IT Governance Is Key to Managing Expectations

By Elizabeth Wasserman

These days, a CIO can end up serving as the company's pinball machine. Department heads in the organization are the players. Each takes a turn putting a new ball into play -- in this case, an IT project. Finance wants a new payroll system. Sales is angling for customer relationship management software. Marketing desires new business intelligence capabilities. And Operations needs its order system accessible from the Web.

It's impossible for most corporate IT staffs to address all these projects at once. IT budgets have been stagnant -- if not declining -- for years. While a majority of companies plan to increase IT spending in 2005, Gartner forecasts the average increase will be only 5 percent. Staffing levels are projected to rise by 1 to 5 percent, Gartner says.  With additional pressures on IT to increase security and help meet compliance obligations, it often seems that the manager who bangs the table the hardest wins approval for an IT project.

There is, however, a better way for a company to operate.

CIOs need to set up a better process of prioritizing projects, communicating with department managers, and strategically using IT to support business goals. In a recent survey, research firm META Group found that 80 percent of IT organizations had operational problems -- cost overruns, project failures, and the like. The survey blamed poor or non-existent governance, quality control, and project review processes at these firms. Gartner forecasts that 20 percent of large IT organizations will attempt operational improvements this year, such as implementing new project approval and control processes in order to lower costs. That number is expected to rise to 40 percent of large IT organizations by 2007.

Many companies need to put in place more effective, sustainable IT governance, according to Michael Gerrard, Gartner's vice president and chief of research for IT management. IT governance identifies roles, responsibilities, and priorities, taking into account the decision-making style and culture of the business.

There are a few key steps to ensure success in revamping IT governance, according to Gerrard:

• Get buy-in and ownership from senior managers  Get direct involvement of C-level peers and business managers by appointing them to IT project advisory, review, and approval panels.
  
  
• Implement governance as a process  Spell out the steps and actions of individuals, strategy councils, and other advisory groups in proposing IT projects, evaluating feasibility, and ultimately deciding which projects are approved.
  
  
• Define strategic goals  Identify IT needs for each business unit through discussions with department managers and develop plans to direct how IT will support those needs.
  
  
• Help the business prioritize  Catalog projects into several investment "portfolios": utility (investments you have to make -- such as payroll), enhancement (projects that will enhance the business by cutting expenses or increasing revenues), and frontier (investments in future capabilities by going into new markets or launching new products). This will help the business in terms of prioritizing different projects.

In addition to improving IT governance, it's important for the CIO to improve how data about IT projects is gathered. "What often happens when somebody proposes that 'We need a system to improve sales,' is that IT goes off and starts scoping and pricing a customer relationship management system," said Chip Gleidman, an analyst with Forrester Research. They may come back with a system that costs $2.5 million, but is only likely to increase sales by $50,000. "Before you even think about the solution, you have to understand the problem better," Gleidman says.

There are tools that can help the CIO carry out this prioritization process. Gleidman says that portfolio management frameworks can be used to evaluate IT projects much the way the business world evaluates stocks, bonds, and other investment tools. The key, he said, is to use the framework to classify technology investments, develop metrics, and chart group spending by business goals. "When you have a common process for evaluating these projects, there are checks and balances," Gleidman said. "You can determine whether you are spending all your money fixing the old stuff and not doing anything to grow for the future. Are you under-investing in certain areas?"

Ultimately, the goal is to balance priorities and resources while supporting enterprise goals. The CIO can navigate this game more effectively by managing the expectations of other business executives with the help of more transparent, inclusive, and better organized IT governance processes.

Elizabeth Wasserman has written about technology and business for Inc., the San Jose Mercury News, and CIO Insight. She is a freelance writer based in Fairfax, Virginia.