senior cheerleader, who waves magic pompoms internally as the IT team performs more miracles."