Four Governance Best Practices

By Alice Dragoon
Fri, August 15, 2003

CIO

  • Identify relative strategic value (even if you’re comparing apples to oranges).When faced with a stack of potential projects, it’s important to find a way to see beyond their differences and compare them, accounting for their business value as well as cost and risk. Many IT shops develop their own evaluation and ranking tools, which help them focus on the factors that matter most to their organization.

    At Northeastern University, CIO Bob Weir wanted the senior VPs to prioritize the backlog of IT requests. “The trouble with asking them is that there isn’t necessarily a common language, or set of priorities, or common much of anything,” he says. “You get into advocacy mode. Whoever waves their arms the most and screams the loudest [gets their project approved]. But that isn’t any way to make a business decision.” So he and one of his direct reports sat down with more than 40 university leaders and asked them to identify critical success factors for IT projects. They then developed a model with six weighted value categories (including “competitive advantage” and “service to the NEU community”) and compiled 60 key questions to ask when “interviewing” a project under consideration. They ran several old projects through the new tool to calibrate it. The answers to those 60 questions yield a score that enables comparisons between dissimilar projects like applications and network investments. This year, NEU’s tool helped university leaders allocate the 15 percent of the IT budget earmarked for new projects relatively quickly, whittling a list of 36 potential projects down to just 12. In the past, university leaders requested IT projects as the need arose, and Weir would say yes or no to each one. “The 15 percent got decided as we went,” says Weir. “It was haphazard.” Now, he says, “the whole senior executive team looks at the whole pile” of potential projects, so the new project budget gets allocated according to overall institutional priorities, not functional priorities. Thanks to the new value-based model, “everybody was on the same page talking about the same criteria list,” says Weir. “Everybody got serious more quickly.” The comparison tool is also effective for remediation. Champions of low-scoring projects can tweak them so they’ll score higher in important value categories.

    Yellow Technologies takes the concept of weighted questions a step further by plotting out the results on a grid showing cost and financial return. Projects with large risks are depicted by large bubbles; small-risk projects get small bubbles. The color of the bubble indicates how strategic the project is (green is highly strategic, red is not very strategic, yellow is in between). Roadway simply borrows the forced weighting technique long favored by eye doctors (“Which is clearer, A or B?”), forcing executives to choose between pairs of projects until a ranked list of priorities emerges.

    GE Industrial Systems relies on a cause and effect matrix to help sort out which IT projects it will pursue. First, business leaders identify strategic focuses for the year, such as customer centricity, business simplification, increasing productivity or reducing inventory. Then would-be project owners must identify whether their project has low, medium or high impact for each strategic initiative on the matrix. An algorithm factors in payback on financials, strategic value and the proposing team’s success of delivering promised value on time and on budget to score each project on a scale of 1 to 100. “It helps take bad projects easily off the table and get obvious good projects into the program deck,” says CIO Stuart Scott. Then the Investment Council spends most of its time discussing the projects that are on the fence.

  • Top business execs should set IT priorities. When it comes to the final decision about how to spend the IT budget, most companies rely on a committee of business and IT leaders. Of this year’s CIO-100 winners, 51 percent use an executive council to vet ideas for new projects and business transformation and 38 percent use a cross-functional IT steering committee. Giving the business control over the IT purse strings (or at least sharing that control) not only helps IT align with business objectives, it also encourages business executives to share accountability for realizing the benefits. So it’s not surprising that 73 percent of CIO-100 honorees say the CIO and business unit sponsors share responsibility for achieving value from IT projects. Project-specific steering committees with relatively high-level executives are also fairly common.

    At Farmers Insurance, for example, the top business executives who compose the IT Governance Board meet quarterly and provide overall strategic direction for IT. Funding decisions, however, are made by the Capital Appropriations Committee (CAC), which includes the IT Governance Board members plus some of their key direct reports. The CAC meets twice a month to review all capital appropriation requests with a total cost of ownership of $50,000 or more. Requesters must submit what CIO Jan Franklin calls “a very, very detailed standard document” that outlines the project’s purpose and an in-depth cost/benefit analysis. Once a project is approved, a project-specific business and technology integration (BTI) group of line vice presidents from IT and the business meets weekly to review project progress and touch base with the project management office (PMO). Farmers has been convening BTI groups for nine years. “We completely revamped our applications starting in the early ’90s, and when we started the effort, we built in control points,” explains Franklin. Such governance practices help Farmers achieve its goal of cutting expenses or improving capacity 5 percent annually.

    When AARP’s CIO John Sullivan established AARP’s overall governance committee three years ago, he initially wanted the executive team on the committee. But they insisted he’d be better served with a handpicked group of their direct reports, who are one step closer to the organization’s day-to-day operations. In retrospect, Sullivan agrees they were right. He chairs the committee, but doesn’t vote on funding decisions unless there’s a tie. And so far, he hasn’t had to, since the committee tends to have unanimous up or down votes. All major IT investments get steering committees, and a group of IT staff serve as dedicated business liaisons to promote business/IT alignment and help craft IT project proposals.

  • Communicate priorities and progress clearly.Once IT and business unit leaders have established priorities, they must communicate them clearly to the rank and file. Executives at The MONY Group, an insurance and financial services company, agree on companywide priorities monthly, then post them, along with the name of the person responsible for each one, on every floor. Employees’ incentive compensation is tied to meeting 90 percent of the monthly priorities, and achieving a customer satisfaction score or 3 out of 5 or better on those projects. Since MONY shifted to a new business model with separate lines of business in 2001, IT has operated on a shared services model. The lines of business “have a choice,” says CIO E. P. Rogers. “They can go outside and do business with someone else. So we have to earn our stripes and prove our value every day.” To keep the IT staff focused on value and thinking resourcefully, Rogers posts a monthly IT scorecard that tracks innovative ideas, flawless execution (measured by whether key projects are implemented on time, within budget and with 90 percent of customer satisfaction ratings at 3 or better), operational excellence (the goal is to meet at least 90 percent of companywide monthly priorities) and IT transformation (how much progress IT has made in shifting from a corporate IT mindset to that of a full-service IT service bureau). “If you don’t keep score, then people don’t really know how they’re doing,” he says. But he’s careful to avoid beating people up, yelling or being punitive. “We’re doing it more in terms of, here’s the game we’re playing, we’re trying to get to shoot under a hundred. After 9 holes, are we at 45 or 55? I think it’s all about how you communicate things.”

    Good communication that sets the proper tone and ensures that people understand how your governance processes work is also critical. “Governance by definition is somewhat constraining,” says GE’s Scott. “It’s not a free for all, it’s meant to control. I try to communicate a lot and effectively up front about what is the governance process, how does it work, and how people can be successful as project leaders.” His goal is to avoid ambiguity and surprises.

  • Monitor projects regularly.Once IT projects are chosen, funded and launched, CIOs need a way to stay on top of their progress to protect the value of these investments. Monthly “traffic reports” provide quick summaries and highlight potential problems early on, enabling early intervention to prevent those snags from escalating into major snafus. At MONY, for example, Rogers reviews monthly dashboard documents for each project—about 20 in all. Each one-page dashboard summarizes progress against milestones, resource usage, user involvement and issues/barriers, using green, yellow or red traffic lights to indicate the status of each at a glance. Senior vice president and chief service and information officer of insurance company Humana Bruce Goodman relies on a similar monthly IT traffic report (which also classifies projects as green, yellow or red.) The PMO at Farmers gives Franklin a weekly report identifying IT risks in every project; she also has access to the PMO weekly oversight tracking database, which lets her drill down to get more detail on schedule, effort and budget. “I’m a metric maniac,” says Franklin. “We measure everything around here. Just by measuring, you improve.”
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