Developing a successful governance strategy

A Best Practice guide for decision makers in IT

IT Governance
Developing a successful governance strategy
A Best Practice guide for decision makers in IT
The effective use of information technology is now an accepted organisational im
perative - for
all businesses, across all sectors - and the primary motivation; improved commun
ications and
commercial effectiveness. The swift pace of change in these technologies has con
signed many
established best practice approaches to the past. Today's IT decision makers and
business
managers face uncertainty - characterised by a lack of relevant, practical, advi
ce and standards
to guide them through this new business revolution.
Recognising the lack of available best practice guidance, the National Computing
Centre has
created the Best Practice Series to capture and define best practice across the
key aspects of
successful business.
Other Titles in the NCC Best Practice series:
IT Skills - Recruitment and Retention ISBN 0-85012-867-6
The New UK Data Protection Law ISBN 0-85012-868-4
Open Source - the UK opportunity ISBN 0-85012-874-9
Intellectual Property Rights - protecting your intellectual assets ISBN 0-85012872-2
Aligning IT with Business Strategy ISBN 0-85012-889-7
Enterprise Architecture - understanding the bigger picture ISBN 0-85012-884-6
IT Governance - developing a successful governance strategy ISBN 0-85012-897-8
Security Management - implementing ISO 27000 ISBN 0-85012-885-4
All title are available from NCC see the website for further details www.ncc.co.
uk
The National Computing Centre - generating best practice
1
IT Governance
Developing a Successful
Governance Strategy
A Best Practice Guide for Decision Makers in IT
IT Governance Developing a Successful Governance Strategy
2 Foreword
For organisational investment in IT to deliver full value, it is recognised that
IT has to be fully aligned to business strategies
and direction, key risks have to be identified and controlled, and legislative a
nd regulatory compliance demonstrated. IT
Governance covers this and more, and in light of recent corporate failures, scan
dals and failure, enjoys a higher profile today
than ever before.
Back in 2003, IMPACT launched an IT Governance Specialist Development Group (SDG
) to identify the issues that need to be
addressed and to share and further develop the practical approaches to IT govern
ance used in their organisations.
Over the past two years, heads of IT governance from Abbey, Aon, Avis, Barclays,
BOC, DfES, Eli Lilly, Learning & Skills

Council, Legal & General, NOMS, Royal Mail and TUI Group have examined what they
identified as the key topics and, with
the guidance of IT governance expert Gary Hardy, have defined the good practices
captured in this guide.
For further information on the IMPACT Programme, its Professional Development Pr
ogramme and the IT Governance and
CobiT Specialist Development Group, please contact Elisabetta Bucciarelli on 020
7 842 7900 or email elisabetta.bucciarelli@
impact-sharing.com. The IMPACT Programme is a division of the National Computing
Centre.
The IMPACT Programme
International Press Centre
76 Shoe Lane
London EC4A 3JB
IT Governance
Developing a successful governance strategy
A Best Practice Guide for decision makers in IT
Published by
The National Computing Centre
Oxford House
Oxford Road
Manchester
M1 7ED
Website: www.ncc.co.uk
Tel: 0161 242 2121
Fax: 0161 242 2499
First published November 2005
Copyright National Computing Centre 2005
ISBN: 0-85012-877-8
British Cataloguing in Publication
A CIP catalogue record for this book is available from the British Library
Printed and bound in the UK
All rights reserved: no part of this publication may be reproduced, stored in a
retrieval system, or transmitted in any form or by any means,
electronic, mechanical, photocopying, recording or otherwise without either the
prior written permission of the authors and Publisher or as
permitted by the Copyright, Designs and Patents Act 1988. Enquiries for such per
missions should be made to the Publisher.
Disclaimer
Every care has been taken by the authors, and by the National Computing Centre,
and associated working groups, in the preparation of this
publication, but no liability whatsoever can be accepted by the authors or by Na
tional Computing Centre, or associated NCC working groups,
for actions taken based on information contained in this document.
All trademarks acknowledged.
3
The Business Case . . . . . . . . . . . 4
1 IT Governance
1.1 Why is IT Governance important? . . . . . . . . . . 5
1.2 What does IT Governance cover? . . . . . . . . . . 6
1.3 What are the benefits? . . . . . . . . . . . . . . . . . 6
1.4 What is IT Governance best practice? . . . . . . . 7
2 Performance Measurement . . . . . . . . . . . . . . . . . . 9
2.1 Why is performance measurement important? . 9
2.2 What does performance measurement cover? . 10
2.3 Who are the stakeholders and what are
their requirements? . . . . . . . . . . . . . . . . . . . . 11
2.4 What should we measure? . . . . . . . . . . . . . . . 12
2.5 What is best practice? . . . . . . . . . . . . . . . . . . 12
3 Implementation Roadmap . . . . . . . . . . . . . . . . . . . 14
3.1 Goals and success criteria . . . . . . . . . . . . . . . 14

3.2 How to get started . . . . . . . . . . . . . . . . . . . . 15

3.3 Who needs to be involved and what are their
roles and responsibilities? . . . . . . . . . . . . . . . 16
4 Communication Strategy & Culture . . . . . . . . . . . . . 18
4.1 Who do we need to influence? . . . . . . . . . . . . 18
4.2 What are the key messages? . . . . . . . . . . . . . 19
4.3 Communication best practices . . . . . . . . . . . . 20
4.4 Developing an influencing strategy . . . . . . . . . 20
4.5 Change roadmap . . . . . . . . . . . . . . . . . . . . . 22
5 Capability Maturity & Assessment . . . . . . . . . . . . . . 23
5.1 Why IT capability is important . . . . . . . . . . . . 23
5.2 How to measure IT capability . . . . . . . . . . . . . 24
5.3 Setting maturity targets and considering
improvements . . . . . . . . . . . . . . . . . . . . . . . . 25
5.4 Roadmap for sustaining the approach . . . . . . . 25
5.5 Self assessment tool . . . . . . . . . . . . . . . . . . . 26
6 Risk Management . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 What are the risks? . . . . . . . . . . . . . . . . . . . . 28
6.2 What is the best approach for risk analysis
and management? . . . . . . . . . . . . . . . . . . . . 29
6.3 Using standards and best practices
is certification useful? . . . . . . . . . . . . . . . . . . 30
6.4 What are the roles of management, staff
and auditors? . . . . . . . . . . . . . . . . . . . . . . . . 31
6.5 Who needs to be competent? . . . . . . . . . . . . . 31
6.6 What competence is required? . . . . . . . . . . . . 32
6.7 How to obtain, develop, retain and verify
competence . . . . . . . . . . . . . . . . . . . . . . . . . 33
6.8 When to source competence from outside . . . . 35
6.9 Key learning points . . . . . . . . . . . . . . . . . . . . 35
7 Supplier Governance . . . . . . . . . . . . . . . . . . . . . . . . 37
7.1 Why is supplier governance important? . . . . . . 37
7.2 The customer s role . . . . . . . . . . . . . . . . . . . 38
7.3 How best to select a supplier . . . . . . . . . . . . . 40
7.4 The customer/supplier relationship . . . . . . . . . 40
7.5 Service management techniques and SLAS . . . 41
7.6 The supplier/outsourcing governance lifecycle . 42
8 IT & Audit Working Together and Using CobiT . . . . . 43
8.1 Introduction to CobiT . . . . . . . . . . . . . . . . . . 43
8.2 How is CobiT being used? . . . . . . . . . . . . . . . 44
8.3 What are the roles of IT and audit for
IT Governance? . . . . . . . . . . . . . . . . . . . . . . 45
8.4 How can IT and internal audit work better
together? . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
9 Information Security Governance . . . . . . . . . . . . . . 48
9.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . 48
9.2 What is information security? . . . . . . . . . . . . . 49
9.3 Where to focus . . . . . . . . . . . . . . . . . . . . . . . 50
9.4 Roles and responsibilities . . . . . . . . . . . . . . . 50
9.5 Action planning and best practice . . . . . . . . . . 52
10 Legal & Regulatory Aspects of IT Governance . . . . . 53
10.1 Legal and regulatory factors affecting
IT Governance . . . . . . . . . . . . . . . . . . . . . . . 53
10.2 Roles and responsibilities . . . . . . . . . . . . . . . 54
10.3 Best approach to compliance . . . . . . . . . . . . . 55
10.4 What IT has to do . . . . . . . . . . . . . . . . . . . . . 56
10.5 Dealing with third parties . . . . . . . . . . . . . . . . 58
10.6 Critical success factors . . . . . . . . . . . . . . . . . 59
11 Architecture Governance . . . . . . . . . . . . . . . . . . . . 60
11.1 Why is architecture governance important? . . . 60

11.2 What are the objectives of architecture

governance? . . . . . . . . . . . . . . . . . . . . . . . . 61
12 Managing the IT Investment . . . . . . . . . . . . . . . . . . 63
12.1 Why is managing the IT investment important? 63
12.2 Portfolio management . . . . . . . . . . . . . . . . . . 64
12.3 Benefits management . . . . . . . . . . . . . . . . . . 65
12.4 Measuring investment performance . . . . . . . . 65
12.5 Improve value delivery and ROI . . . . . . . . . . . 66
12.6 Measuring and controlling IT operational costs 66
12.7 Project risk management . . . . . . . . . . . . . . . . 66
13 Success Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 67
Contents
IT Governance Developing a Successful Governance Strategy
4 1 IT Governance
The Business Case
1.1 Why is IT Governance important? . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
1.2 What does IT Governance cover? . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
1.3 What are the benefits? . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .6
1.4 What is IT Governance best practice? . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
The guide focuses on 12 key topics selected by the group because of their import
ance to effective IT governance:
The business case
The organisation needs to understand the value proposition
Performance measurement
Is the ship on course ?
Implementation roadmap How to start
What path to follow
Communications How to explain the objectives and change the culture
Capability assessment
Finding out the true current state of IT governance
Risk management What risks exist and how to make sure they are dealt with
Supplier governance
External parties play a big role and must be included
IT and audit working together
How to co-operate for a common goal
Information security A key topic in today s networked environment
Legal and regulatory aspects Compliance is a global concern
Architectures
The foundation for effective technical solutions
Managing investments Ensuring value is delivered and benefits realised
Implementation of this guidance, or indeed any IT best practice, should be consi
stent with your organisation s management
style and the way your organisation deals with risk management and delivery of I
T value. Please share these ideas with your
business users, external service providers, and auditors, since to realise their
full value, all stakeholders of IT services should
be involved.
All analysts currently agree that probably the biggest risk and concern to top m
anagement today is failing to align IT to real
business needs, and a failure to deliver, or be seen to be delivering, value to
the business. Since IT can have such a dramatic
effect on business performance and competitiveness, a failure to manage IT effec
tively can have a very serious impact on the
business as a whole.
Corporate Governance generally has taken on even greater significance. It is bei
ng recognised that IT has a pivotal role to play
in improving corporate governance practices, because critical business processes
are usually automated and directors rely on
information provided by IT systems for their decision making. With the growth of
direct connection between organisations and
their suppliers and customers, and more and more focus on how IT can be used to
add value to business strategy, the need

to effectively manage IT resources and avoid IT failures and poor performance ha

s never been greater.
The current climate of cost reduction and budget restriction has resulted in new
norm
there is an expectation that IT
resources should always be used as efficiently as possible and that steps are ta
ken to organise these IT resources ready for
the next cycle of growth and new IT developments. A key aspect of these factors
is the increasing use of third party service
providers and the need to manage these suppliers properly to avoid costly and da
maging service failures.
This briefing provides a high level set of business arguments for IT Governance.
It also explains how an IT Governance
initiative can enable business and IT executives to:
Be sure that that they are aware of all IT related risks likely to have an impac
t on
their organisation;
Know how to improve the management processes within IT to manage these risks;
Ensure there are manageable relationships with suppliers, service providers and
with the business (customers);
Ensure there is a transparent and understandable communication of these IT
activities and management processes to satisfy the Board and other interested
stakeholders.
5
IT Governance covers the culture, organisation, policies and practices that prov
ide this kind of oversight and transparency of
IT IT Governance is part of a wider Corporate Governance activity but with its o
wn specific focus. The benefits of good IT
risk management, oversight and clear communication not only reduce the cost and
damage caused by IT failures
but also
engenders greater trust, teamwork and confidence in the use of IT itself and the
people trusted with IT services.
1.1 Why is IT Governance important?
IT Governance has become very topical for a number of reasons:
In the wake of Enron and other corporate scandals, Governance generally has
taken on even greater significance. IT has a pivotal role to play in improving
corporate governance practices.
Management s awareness of IT related risks has increased.
There is a focus on IT costs in all organisations.
There is a growing realisation that more management commitment is needed to
improve the management and control of IT activities.
IMPACT s IT Governance Special Interest Group (SIG) has examined these trends and
found that the following issues drive
the need for IT Governance:
There is a general lack of accountability and not enough shared ownership
and clarity of responsibilities for IT services and projects. The communication
between customers (IT users) and providers has to improve and be based on joint
accountability for IT initiatives.
There is a potentially widening gap between what IT departments think the busine
ss
requires and what the business thinks the IT department is able to deliver.
Organisations need to obtain a better understanding of the value delivered by IT
,
both internally and from external suppliers. Measures are required in business (
the
customer s) terms to achieve this end.
Top management wants to understand how is my organisation doing with IT in
comparison with other peer groups?
Management needs to understand whether the infrastructure underpinning today s
and tomorrow s IT (technology, people, processes) is capable of supporting
expected business needs.

Because organisations are relying more and more on IT, management needs to be
more aware of critical IT risks and whether they are being managed. Furthermore,
if there is a lack of clarity and transparency when taking significant IT decisi
ons,
this can lead to reluctance to take risks and a failure to seize technology
opportunities.
And finally, there is a realisation that because IT is complex and has its own f
ast
changing and unique conditions, the need to apply sound management disciplines
and controls is even greater.
Stakeholders include:
Top level business leaders such as the Board, Executive, non-Execs, and especial
ly
heads of Finance, Operations and IT.
Those that have a responsibility for investor and public relations.
Internal and external auditors and regulators.
Middle level business and IT management.
Key business partners and suppliers.
Shareholders.
Customers.
Concerns they typically have include:
Availability, security and continuity of IT services.
Costs and measurable returns on investments.
no embarrassments.
Quality and reliability of service
IT not appearing to respond to the real needs of the business.
Identification and management of IT related risks to the business.
IT Governance
The Business Case1
IT Governance Developing a Successful Governance Strategy
6 Capability and skills of human resources.
Compliance to legal, regulatory and contractual requirements.
Responsiveness and nimbleness to changing conditions.
1.2 What does IT Governance cover?
IT Governance is a relatively new concept as a defined discipline and is still e
volving.
IT Governance is not just an IT issue or only of interest to the IT function. In
its broadest sense it is a part of the overall
governance of an entity, but with a specific focus on improving the management a
nd control of Information Technology for the
benefit of the primary stakeholders. Ultimately it is the responsibility of the
Board of Directors to ensure that IT along with other
critical activities is adequately governed. Although the principles are not new,
actual implementation requires new thinking
because of the special nature of IT.
IT Governance spans the culture, organisation, policy and practices that provide
for IT management and control across
five key areas1:
A l i g nme n t Provide for strategic direction of IT and the alignment of IT an
d the
business with respect to services and projects.
Va l u e D e l i ve r y
Confirm that the IT/Business organisation is designed to
drive maximum business value from IT. Oversee the delivery of value by IT to the
business, and assess ROI.
R i s k Ma n a geme n t Ascertain that processes are in place to ensure that ris
ks
have been adequately managed. Include assessment of the risk aspects of IT
investments.
Re s o u r c e Ma n a geme n t Provide high-level direction for sourcing and use
of IT
resources. Oversee the aggregate funding of IT at enterprise level. Ensure there
is

an adequate IT capability and infrastructure to support current and expected fut

ure
business requirements.
Pe r fo r ma n c e Me a s u r eme n t
Verify strategic compliance, i.e. achievem
ent
of strategic IT objectives. Review the measurement of IT performance and the
contribution of IT to the business (i.e. delivery of promised business value).
IT Governance is not a one-time exercise or something achieved by a mandate or s
etting of rules. It requires a commitment
from the top of the organisation to instil a better way of dealing with the mana
gement and control of IT. IT Governance is an
ongoing activity that requires a continuous improvement mentality and responsive
ness to the fast changing IT environment.
IT Governance can be integrated within a wider Enterprise Governance approach, a
nd support the increasing legal and
regulatory requirements of Corporate Governance.
1.3 What are the benefits?
Investments are likely to be needed to improve and develop the IT Governance are
as that need attention. It is important
therefore, to begin with as good a definition as possible of the potential benef
its from such an initiative to help build a viable
business case. The expected benefits can then become the project success criteri
a and be subsequently monitored.
The IMPACT IT Governance SIG has identified the following main areas of benefit
likely to arise from good IT Governance:
Transparency and Accountability
Improved transparency of IT costs, IT process, IT portfolio (projects and servic
es).
Clarified decision-making accountabilities and definition of user and provider
relationships.
Return on Investment/Stakeholder Value
Improved understanding of overall IT costs and their input to ROI cases.
Combining focused cost-cutting with an ability to reason for investment.
Stakeholders allowed to see IT risk/returns.
Improved contribution to stakeholder returns.
1. Board Briefing on IT Governance, 2nd Edition, the IT Governance Institute.
7
Enhancement and protection of reputation and image.
Opportunities and Partnerships
Provide route to realise opportunities that might not receive attention or
sponsorship.
Positioning of IT as a business partner (and clarifying what sort of business pa
rtner
IT is).
Facilitate joint ventures with other companies.
Facilitate more businesslike relationships with key IT partners (vendors and
suppliers).
Achieve a consistent approach to taking risks.
Enables IT participation in business strategy (which is then reflected in IT str
ategy)
and vice versa.
Improve responsiveness to market challenges and opportunities.
Performance Improvement
Achieve clear identification of whether an IT service or project supports busines
s
as usual or is intended to provide future added value.
Increased transparency will raise the bar for performance, and advertise that th
e
bar should be continuously raised.
A focus on performance improvement will lead to attainment of best practices.

Avoid unnecessary expenditures

expenditures are demonstrably matched to
business goals.
Increase ability to benchmark.
External Compliance
Enables an integrated approach to meeting external legal and regulatory
requirements.
1.4 What is IT Governance best practice?
Experiences gained by IMPACT SIG members have identified a number of practical o
rganisational and process issues that
need to be addressed when implementing IT Governance. This has enabled the Group
to recommend the following best
practices (critical success factors) when planning IT Governance initiatives:
An enterprise wide approach should be adopted
The business and IT must work together to define and control requirements.
IT will need to develop a control model applicable to all business units/divisio
ns.
A committee approach is recommended for setting, agreeing, and monitoring
direction/policy etc.
A shared, cohesive view of IT Governance is needed across the enterprise based o
n
a common language.
There should be a clear understanding (and approval) by stakeholders of what is
within the scope of IT Governance.
Top level commitment backed up by clear accountability is a necessity
IT Governance needs a mandate and direction from Board/Executive level
management if it is to succeed in practice.
Make sure management responsibilities and accountabilities in the business as we
ll
as IT have been defined.
An agreed IT Governance and control framework is required
The Business Case1
IT Governance
IT Governance Developing a Successful Governance Strategy
8 Although it may generate challenges and pushback, and will require a consensus
,
an agreed framework for defining IT processes and the controls required to manag
e
them must be defined for IT Governance to function effectively.
The processes for IT Governance need to be integrated with other enterprise wide
governance practices so that IT Governance does not become just an IT owned
process.
The framework needs to be supported by an effective communication and awareness
campaign so that objectives are understood and the practices are complied with.
Incentives should be considered to motivate adherence to the framework.
Pay attention to devolved decentralised IT organisations to ensure a good balanc
e
between centrally driven policy and locally implemented practices.
Avoid too much bureaucracy.
Trust needs to be gained for the IT function (in house and/or external)
For IT Governance to work the suppliers of IT services and know-how need to be
seen as professional, expert and aligned to customer requirements. Trust has to
be
developed by whatever means including awareness programmes, joint workshops,
and the IT Director acting as a bridge between the business and IT.
Measurement systems will ensure objectives are owned and monitored
Creation of an IT scorecard will underpin and reinforce achievement of IT
Governance objectives.
Creation of an initial set of measures can be a very good way to raise awareness
and initiate an IT Governance programme.
The measures used must be in business terms and be approved by stakeholders.
Focus on costs

It is likely that there will be opportunities to make financial savings as a

consequence of implementing improved IT Governance. These will help to gain
support for improvement initiatives.
9
2 Performance
Measurement
2.1 Why is performance measurement important? . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
2.2 What does performance measurement cover? . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
2.3 Who are the stakeholders and what are their requirements? . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
2.4 What should we measure? . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
2.5 What s best practice? . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .12
One of the greatest challenges faced by those trying to manage IT in today s fast
moving economy and complex technical
environment is knowing whether the ship is on course and being able to predict and
anticipate failures before it is too
late. Like driving a car or steering a ship, good instruments are essential. The
use of measures to help steer the IT function
has for many years been a challenge that few appear to have successfully address
ed, which is why the expression it s like
driving a car with a blacked out windscreen and no instruments is often used. If
it is difficult for those literate in technology
and relatively close the IT function, then it is even worse for the end customer
who finds technical jargon a smokescreen and
lack of information relevant to his business a major headache.
There is no doubt that a practical and effective way to measure IT performance i
s an essential part of any IT Governance
programme, just as transparency and reliability of financial results is a Corpor
ate Governance necessity. Performance
management is important because it verifies the achievement of strategic IT obje
ctives and provides for a review of IT
performance and the contribution of IT to the business (i.e. delivery of promise
d business value). It is also important in
providing a transparent assessment of IT s capability and an early warning system
for risks and pitfalls that might otherwise
have been missed. Performance measurement provides transparency of IT related co
sts, which increasingly account for a
very significant proportion of most organisations operating expenses.
Stakeholders play a key part in IT Governance, since at the heart of the governa
nce responsibilities of setting strategy,
managing risks, allocating resources, delivering value and measuring performance
, are the stakeholder values, which drive
the enterprise and IT strategy.
For performance measurement to be successful, it is important to understand who
the stakeholders are and what their
specific requirements and drivers are so that the performance measurements will
be meaningful to them. An IT Governance
best practice is the approval of measures by stakeholders. A performance measure
ment system is only effective if it serves
to communicate to all who need to know what is important and then motivates posi
tive action and alignment to common
objectives. The measures are not an end in themselves but a means to take correc
tive action and to learn from real
experiences. Concise and understandable communication and clear accountabilities
are therefore critical success factors if

measures are to be turned into effective actions.

If you can t measure it, you can t manage it
2.1 Why is performance measurement important?
Teams that don t keep score are only practising.
Tom Malone, President Milliken & Company
Performance measurement is a key component of IT Governance. It verifies the ach
ievement of strategic IT objectives and
provides for a review of IT performance and the contribution of IT to the busine
ss (i.e. delivery of promised business value).
Performance measurement supports the other key elements2 of IT Governance by:
Alignment
monitoring the strategic direction of IT and the alignment of IT and t
he
business.
Value Delivery assessing whether the IT/Business organisation is providing
business value from IT and assessing ROI.
Risk Management
monitoring whether risks are being identified and managed and
measuring the cost and benefit of risk management investments.
Performance Measurement2
2. Board Briefing on IT Governance, 2nd Edition, the IT Governance Institute.
IT Governance Developing a Successful Governance Strategy
10 Resource Management measuring the effectiveness of sourcing and use of
IT resources, the aggregate funding of IT at enterprise level, and measuring IT
capability and infrastructure compared to current and expected future business
requirements.
Performance measures are required to ensure that the outcomes of IT activities a
re aligned to the customer s goals. Internal IT
process measures are required to ensure that the processes are capable of delive
ring the intended outcomes cost-effectively.
Advanced performance measurement enables the measurement of key aspects of IT ca
pability such as creativity and agility
(new ideas, speed of delivery and success of a change programme), development of
new solutions, ability to operate reliable
and secure services in an increasingly demanding IT technical environment, and t
he development of human resources and
skills.
Performance measurement may also be a vital tool when assessing mergers and acqu
isitions to allow earlier insight into
IT strengths and gaps. The introduction of a performance measurement system focu
sed on a few key measures can be an
excellent way to kick-start an IT Governance initiative, providing, perhaps for
the first time, transparency of critical activities
and a way to bridge the communication gap between IT and its customers.
2.2 What does performance measurement cover?
Performance measures are the vital signs of an organisation. They quantify how wel
l the activities within a process or the
outputs of a process achieve a specific goal. The measures tell people what and
how they re doing as part of the whole.
They communicate what s important throughout the organisation: strategy from top m
anagement down, process results from
the lower levels up, and control and improvement within the process. Only with a
consistent view of the vital signs can
everyone work toward implementing the strategy, achieving the goals, and improvi
ng the organisation (Vital Signs, by Steven
M. Hronec).
An IT performance measurement system should help to:
Focus on the customer to increase customer satisfaction
Improve processes so problems are anticipated and prevented
Understand and reduce costs
Encourage and facilitate change by obtaining facts about current state, desired
state and the gap that needs to be met

Set realistic benchmarks for comparison

Effective performance measurement of IT will enable management and other stakeho
lders to know whether or not IT is
meeting its objectives. It provides a transparent and objective communication me
chanism, as long as the measures are
understandable by both the customers and the service providers. The measures sho
uld address two aspects (The IT
Governance Institute s CobiT Management Guidelines provides example metrics for al
l IT processes and explains the
difference between Goal Indicators (KGIs) and Process Indicators (KPIs)):
Outcome focused is IT meeting the objectives set by the customer?
Process focused are the IT processes operating effectively and likely to lead to
the customer objectives being met?
The IT Governance SIG recommends that performance measures meet the following re
quirements to be successful:
Defined using a common language appropriate and understandable for the
audience
Approved by the stakeholders
In keeping with the culture and style of the organisation
Based on targets derived from IT s objectives
Contain a mix of objective and subjective measures
Flexible and responsive to changing priorities and requirements
Based on easy to collect actual measurement results
Include both positive measures (to motivate) and negative measures (to correct)
Balanced, i.e. measuring more than just financial results. The Balance Scorecard
is
recommended as an effective approach providing financial, customer, internal and
learning dimensions (The Balanced Scorecard, Kaplan & Norton)
Limited in number and focused only on priority areas but sufficient to support
decision making (passes the so-what? test)
11
Easy to interpret (e.g. reporting should be visual using RAG or heat map techniq
ues)
and permit drilling down for more detail and examination of root causes. A score
card
is sometimes not appropriate, e.g. for project review and prioritisation or deta
iled
analysis (where aggregation distorts or confuses)
Show trends to enable backward examination and forward extrapolation
Consolidated for hierarchical reporting
Support benchmarking internally between peer groups and externally with best
practice
Integrated if possible with any existing business level performance measurement
system
2.3 Who are the stakeholders and what are their requirements?
Stakeholders play a key part in IT Governance. At the heart of the governance re
sponsibilities of setting strategy, managing
risks, allocating resources, delivering value and measuring performance, are the
stakeholder values, which drive the enterprise
and IT strategy. For performance measurement to be successful, it is important t
o understand who the stakeholders are and
what their specific requirements and drivers are so that the performance measure
ments will be meaningful to them. An IT
Governance best practice is the approval of measures by stakeholders (IT Governa
nce Institute
Board Briefing on IT
Governance).
For the purposes of performance measurement, we have classified stakeholders int
o three groups: investors, controllers and
deliverers/providers with specific measurement interests and requirements as fol
lows:

Investors
(business management, business partners and IT management)
I n t e r e s t s
they provide the funding and want to see a return on their inv
estment
and alignment with their strategic objectives
Re q u i r eme n t s
- Financial ROI, cost v. budget, productivity, benefits realisation
- Customer surveys and feedback (subjective as well as objective), strategic
objectives v. actual projects/activities
- Process
capability benchmark, performance exceptions, transformation
capability and tactical agility
- L e a r n i n g
attrition, retention, skill profile, resource short fall, trai
ning and
development
Controllers (internal and external audit, risk and compliance officers, finance,
human resources, industry specific
regulators)
I n t e r e s t s
they monitor risk and compliance and have an interest in due p
rocess,
regulatory and legal requirements, evidence of governance and risk management,
amount of rework/repeat effort, and compliance with strategy
Re q u i r eme n t s
- Financial losses, investments in control improvements
- Customer exceptions/breaches, risk management, compliance with legislation
and regulations
- Process
control effectiveness, compliance
- Learning risk identification, risk prevention
Deliverers/Providers
(IT service and product suppliers, in-house and outsourced,
contract and procurement management
and staff involved in IT delivery and support)
I n t e r e s t s
they need to meet customer expectations, and deliver in an eff
icient
and effective way, preserving and enhancing reputation
Re q u i r eme n t s
- Financial operational and project costs, cost allocation/recovery, service
credits, cost optimisation
- Customer performance against SLAs, satisfaction feedback e.g. survey
responses, customer retention and growth statistics, effectiveness of dealing
with business churn
Performance Measurement2
IT Governance Developing a Successful Governance Strategy
12 - Process internal improvement in efficiency and risk reduction, internal v.
outsource decision support
- Learning capability to deliver, readiness for new requirements, time to market
for new initiatives
2.4 What should we measure?
The ownership of measures and accountability for achieving targets should be cle
ar. Furthermore, ownership and the
collection of measurement data will not always be an IT responsibility, e.g. mea
surement of customer-focused outcomes. It
should therefore also be clear whose responsibility collection is. Where appropr
iate, measures should be formalised in Service
Level Agreements (SLAs) based on service descriptions written in a language and
using terms meaningful to the customer.
For third party service providers an SLA should form part of the contractual agr
eement so that performance measurement can
be backed up with contractual recourse in the event of performance failure. To s
upport IT Governance the following top fifteen
areas to measure are recommended, with an indication of who has a primary intere
st and therefore who should approve the
measures (figure 2.4)

2.5 What is best practice?

Experiences gained by the IMPACT SIG members have identified a number of enabler
s and inhibitors that will assist in the
achievement of Performance Measurement best practices when supporting IT Governa
nce. Since the Interest Group is not
primarily focused on performance measurement techniques we are not attempting to
provide best practice guidance on
measurement methods and/or tools.
In general, performance measurement should support this classic control model (f
igure 2.5)
Area Investors Controllers Providers
Business & IT alignment v
Major project delivery performance (objectives, time and budget) v v
Overall financial performance (costs v. budgets) v v v
ROI for IT investments (business benefit) v
Status of critical risks v v v
Performance with respect to reliability and availability of critical
services
v v
Complaints (QOS) and customer perception v
Number of significant reactive fixes to errors v
SLA performance by third parties v v
Relationships with suppliers (quality & value) v v
Capability e.g. process maturity v
HR measures for people involved in IT activities v
Internal and external benchmarks v v
Audit weaknesses v v
Business continuity status v v v
Figure 2.4
13
Enablers
Support and ownership of performance measurement by Stakeholders
Measures that are approved by and meaningful to the Stakeholders
Measures that align with agreed IT objectives
Measures that focus on processes critical to the success of IT objectives
Measures that are easy to collect and understand
Targets that are challenging but also achievable
Measures that are balanced e.g. based on the Balanced Scorecard technique
Measurement reports and scorecards that are easy to interpret, with explanations
of exceptions
Where possible, measures should be automated
Inhibitors
Too much focus on technical measures (especially if they are not aligned to IT
objectives)
Lack of ownership and accountability
Measures which are not straightforward to interpret or encourage counter-product
ive
behaviour (cf. National Health Waiting List targets)
Measures which are expensive to collect or not focused on priority areas
Too many measures obscuring relevant and important information
Performance Measurement2
Figure 2.53
3. Board Briefing on IT Governance, 2nd Edition, the IT Governance Institute.
IT Governance Developing a Successful Governance Strategy
14 3 Implementation
Roadmap
3.1 What are the goals and success criteria? . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
the key initial activities . . . . . . . . . . . . . . .
3.2 How to get started
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

3.3 Who needs to be involved and what are their roles and responsibilities? . .
. . . . . . . . . . . . . . . . . . . . . . . . .16
This chapter describes an Implementation Roadmap for activating an effective IT Go
vernance programme to deliver the
above benefits, and is based on the practical implementation experiences gained
by the IMPACT IT Governance SIG
members.
The roadmap begins with establishing clear goals and objectives in order to alig
n effort with the real needs of the enterprise,
to manage expectations, and to ensure continual focus. The roadmap then consists
of activities to get started, followed by
the key implementation tasks with suggested roles and responsibilities. IT Gover
nance is an ongoing task and therefore this
roadmap is only the initial phase of what needs to become an iterative sustainab
le approach.
3.1 What are the goals and success criteria?
Implementing IT Governance for many organisations will mean major changes. It is
important therefore to not only have highlevel
sponsorship but also the active involvement of key stakeholders. The roadmap is
an iterative lifecycle that begins with
an initial phase to define overall goals and to gain the support and commitment
of top management which then leads to the
ongoing effective governance of IT activities.
A generic set of initial objectives has been identified by the SIG and is shown
in Figure 3.1. Figure 3.1.1 suggests some
success criteria for this initial phase of IT Governance.
Typical objectives of the initial implementation phase Agreed v
Define the meaning of governance in your organisation and where/if IT Governance
fits
Identify any organisational/environmental/cultural constraints and enablers
Achieve a broad understanding of IT Governance issues and benefits across all st
akeholders
Agree, publish and gain acceptance of an initial IT Governance framework, tools
and processes
Completion of an initial gap analysis against best practice to demonstrate where
IT Governance is already in place
and to highlight areas of focus for the roadmap
Creation of a Project Initiation Document (PID) and/or Terms of Reference (ToR)
that has the support of stakeholders
Creation of a Project Plan with definition and prioritisation of the initial ITG
project deliverables
Identification and commitment of the resources required to deliver this initial
project
Identification and sign-off of Key Performance Indicators and Critical Success F
actors for this project
Documented estimated timescales and resource (s and FTE) implications as well as
expected ROI
Alignment of the ITG Initiative with business objectives/strategy
Figure 3.1
15
3.2 How to get started the key initial activities
Having set the goals, and gained support, activation consists of two steps
plann
ing, based on analysis of the current
environment, followed by implementation itself.
Planning
These are recommended implementation planning activities together with some crit
ical success factors:
Activities CSFs
Identify champions
- Stakeholders (including partners), Input providers, IT strategy committee

(council) members
Establish IT strategy committee (council)
Identify IT hotspots in the organisation, and where governance could enable
hotspot resolution:
- Strategy? Delivery? IT Cost? Architecture?
- Where current approaches have not worked or caused serious failures
Identify skill set and capabilities needed from people involved
Identify existing good practice ( pseudo governance ) or successes that could be
built on or shared
Identify cost/benefit arguments
why do we need to do anything?
Identify inconsistencies in process/practice
Identify opportunities for rest of business to get involved in IT
Explore opportunity to adopt industry best practice model, or standards
framework
Utilise external influences
Create a measurement approach for an area or activity to expose actual evidence
of problems
Do some gap analysis against industry best practice
v Authoritative and articulate
champions
v Available skills and
capabilities
v Well prepared business
cases approved by
stakeholders
v Real opportunities for the
business to see the benefit of
participating
v Practical and useful
governance approaches
v Effective and useful
measures
v Expose the truth /whole
picture, warts and all, about
project success /failure,
showing how governance can
be helpful
Implementation Roadmap3
Success criteria for the initial implementation phase Done v
Key stakeholders identified, engaged and actively involved
Key stakeholders contributing towards and able to explain and support the busine
ss case for ITG
Stakeholders have an understanding of the expectations of the IT Governance init
iative
Some initial quick wins have been identified and implemented to make governance
l
Acceptance of the published IT Governance framework by those responsible for imp
lementation
An effective communication plan
who to, what, when etc. to overcome any barriers
and to motivate change
Current key IT projects mapped against ITG plan, to look for easy fit/implicatio
ns
Changes are sustainable and institutionalised, i.e. they become Business as Usua
l practices
Figure 3.1.1
IT Governance Developing a Successful Governance Strategy
16 Implementation
These are the recommended activities to start up the implementation roadmap, tog
ether with some critical success factors:
Activities CSFs

rea

Create a sound project structure

Define scope (what is included/excluded) and deliverables
Agree success criteria/quality criteria
Set realistic timeframes
Allocate suitable resources and roles
Identify risks and a risk mitigation strategy
Gain approval from Senior Management (the higher the better within the
Enterprise)
Find reference site, or external examples to learn from
Build communication plan to gain buy-in, and break down barriers
- Who/what/how frequent/purpose
Do a pilot activity (demonstrate the business case) to show how it would work an
d
demonstrate potential benefits
Follow a phased introduction, e.g.
- Focus on critical but easier to address areas
- Assess projects first
- Build up operational performance improvement progressively based on
prioritising maximum return for lowest cost
- Consider one business area first, others later
- Aim to establish some successes while learning how to be effective
v Good project management
(set the governance tone)
v Expectations set correctly
v Approved business case
v Manage IT like you manage
the rest of the business
v Convincing reference sites
v Successful pilot
v Address quick wins first to
demonstrate results and
realise benefits before
attempting any major
changes
3.3 Who needs to be involved and what are their roles and
responsibilities?
All three generic groups of stakeholders, and their interests, should be involve
d in an IT Governance initiative. A key
characteristic of any successful IT Governance initiative is the establishment o
f an enterprise-wide approach that clearly sets
out roles and responsibilities, emphasising that everyone has a part to play in
enabling successful IT outcomes.
Figure 3.3: This timeline is generic and intended only to be an example
it is ba
sed on the SIG s experience.
Thanks to Legal and General for the concept.
17
It may also be helpful to include an external, or internal, facilitator to provi
de an objective and neutral position.
The suggested generic roles and responsibilities of the three main groups are sh
own in Figure 3.3.1.
Implementation Roadmap3
Investors Providers Controllers
Management board (authority to
make things happen)
Give direction backed up with adequate
support and sponsorship
Balance requirements with available
resources, making available additional
resources if required
Insist on and seek measurable benefit
-

realisation
Coordinate overseas/satellite parts of the
enterprise to ensure their interests and
constraints have been considered
Create organisation and structure
to ensure board involvement in the
governance process
by forming
committees, establishing reporting
processes
Monitor performance, monitor risks,
correct deviations
Business and IT senior managers,
business partners and project
sponsors
Implement organisation and necessary
infrastructure
Take ownership of requirements
Champion and collaborate in IT
governance activities
Ensure business strategy and objectives
are set and communicated and aligned
with IT
Assess business risks and impacts
Establish reporting processes meaningful
to stakeholders
Communicate any business concerns in
a balanced and reasoned way
Provide project champions, creating the
seeds of change
User representatives
Take responsibility for Quality Assurance
programme (design and output)
Regularly check actual results against
original (or changed) goals
Provide service feedback to providers
IT management (internal and
external), with support from
business management
Take ownership and set direction of IT
Governance activities
Build and achieve a pilot business case
IT management
Set IT objectives
Define IT governance and control
framework
Identify critical IT processes
Assess risks, identify concerns
Assess IT capability, identify gaps
Initiate a continuous improvement
programme
Develop business cases for
improvements
Design and implement solutions
Commit skilled resources
Establish performance measurement
system
Report to senior management
Respond to QA feedback from customers
Suppliers/business partners
Integrate any own existing or planned

governance practices with customer s

Support and contribute to customer s
governance approach
Agree service definitions, incentives,
measures and contracts/agreements
Training and Development
Ensure adequate education and
communication
HR function
Incorporate governance principles into
induction and performance measurement
process
Core team
Define plan and deliverables
Organise team and roles (architects,
senior responsible officer, facilitator,
project manager, process owners)
Undertake core tasks
Report progress to plan
Internal and External Audit
Scope audits in coordination with
governance strategy
Provide assurance on the control over IT
Provide assurance on the control over
the IT performance management system
Risk Management
Ensure that new risks are timely
identified, provide advice
Compliance officers
Ensure that IT complies with policy, laws
and regulations
Finance
Advise on and monitor IT costs and
benefits
Provide support for management
information reporting
Incorporate governance requirements
into purchasing/contract process
Figure 3.3.1
IT Governance Developing a Successful Governance Strategy
18 4 Communication
Strategy & Culture
4.1 Who do we need to influence? . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
4.2 What are the key messages? . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
4.3 Communication best practices . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
4.4 Developing an influencing strategy . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
4.5 Change roadmap . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .22
IT Governance and risk management is about improving the management and control
of IT activities and enabling top
management to exercise proper oversight. To achieve this, better processes, cont
rols, best practices and management
techniques are required. However all of these improvements will only have a chan
ce of succeeding in a sustainable way if the
culture of the organisation is changed to drive and support the desired new mana

gement approach.
Effective communications are a key enabler of these changes, just as poor commun
ications can create a legacy of
misunderstanding, lack of trust, and technical mystique and hype in many organis
ations. As we said earlier, if it is difficult for
those literate in technology and relatively close to the IT function, then it is
even worse for the end customer who finds technical
jargon a smokescreen and lack of information relevant to his business a major he
adache. Communication and cultural
behaviour, based on appropriate influencing strategies are therefore key ingredi
ents of any IT Governance improvement
programme. In order to best influence stakeholders, and communicate the major ob
jectives and benefits of IT Governance
throughout the organisation, the right language must be used. Given the signific
ance of IT both in terms of investment and
potential impact on the business
the risks of IT and of failing to exploit IT fo
r strategic advantage must be stressed in
any communication about IT Governance. Wake-up calls are sometimes required at t
he highest levels. Stakeholders must
understand and feel responsible for safeguarding against IT risks.
Effective communications will ensure that everyone is on the same page
that key is
sues have been grasped, objectives
have been positively accepted by management and staff, and everyone understands
their role. Every organisation will have its
own existing culture and choice of IT Governance approach that it wishes to adop
t. The roadmap to follow for cultural change
and effective communication will therefore be unique to each organisation, howev
er there may be common elements.
4.1 Who do we need to influence?
A fundamental element of IT Governance is change. When considering who needs to
be influenced for successful IT
Governance, it is important to remember that different messages are needed for d
ifferent stakeholders. Whatever the topic is
about, the language used must be understandable, relevant to the intended audien
ce, and motivate positive attitudes towards
change.
Identifying and gaining the support of key influencers of success and failure he
lp enable successful communications
strategies. It is also vital to recognise the main stakeholders impacted by the
change, identify why we want to influence a
particular stakeholder, and identify any resistance that needs to be overcome. P
ositive attitudes need to be promoted and
used to influence others.
All three generic groups of stakeholders, and their interests, should be involve
d in an IT Governance initiative. It is critical
to influence these groups positively so that they understand the objectives and
benefits of IT Governance and are able to
communicate consistently to each other and within their groups (Figure 4.1).
19
4.2 What are the key messages?
In order to best influence stakeholders, and communicate the major objectives an
d benefits of IT Governance, the right
language must be used. An inability to communicate effectively has been one of t
he major causes of IT failures, with too much
technical jargon, lack of business understanding and poor appreciation of the ot
her party s requirements and issues. Ideally,
a common language is required, and a balance has to be found between the busines
s trying to understand IT and IT trying to
understand the business. Communications will improve if the business views the t
echnology provider not as a simple enabler

but as a valued business partner and if IT presents benefits in the language tha
t the business understands. The following are
examples of some of the key messages that need to be communicated, based on thre
e primary IT Governance objectives and
the related benefits that can be realised (Figure 4.2).
Communication Strategy & Culture4
Who needs to be influenced?
Investors Providers Controllers
The Board
IT Council/Management Team
Senior business unit managers e.g. key
customers of IT services
Business Partners
External investors/shareholders
as part
of corporate governance
Project and change managers (IT and
Business)
Programme managers
Business managers and users
Technical delivery and support teams
Key players e.g. business sponsors,
project champions
Relationship managers and internal
communications teams
Suppliers (especially outsourced service
providers)
Contract and procurement management
Peripheral players/influencers/policy
owners e.g. HR, Facilities Management,
Legal
Internal audit and external audit (due
diligence)
External regulators
Corporate governance coordinator
Risk managers
Compliance
regulatory and internal
Finance/Project Managers/IT and
business managers
reviewers of
benefits/ROI
Post investment appraisal/post project
review teams
Key Messages
Benefits of governance
Why we need to do it
Impact on the business strategy
Commitment to support action plans
Benefits of governance
Why we need to change
Your role and responsibility
How you need to change
Need for independent assessment and
assurance
Relate to real business risks and impacts
Work positively with management to
address control needs
Figure 4.1
Ability to address these Objectives will realise these Benefits
IT and Business strategic and operational alignment
IT and business working towards the same corporate goals
Architecture and other technology approaches seen as relevant

and value adding to the business

RoI/Stakeholder Value, Transparency and Accountability
+ Shareholder Value
+ Leveraging investments for greatest return
+ Better use of IT capabilities
+ Cost effective IT solutions
Effective Relationship Management (internal and
external)
Mutual understanding of goals
Shared language and terminology
Working in partnership
equal investment and responsibility
Clear accountabilities
Opportunities and Partnerships
+ Increased synergies
+ Improved speed to market
+ Improved efficiencies, particularly with third parties
+ Agility to respond to change
Management Control/Quality Management
Standardised processes
Consistent approaches
Comparison/adoption of external best practices (e.g. ISO, CMMi,
CobiT, ITIL)
Professional IT services
Management of risks
Performance Improvement
+ Risk mitigation
+ Continuous efficiency and quality improvements
+ Increased assurance that controls are working
+ Transparency and confidence about measures
Figure 4.2
IT Governance Developing a Successful Governance Strategy
20 4.3 Communication best practices
The experiences of the IT Governance SIG have shown that it is best practice to
emphasise the importance of controlling IT
related risks when communicating the need for IT Governance. In particular, make
sure stakeholders understand and feel
responsible for safeguarding against risks that would not exist if they had put
in place effective IT Governance controls:
a) The downside business risks associated with the use and function of IT, i.e. fi
nancial losses, damage to reputation,
loss of service etc.
b) The upside business risks of not exploiting IT effectively, i.e. loss of compet
itive advantage, inefficiencies, failure to
respond to changing markets etc.
Recommended approaches
If IT risks are not communicated effectively, and instead are surrounded by hype
and complexity, then stakeholders will not
appreciate their real impact, take the issues seriously, or be motivated to insi
st on better controls. The following approaches
are recommended to ensure risks have been properly appreciated:
Emphasise the business impact of risks associated with misaligned IT strategies,
misuse of technology, badly managed operations and ineffective project
management. Show how these risks can be mitigated by effective controls.
- Use case studies that have impacted the business or other businesses (e.g.
virus attacks, critical service outages, projects with unexpected outcomes )
to illustrate how issues might arise.
Identify relevant examples of governance providing business benefits beyond the
basic requirement of evidencing control.
- Use case studies to illustrate how effective governance has identified risk
to the business, its objectives and strategy, and brokered an alternative

solution.
- Use case studies to illustrate business benefits as a direct result of effecti
ve
governance, e.g. reduced costs, improved quality, productivity, reputation and
marketing advantages.
Scenario modelling with risk assessment and mitigation:
- Consider known and new risks across both business and IT (e.g. external audit
requirements)
- How governance can help mitigate the risk
- Calculate a risk factor = likelihood x impact
- Consider options
accept, mitigate or assign
Using common business language:
- Technological risk in financial/economic/business terms
- Legal/regulatory, contractual implications
Critical Success Factors
Involve all relevant stakeholders in a facilitated workshop environment
Get clear ownership and funding commitment for risk mitigating actions
Monitor/track all actions
4.4 Developing an influencing strategy
Critical to the success of any IT Governance initiative is an effective communic
ations plan. The communications plan should
be based on a well-defined influencing strategy. Behaviours will need to be chan
ged and care should therefore be taken
to ensure that participants will be motivated and see the benefits of the new ap
proaches, as well as understanding the
consequences of accepting responsibility. If this is not positively communicated
, then IT Governance will not be perceived as
part of the corporate mission with Board level support. Management will resist i
t as a barrier to getting the job done, a deviation
from current priorities, or another management fad.
The strategy should identify opportunities for the active involvement of stakeho
lders in developing the governance approach,
planning and implementing IT management changes, and ideally building specific c
hange objectives/targets into personal
performance plans. The stakeholders are likely themselves to be the targets of c
hange and should be involved in discussing/
evolving responses to the change via collaborative workshops, focus groups etc.
21
The influencing strategies need to be designed to work in specific situations wi
th the individual influence targets identified. The
following table shows four typical influencing styles, examples of the communica
tions involved and the associated leadership
styles. It is important to select the most appropriate style taking into account
who needs to be influenced and on what topic.
Focus on Roles and Responsibilities
Identify an overall sponsor and steering group with specific tasks and responsib
ilities
for leading the change
Ensure there is a complete structure of cascaded sponsorship down to team/line
manager level
Focus on individual situations
Identify champions (those high on interest and/or influence)
Use successes as benchmarks
Disseminate across teams and support formation of new teams
Figure 4.4.1 shows different change approaches that can be used. For IT Governan
ce initiatives experience shows that
the best approach is incremental change evolving and adapting of current practic
es to a new collaborative IT management
approach.
Communication Strategy & Culture4

Influencing style examples

Asserting Persuading Bridging Attracting
Stating expectations of
improved IT Governance
and consequences of not
adopting the new control
model
Evaluating current capability,
risk management, delivery
quality etc. and exposing
unacceptable performance
Creating incentives by
setting clear IT Governance
objectives, based on
business priorities, backed
up by the personal reward
scheme
Proposing new management
approaches, best practices,
standards for IT activities,
based on development
workshops
Reasoning that changes are
needed, by educating top
management about the key
IT issues and the benefits
IT Governance can provide,
e.g. more ownership in the
business of IT projects
Involving the business in IT
decision making, by breaking
down technical barriers
and encouraging shared
responsibility for IT outcomes
Listening to user feedback
about IT services and
encouraging suggestions via
satisfaction surveys
Disclosing IT problems and
incidents seeking workable
solutions instead of covering
them up
Finding Common Ground by
developing corporate mission
statements and policies
about IT Governance with
support from the Board
Visioning by IT and the
business developing shared
strategies and action plans,
backed up by measurable
and accountable objectives
and targets
Push Pull
Figure 4.4
Figure 4.4.1
IT Governance Developing a Successful Governance Strategy
22 4.5 Change roadmap
Every organisation will have its own existing culture and choice of IT Governanc
e paradigm that it wishes to adopt. The

roadmap to follow for cultural change and effective communication will therefore
be unique to your specific situation.
The following techniques (Exploring Strategic, Change Veronica Hope-Hailey, Juli
a Balogun, Gerry Johnson, Kevan
Scholes, Cranfield University) can help guide the best path to follow, and can b
e used to assess how your organisational
culture and management style currently deals with the governance of its IT activ
ities and what cultural style it desires. To
do this you must:
Analyse the existing state
Define the desired state
Cultural style and paradigms are formed from several characterictics which can g
enerally be illustrated as shown in Figure
4.5.
Figure 4.5.1 illustrates some of the typical current and desired IT Governance b
ehaviours found in many organisations
today.
Figure 4.5
Characteristic Current Desired
Myths and Stories Poor business and IT alignment:
Project failures; budget overruns; poor
service, failure to meet business needs.
Effective business and IT alignment:
Demonstrable RoI, project success stories,
user satisfaction, business driving IT.
Symbols Mystique and technical jargon, lack of
business terms.
Common language based on customer
needs. Business literate in IT issues and
opportunities.
Power Structures Them and us attitudes. Collaboration.
Organisational Structures Divisive. IT seen as overhead function. Partnerships.
IT seen as business enabler.
Control System Based on departmental units and who knows
the most.
Based on defined processes, standards and
best practices owned by the organisation.
Routines and Rituals Hidden agendas, measures in provider s
terms and a general lack of transparency
leaving top management in the dark.
Joint forums for monitoring progress,
measures in customer s terms, transparent
reporting to top management.
Figure 4.5.1
23
5 Capability Maturity
Assessment
5.1 Why IT capability is important . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
23
5.2 How to measure IT capability . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .23
5.3 Setting maturity targets and considering improvements . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
5.4 Roadmap for sustaining the approach . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
5.5 Self-assessment tools . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .26
Monitoring and assessing the adequacy of IT Resources (people, applications, tec

hnology, facilities, data) to ensure

that they are capable of supporting the current and proposed IT strategy is a ke
y aspect of IT Governance. In many
organisations board level management have a very unclear view of their IT capabi
lity, and find it very difficult to understand
the technical and organisational IT environment upon which they increasingly dep
end. Often inadequacies only manifest
themselves when projects fail, costs spiral, operational systems crash, or servi
ce providers fail to deliver the value promised.
To exercise sufficient governance and oversight, senior management should insist
on objective and regular assessments of
their internal and externally provided IT services to ensure any inadequate capa
bilities are exposed before serious problems
occur, and then take the necessary action to rectify weaknesses. In recent years
, surveys and assessments carried out around
the world have shown that in general IT capabilities have not kept pace with inc
reasing IT complexities and the growing
demands for reliable, secure and flexible services. Cost control and reducing in
efficiencies are also important reasons for
reviewing technical and organisational capability.
Improving the maturity of IT capability both reduces risks and increases efficie
ncy
cost saving is
often a justification.
Capability Maturity Modelling (CMM) techniques (CMM was created by the Software
Engineering Institute with Carnegie
Mellon) are increasingly being adopted by many organisations for assessing IT ca
pability. This technique focuses on the
IT management processes that control IT resources, and assessments usually revea
l significant weaknesses and an IT
capability disproportionate to the high dependency organisations have on their I
T service providers. Using the CMM scale it is
rare to find even a defined (level 3) process in many organisations.
Management should insist on objective and transparent assessments, and carry out
these analyses as part of any due
diligence review, or request third party certifications when considering outsour
cing or during mergers and acquisitions.
Agreement then must be reached regarding where and how to address inadequacies,
by either investing in the internal
infrastructure or seeking externally provided outsourced resources, or accepting
the risks.
5.1 Why IT capability is important
A key to successful IT performance is the optimal investment, use and allocation
of IT resources (people, applications,
technology, facilities, data) in servicing the needs of the enterprise. Most ent
erprises fail to maximise the efficiency of their IT
assets and optimise the costs relating to these assets. In addition, the biggest
challenge in recent years has been to know
where and how to outsource and then to know how to manage the outsourced service
s in a way that delivers the values
promised at an acceptable price.
Boards need to address appropriate investments in infrastructure and capabilitie
s by ensuring that:
The responsibilities with respect to IT system and services procurement are
understood and applied.
Appropriate methods and adequate skills exist to manage and support IT projects
and systems.
Improved workforce planning and investment to ensure recruitment and more
importantly, retention, of skilled IT staff.
IT education, training and development needs are fully identified and addressed
for

all staff.
Appropriate facilities are provided and time is available for staff to develop t
he
skills they need.
Capability Maturity Assessment5
IT Governance Developing a Successful Governance Strategy
24 Boards needs to ensure that IT resources are used and managed wisely by ensur
ing that:
Appropriate methods and adequate skills exist in the organisation to manage IT
projects.
The benefits accruing from any service procurement are real and achievable.
IT assets are complex to manage and continually change due to the nature of tech
nology, and changing business
requirements. Effective management of the lifecycle of hardware, software licenc
es, service contracts, and permanent and
contracted human resources is a critical success factor in not only optimising t
he IT cost base, but also for managing changes,
minimising service incidents, and assuring a reliable quality of service.
Of all the IT assets, human resources represent the biggest part of the cost bas
e and on a unit basis the one most likely
to increase. Identifying and anticipating the required core competencies in the
workforce is essential. When these are
understood, an effective recruitment, retention and training programme is necess
ary to ensure that the organisation has the
skills to utilise IT effectively to achieve the stated objectives. 8
5.2 How to measure IT capability
To ensure IT resources are managed effectively, IT capability should be assessed
on a regular basis and whenever
resources are critical to strategic IT decisions. The capability assessment shou
ld be:
Based on alignment of IT goals with business goals
Targeted at the IT processes critical to business success by,
- Assessing the current capability of these IT processes
- Determining the required capability
- Analysing any gaps in capability
- Providing transparent visibility of the capability position
- Defining and justifying necessary improvement projects or
- Re-adjusting the IT strategy
Adjusting goals
Improving capability
Outsourcing when cost-effective
The measurement of IT capability should be an objective assessment oriented towa
rds business requirements. This will
ensure that the current as-is and required to-be capabilities are realistic and meas
urable enabling any gaps to be identified
and a plan to be drawn up to rectify any shortcomings.
The Capability Maturity Model (CMM) approach first developed by the Software Eng
ineering Institute for measuring software
delivery capability is increasingly being adopted as the basis for assessing ove
rall IT capability. This model provides a
standard scale for assessing the maturity of any IT process on a five-point scal
e (figure 5.2).
The following principles are recommended when carrying out an assessment:
Set Scope
Select a reference model based on standards and best practices most suitable
for your business, e.g. CobiT, ITIL, SEI-CCM, SixSigma, ISO9000/9001, PMBOK
perhaps considering weighting measures
Use an acceptable measurement methodology agreed with the stakeholders which
is defined and transparent
Set a baseline in the context of 1 and 2 above and present the current state

assessment using a scale or rating system

Set reasonable objectives for the targeted level of capability
Define measures which relate both to the journey as well as the end goal (e.g.
the KPIs and KGIs recommended by CobiT)
Ensure simplicity and flexibility
Limit the number of measures, minimise measurement overhead, and avoid
information overload
Consider the following critical success factors:
Appropriate level of ownership
Avoid complexity and be flexible
25
Embed measures into business as usual processes
Ensure staff have adequate skills, training and tools
Create a repeatable process and agree frequency of reporting
Where possible automate measurement and reporting
Assess achievement against targets alongside other business as usual targets
5.3 Setting maturity targets and considering improvements
The real value of a capability assessment comes from the identification and impl
ementation of cost effective improvements.
A realistic and practical approach is required to ensure that the proposed impro
vements are based on business priorities, will
be supported and funded by management, and will be successfully implemented.
The following approach is recommended:
1 . Understand the environment
2 . Establish capability improvement framework
3 . Set realistic targets and respond to environment changes
prioritise improvements
4 . Identify gaps
5 . Propose achievable solutions
5.4 Roadmap for sustaining the approach
Having initiated a capability assessment approach, and perhaps performed a pilot
project, a capability assessment process
needs to be implemented as part of normal business procedures.
The following practices are recommended to help ensure the process is sustainabl
e
Articulate current capabilities in relation to an adopted framework
Set current levels of capability in the context of external comparisons
Capability Maturity Assessment5
Figure 5.2
IT Governance Developing a Successful Governance Strategy
26 State the effect on the business of the current IT capability state of affair
s. Describe
the ramifications of NOT improving capability e.g. additional costs or risks,
inability to realise opportunities, late or non-delivery of the strategic develo
pment
programme, redundant effort
Describe the benefits of implementing improvements in specific areas
Describe the projected effect on the business after delivery of enhancements
Initiating and sustaining capability enhancements
Agree steering and review mechanism, sponsorship etc.
Agree on prioritised programme of improvements
Look for continuous improvement opportunities where improvement is relevant or
necessary
Follow the 80:20 rule, i.e. don t implement more than is necessary
Embed all improvements as business as usual , not a one-off initiative
All improvements should be achievable, sustainable, relevant
Motivate everyone involved by publishing and celebrating successes
Agree key measures around implementation of improvements and measures of
resultant business benefit make part of a wider IT balanced scorecard
Agree communication to targets, stakeholders and sponsors as well as the wider
community where there is likely to be a general interest in outcomes

Periodically review the objectives and reset goals if necessary, checking validi
ty of
goals against business strategy
5.5 Self-assessment tool
The simple self-assessment diagnostic in figure 5.5 can be used to help show ove
rall capability at a high level. It is based
on the four domains of CobiT, broken down into the 34 CobiT sub-processes. The e
xtent of the analysis depends on how
precise you wish to be. A management workshop can be used to arrive at an approx
imate initial assessment without extensive
analysis.
27
Capability Maturity Assessment5
IT Process/Maturity
Importance
Ad hoc
Repeatable
Defined
Managed
Optimised
Planning & Organisation
PO1 Define a Strategic Information Technology Plan H
PO2 Define the Information Architecture M
PO3 Determine the Technology Direction M
PO4 Define the IT Organisation and Relationships M
PO5 Manage the Investment in Information Technology M
PO6 Communicate Management Aims and Direction L
PO7 Manage Human Resources L
PO8 Ensure Compliance with External Requirements M
PO9 Assess Risks M
PO10 Manage Projects L
PO11 Manage Quality L
Acquisition & Implementation
AI1 Identify Solutions L
AI2 Acquire and Maintain Application Software M
AI3 Acquire and Maintain Technology Architecture M
AI4 Develop and Maintain Information Technology Procedures M
AI5 Install and Accredit Systems L
AI6 Manage Changes M
Delivery & Support
DS1 Define Service Levels M
DS2 Manage Third-Party Services H
DS3 Manage Performance and Capacity M
DS4 Ensure Continuous Service L
DS5 Ensure Systems Security M
DS6 Identify and Allocate Costs L
DS7 Educate and Train Users L
DS8 Assist and Advise Information Technology Customers L
DS9 Manage the Configuration M
DS10 Manage Problems and Incidents H
DS11 Manage Data H
DS12 Manage Facilities L
DS13 Manage Operations M
Monitoring
M1 Monitor the Process M
M2 Assess Internal Control Adequacy M
M3 Obtain Independent Assurance M
M4 Provide for Independent Audit M
Figure 5.5
IT Governance Developing a Successful Governance Strategy

28 6 Risk
Management
6.1 What are the risks? . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .28
6.2 What is the best approach for risk analysis and management? . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .29
6.3 How can standards and best practices be used
is certification useful? . . .
. . . . . . . . . . . . . . . . . . . . . . . .30
6.4 What are the roles of management, staff and auditors? . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
6.5 Who needs to be competent? . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
6.6 What competence is required? . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
6.7 How to obtain, develop, retain and verify competence . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
6.8 When to source competence from outside . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
6.9 Key learning points . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .35
The management of risks is a cornerstone of IT Governance, ensuring that the str
ategic objectives of the business are
not jeopardised by IT failures. IT related risks are increasingly a Board level
issue as the impact on the business of
an IT failure, be it an operational crash, security breach or a failed project,
can have devastating consequences. However,
managing IT risks and exercising proper governance is a challenging experience f
or business managers faced with technical
complexity, a dependence on an increasing number of service providers, and limit
ed reliable risk monitoring information. As a
consequence, management are often concerned whether risks are being cost effecti
vely addressed, and they need assurance
that risks are under control.
The universal need to demonstrate good enterprise governance to shareholders and
customers is the driver for increased risk
management activities in large organisations. Enterprise risk comes in many vari
eties, not only financial risk. Regulators are
specifically concerned about operational and systemic risk, within which technol
ogy risk and information security issues are
prominent. The Bank for International Settlements, for example, supports that vi
ew because all major past risk issues studied
in the financial industry were caused by breakdowns in internal control, oversig
ht and IT. Infrastructure protection initiatives in
the US and the UK point to the utter dependence of all enterprises on IT infrast
ructures and the vulnerability to new technology
risks. The first recommendation these initiatives make is for risk awareness of
senior corporate officers.
Therefore, the board should manage enterprise risk by4:
Ascertaining that there is transparency about the significant risks to the enter
prise
and clarifying the risk-taking or risk-avoidance policies of the enterprise.
Being aware that the final responsibility for risk management rests with the boa
rd
so, when delegating to executive management, making sure the constraints of that
delegation are communicated and clearly understood.
Being conscious that the system of internal control put in place to manage risks
often has the capacity to generate cost-efficiency.
Considering that a transparent and proactive risk management approach can create

competitive advantage that can be exploited.

Insisting that risk management is embedded in the operation of the enterprise,
responds quickly to changing risks and reports immediately to appropriate levels
of
management, supported by agreed principles of escalation (what to report, when,
where and how).
We must be conscious though that risk taking is an essential element of business
today. Success will come to those
organisations that identify and manage risks most effectively. Risk is as much a
bout failing to grasp an opportunity as it is
about doing something badly or incorrectly.
6.1 What are the risks?
To enable effective Governance, IT risks should always be expressed in the busin
ess context rather than in the technical
language favoured by IT risk experts. The following generic structure for expres
sing IT risks in any organisation is
suggested:
Business specific risk (e.g. Operational risk of orders not being received)
4. Board Briefing on IT Governance, 2nd Edition, the IT Governance Institute.
29
Generic common IT risk (e.g. IT availability risk)
Specific IT risk (e.g. Denial of service attack on Internet customer order syste
m)
Business risks are affected by the business environment (management style, cultu
re, risk appetite, industry sector factors
such as competition, reputation etc., national and international regulations). I
T risks can be similarly affected.
There is no single accepted set of generic IT risk definitions, but these headin
gs can be used as a guide (Taken from a
global study by the Economist Intelligence Unit in 2002):
Investment or expense risk
Access or security risk
Integrity risk
Relevance risk
Availability risk
Infrastructure risk
Project ownership risk
The OGC s M_o_R framework visualises four levels of risks in a pyramid with approp
riate escalation to higher levels for
significant risks (Figure 6.1).
For IT to be effectively governed, top management must be able to recognise IT r
isks and ensure that significant risks are
managed. Significance of an IT risk is based on the combination of impact (what
effect the risk would have on the organisation
if it occurred) and likelihood (the probability of the risk occurring). Because
of the complexity and fast changing nature of IT,
education and awareness is essential to ensure risks are recognised
not just at
the top management level but at all levels
throughout the organisation. It is increasingly common for a dedicated risk mana
gement function to be established or for
external advice to be obtained on a regular basis to ensure that risks are monit
ored and the rest of the organisation is kept
informed. Maintenance of a risk catalogue or risk register can be helpful to ens
ure that a thorough review of all IT related risks
takes place on a periodic basis and for providing assurance to management that r
isks are being addressed.
6.2 What is the best approach for risk analysis and management?
Risk management consists of two main elements:
Risk Analysis
Risk Management

Having defined risk appetite and identified risk exposure, strategies for managi
ng risk can be set and responsibilities
clarified. Dependent on the type of risk and its significance to the business, m
anagement and the board may choose to:
Risk Management6
Figure 6.1
IT Governance Developing a Successful Governance Strategy
30 Mitigate, by implementing controls
Transfer, by sharing risk
Accept, by formally acknowledging that the risk exists and monitoring it
The following framework for managing risk in Figure 6.2 is suggested by the OGC
(OGC Risk Management Framework
www.ogc.gov.uk).
The analysis of IT risks can be very time-consuming and there is a danger of anal
ysis paralysis . To ensure effective
and timely identification of risk, management workshops involving knowledgeable
and interested representatives from the
business, IT, audit and, if necessary external advisors, can help to rapidly pin
point key risks requiring attention, as well as
prioritising risk management actions. It is also important to identify the benef
its of managing a risk as they can help to justify
the business case for taking action. Benefits can include financial savings such
as reduced losses and improved efficiencies
as well as intangibles such as improved reputation and image.
Risk management checklists are useful for raising awareness and reminding everyo
ne of typical risk related issues. Regular
self-assessments, internal audits and external audits/assessments are also helpf
ul to ensure objectivity, and a thorough
approach. For technical areas such as Internet security, the advice of an expert
is likely to be required to ensure any technical
vulnerabilities have been identified.
6.3 Using standards and best practices is certification useful?
There is no doubt that effective management policies and procedures help to ensu
re that risks are identified and managed as
a routine part of everyday activities. Adoption of standards and best practices
will help to enable quick implementation of good
procedures and avoid lengthy delays re-inventing wheels and agreeing approaches.
The best practices adopted have, however, to be consistent with the risk managem
ent framework and be appropriate for the
organisation, and be integrated with other methods and practices that are being
used. Standards and best practices are not a
panacea and their effectiveness will depend on how they have been actually imple
mented and kept up to date. They are most
useful when applied as a set of principles and as a starting point for tailoring
specific procedures. To avoid practices becoming
shelf-ware , change enablement is required, so that management and staff understand
what to do, how to do it, and why it is
important. For risk management to be effective, the use of a common language and
a standardised approach oriented towards
real business requirements is best
making sure everyone follows the same set of
objectives, issues and priorities.
Benchmarking is another very useful way to compare how risk management is being
addressed within the organisation in
relation to best practice, industry peer groups and other organisations. Conform
ance to generally accepted standards and
practices can be very helpful when managing risks relating to outsourced service
s and third party suppliers. Certification
Figure 6.2
31
against a standard may be important for helping to establish trust with trading

partners, or for raising significance within

the organisation. However, there is a danger that acquiring a certificate become
s more important as a marketing tool, than
operating effective management itself. Certification may also only mean conforma
nce with a baseline and may in itself not
be sufficient to address all the risks in the organisation. In the IT environmen
t there is no specific standard relating to risk
management, but there are standards and best practices covering specific areas.
Of these CobiT, ISO17799, ITIL, ISO9000,
PMBOK and Prince2 are the most widely used.
6.4 What are the roles of management, staff and auditors?
The ownership of IT risks, and giving direction for managing key risks is a fund
amental aspect of IT Governance. An absence
of top management responsibility and accountability for risk management can resu
lt in serious risks being ignored, potentially
misguided actions, and even costly investments being wasted. Ultimately it is th
e business
the user of IT services
who must
own business related risks including those related to the use of IT. They should
set the mandate for risk management, provide
the resources and funding to support any necessary risk management plan designed
to protect their business interests, and
monitor whether risks are being managed. In practice, due to the complex and tec
hnical nature of IT, the IT service provider will
need to provide guidance and work with business management to ensure adequate sa
feguards are in place. IT management
will then have a responsibility to endorse, establish and monitor the agreed ris
k management framework including key
principles and mitigation strategies. IT and user staff have a responsibility to
implement the framework, assessing, escalating
and delivering mitigating actions.
Auditors can provide initial momentum by highlighting to senior management inade
quate risk management practices or
specific risks that are not being adequately addressed. Audit should also align
audits with key business risks and known areas
of weakness, and provide independent assurance to management, make sure that app
ropriate risk management plans are in
place and are being followed in all key areas or provide improvement recommendat
ions.
The OGC make the following suggestions regarding risk ownership:
Allocate responsibility at a senior level for managing key risks
Ensure that every risk has an owner; there may be separate owners for the action
s
to mitigate the risks
Ensure anyone allocated ownership has the authority to take on the responsibilit
y
and that they are aware that they are the designated owner
Adopt a mechanism for reporting issues ultimately to the individual who has to
retain overall responsibility
6.5 Who needs to be competent?
A key characteristic of any successful IT Governance initiative is the establish
ment of an enterprise-wide approach that clearly
sets out roles and responsibilities, emphasising that everyone has a part to pla
y in enabling successful IT outcomes.
Implementation of effective IT Governance therefore depends on everyone having a
dequate and appropriate skills to fulfil their
specific role. In most organisations, Investors and Controllers will have a good
understanding of governance principles but
they usually have a very poor understanding of how to apply these principles in
the world of IT. Providers, who are usually IT
specialists, conversely understand IT but have a poor appreciation of governance

and control principles.

Most IT Governance initiatives begin with the establishment of an IT Governance
project team and the appointment of an IT
Governance project manager. The team is likely to be made up of people with some
existing skills and relevant experiences,
sometimes supported by external advisors, but usually even these teams will requ
ire training to improve their competence in
IT Governance concepts and implementation approaches.
Over time the project team will become the specialists, guiding and mentoring al
l role players. For IT Governance to be
successful and sustainable, skills must be transferred from the specialists to t
he rest of the organisation.
Risk Management6
IT Governance Developing a Successful Governance Strategy
32 6.6 What competence is required?
Each group of role players will require different sets of skills to support IT G
overnance effectively (Figures 6.6-6.6.2).
Investors Role & Responsibilities Competence Required
Management board (authority to make things happen)
Give direction backed up with adequate support and sponsorship
Balance requirements with available resources, making available
additional resources if required
Insist on and seek measurable benefit realisation
Coordinate overseas/satellite parts of the enterprise to ensure
their interests and constraints have been considered
Create organisation and structure to ensure board involvement
in the governance process
by forming committees, establishing
reporting processes
Monitor performance, monitor risks, correct deviations
Business and IT senior managers, business partners and
project sponsors:
Implement organisation and necessary infrastructure
Take ownership of requirements
Champion and collaborate in IT governance activities
Ensure business strategy and objectives are set and communicated
and aligned with IT
Assess business risks and impacts
Establish reporting processes meaningful to stakeholders
Communicate any business concerns in a balanced and reasoned
way
Provide project champions, creating the seeds of change
User representatives
Take responsibility for Quality Assurance programme (design and
output)
Regularly check actual results against original (or changed) goals
Provide service feedback to providers
General executive leadership skills:
- Ability to understand the big picture and how IT plays a part
- Ability to think strategically
how can IT make a positive difference
to enterprise strategy?
- Ability to make strong decisions relating to IT, and be able to direct
and challenge IT approaches
Ability to challenge:
- Uncover IT related issues
- Probe business cases
- Assess concerns
- Assess performance
IT awareness and understanding:
- Ability to demonstrate value of IT to the business, including return
on investment

- Ability to understand how the business can use IT profitably

- Ability to appreciate the impact of IT on the business, from a value
perspective but also from a risk perspective
- Be able to link the IT and business strategy, and show how IT
supports and enables the overall strategic approach
Ability to challenge:
- Uncover IT related issues
- Assess accuracy of requirements
- Assess and prioritise concerns
- Assess performance
- Assess impacts of risks and poor performance
Ability to articulate requirements and monitor delivery:
- Understand how to express IT related requirements, test
deliverables and provide constructive feedback
Figure 6.6
Providers Role & Responsibilities Competence Required
IT management (internal and external), with support
from business management
Take ownership and set direction of IT Governance activities
Build and achieve a pilot business case
IT management
Set IT objectives
Define IT governance and control framework
Identify critical IT processes
Assess risks, identify concerns
Assess IT capability, identify gaps
Initiate a continuous improvement programme
Develop business cases for improvements
Design and implement solutions
Commit skilled resources
Establish performance measurement system
Report to senior management
Respond to QA feedback from customers
Ability to manage overall IT activities:
- Ability to communicate well in business language
- Influencing skills
particularly, able to influence the Investors
- Knowledge of the IT organisation and the wider business
organisation
- Awareness of overall business and IT strategy
- Ability to take a high level view and understand the rationales
- Aggregate assessment be able to appreciate the whole IT
picture, identify and prioritise key issues and actions
- Ability to justify improvement actions
- Understand the principles of regulation
Supplier management skills:
- Contract and commercial management
- Risk management
- Stakeholder management who should be involved and why
- Portfolio management
- Budget management
33
6.7 How to obtain, develop, retain and verify competence
Recruitment
When considering who to place in IT Governance lead positions, especially when c
reating an initial project team, staff in a
number of existing positions may be excellent candidates. The IMPACT IT Governan
ce SIG members have found that the
following roles often provide people who would be effective in IT Governance rol
es.
Auditors

Project Managers
Risk Managers
Business Analysts
Infrastructure Management
Procurement/Contract Management
IS Strategy
alignment with the business
Quality Management
Business Relationship Management
Programme Managers
However, there is a need for breadth of business and IT knowledge rather than to
o narrow a specialisation.
Risk Management6
Suppliers/business partners
Integrate any own existing or planned governance practices with
customer
Support and contribute to customer s governance approach
Agree service definitions, incentives, measures and contracts/
agreements
Training and Development
Ensure adequate education and communication
HR function
Incorporate governance principles into induction and performance
measurement process
Core team
Define plan and deliverables
Organise team and roles (architects, senior responsible officer,
facilitator, project manager, process owners)
Undertake core tasks
Report progress to plan
People related IT Governance skills:
- Understanding of roles
- Understanding of competencies required
- Understanding of sources of expertise
Delivery management skills:
- Familiarity with best practices
- Understanding of IT processes, how they should be controlled,
and how to monitor performance
- Knowledge of corporate standards and policies affecting IT
- Ability to provide cost estimates
- Engagement and project management
Figure 6.6.1
Controllers Role & Responsibilities Competence Required
Internal and external audit
Scope audits in coordination with governance strategy
Provide assurance on the control over IT
Provide assurance on the control over the IT performance
management system
Risk management
Ensure that new risks are identified in a timely manner, provide
advice
Compliance officers
Ensure that IT complies with policy, laws and regulations
Finance
Advise on and monitor IT costs and benefits
Provide support for management information reporting
Incorporate governance requirements into purchasing/contract
process
How to apply good Governance practices effectively in
IT:
- Understand the business environment and its impact on IT

- Awareness of the business impact, the need for and justification of

IT control
- Ability to be practical and pragmatic
- Ability to communicate and explain the context of need for control,
regulations etc. and the benefits of taking action
- Analysis ability
root cause determination
- Able to put theory into practice, be knowledgeable of real world
examples
- Objectivity and independence
- Coaching, mentoring and skills transfer competence so that others
learn control theory
- Negotiating skills to persuade others
Figure 6.6.2
IT Governance Developing a Successful Governance Strategy
34 Developing Skills
Demonstrating commitment by senior management for the importance of IT Governanc
e and the value of being competent,
removing cultural barriers and improving communications are all critical success
factors for improving competence.
Suggested techniques for improving skills by each group of role players are show
n below:
Investors
Obtain external experiences to help position and challenge internal activities
Obtain 360 degree feedback
Consider appointing Executive mentoring advisors
Obtain and read Executive briefings
Seek non-executive challenges to the Board
Consider external Executive IT awareness courses
Foster cultural change activities
Foster collaborative working and co-location
Enable job exchanges to improve awareness
Providers
Formalise documentation of governance, standards and best practices
When training, focus on specialised and relevant areas
Organise internal events to raise awareness
Rotate involvement in governance meetings to improve understanding
Use the results of assessments and maturity modelling to raise awareness
of governance issues, gaps in capability, and impact on the business of IT
weaknesses
Ensure management and control of IT is taken seriously
Manage the transfer of skills from the specialists to the organisation
The sequence of events should be:
1 . Training
2 . Establish an environment which fosters governance
3 . Roll out the processes and skills
4 . Measure compliance with standards and reinforce
Controllers
Skills development is often more about learning on the job than about training
courses
Understand the business, how IT affects the business, the IT related business ri
sks,
and why IT needs to be controlled
Focus on Professional training in IT Governance and consider certification in
relevant skills
Maintain continuing professional development
Consider `soft` skills training to improve communication and influencing skills
Retention of Skills
The most effective way to retain IT Governance skills is by establishing standar
ds and practices within the organisation
rather than only within individuals. This reduces reliance on key individuals an

d ensures sustainable processes are put into

place. In addition:
At all levels there will be a need to refresh skills continually because of the
changing nature of IT
Skills transfer should always be encouraged, especially from experts to operatio
nal
staff
Providers must be valued for their governance skills and encouraged to invest in
them. This is especially true of external service providers.
Induction training is required for new joiners, especially those holding key pos
itions
in controller functions.
35
If there is institutionalised, sustained implementation of IT governance then th
e environment will support continual skills
growth.
Verifying Skills
The best way to verify competence is to include governance skills in the apprais
al process. This should be based on
performance on the job:
Clear job objectives and role definition for IT Governance
IT Governance competencies required for role
Review of competency performance
In addition, surveys can be carried out periodically to measure the level of awa
reness in key competencies. This technique can
also be a valuable awareness raising and reinforcing technique. Another approach
to verifying competence is to measure the
maturity of IT Processes, focusing on competency aspects. The chart below shows
generically how this could be done based
on guidance from CobiT s Management Guidelines (Figure 6.7).
6.8 When to source competence from outside
Acquiring IT Governance competence from outside the organisation will be driven
by two different objectives:
When it is more cost-effective to outsource skills that are not available in-hou
se
When outside input of expertise is beneficial in its own right
However, if implementation of IT Governance is to be successful and sustainable,
competence will have to be developed
within the organisation, since management of IT must be owned within the organis
ation. In many organisations where all or
significant parts of the IT service have been outsourced, responsibility and com
petence for controlling use of these services
should still be retained internally. It is essential to retain sufficient skills
internally to be able to sustain the business and to
understand and manage what is being outsourced.
6.9 Key learning points
The following list of key points have been identified by the IMPACT IT Governanc
e SIG and should be considered when
developing IT Governance skills:
Skills optimisation
Governance skills are normally found at the top level, but are typically not
understood in the context of IT
The appointment of an IT Governance manager and team should not be permanent
because governance practice should become business as usual
Risk Management6
Generic Maturity Model for
Governance Competence
(CobiT)
Understanding &
Awareness Training & Communication Expertise

1 Initial/Ad Hoc Recognition

Sporadic communication on
issues
2 Repeatable but Intuitive Awareness
Communication on the overall
issues and needs
3 Defined Process Understanding of need to act
Informal training supports
individual initiatives
IT Governance expertise exists
within the Process owner and
team
4 Managed & Measurable Understand full requirements
Formal training supports a
managed programme
IT Governance expertise is
monitored and measured outside
the Process
5 Optimised
Advanced, forward-looking,
understanding
Training and communications
support external best practices
and use leading edge concepts
Use of external experts and
industry leaders for guidance,
comparison to best practices
Figure 6.7
IT Governance Developing a Successful Governance Strategy
36 People must understand why governance is important
Governance skills need to be transferred from the specialists to the organisatio
n as
a whole
The best approach to training is learning by doing and being part of the process
The sequence of events should be:
1 . Specialised training
2 . Establish an environment which fosters governance
3 . Roll out the processes and skills
4 . Measure compliance with standards and re-enforce
37
7 Supplier
Governance
7.1 Why is Supplier Governance important? . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
7.2 The customer s role . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .38
7.3 How best to select a supplier . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.40
7.4 The customer/supplier relationship . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
7.5 Service management techniques and SLAs . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
7.6 The supplier/outsourcing governance lifecycle . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Every organisation relies on numerous suppliers to support their business and IT
strategy. It is not unusual for external
organisations to provide critical IT infrastructure (such as telecommunications
networks, hosted data centres, and

software applications) used by critical business processes, and increasingly the

trend is to outsource significant parts of the
internal IT function.
Effective governance of IT suppliers is therefore a key component of IT Governan
ce, to make sure that risks are managed
and value is delivered from the investment in supplier products and services. Mo
st organisations are highly dependent on
a limited number of key suppliers, and so governance should be focused on those
relationships with the greatest risk and
investment. For supplier governance to be effective the role of the customer is
crucial. The customer should take ownership of
the whole transaction from defining requirements and selection all the way throu
gh to engagement, operation and termination.
Even when the bulk of IT is outsourced, several key functions should be retained
because they supply continuity for clients
of IT, provide for the oversight of the outsourcer, are highly specific to the w
ay the business operates, and are strategic to the
organisation. To some extent, the mix will vary with the reason(s) for outsourci
ng and which functions have been outsourced.
However, all organisations will need to retain some expertise in strategic funct
ions, such as project oversight, architecture,
planning, vendor management, and security.
One of the best ways to establish effective supplier governance is to focus on t
he relationship
The correct form of the relationship (commodity provision, market relationship
allows clearly definable boundaries between client and supplier, while the
partnership end of the scale requires an ongoing and close cooperation)
How both parties engage with each other
Commitment by both parties at a senior level
Responsibility and accountability by senior decision makers on both sides
Specification of governance responsibilities in a governance schedule within the
contract
Try to create a win/win partnership so that both parties are motivated for succe
ss beating down the supplier is generally
seen as poor practice, while cooperation, considered openness and mutuality of b
enefit defines the basis for better working
relationships.
Underpinning the customer/supplier relationship should be formal service level a
greements which define objectives and
measures in customer relevant terms, managed according to service management bes
t practices such as ITIL.
7.1 Why is Supplier Governance important?
Because organisations are relying more and more on IT, management needs to be mor
e aware of critical IT risks and whether
they are being managed. Furthermore, if there is a lack of clarity and transpare
ncy when taking significant IT decisions, this
can lead to reluctance to take risks and a failure to seize technology opportuni
ties. There is a realisation that because IT is
complex and has its own fast changing and unique conditions, the need to apply s
ound management disciplines and controls
is even greater. (IT Governance The Business Case)
Most organisations are highly dependent on a limited number of key suppliers, an
d so governance should to be focused
on those relationships with the greatest risk and investment. The outsourcing of
a function or service is likely to be a major
Supplier Governance7
IT Governance Developing a Successful Governance Strategy
38 strategic decision which should be governed carefully. Outsourcing is also a
huge global commercial business opportunity for
the service providers who will compete fiercely for market share. In such a comp

lex technical and commercial situation, proper

governance is crucial to help avoid potential service failures and large financi
al losses.
7.2 The customer s role
For supplier governance to be effective, the role of the customer is crucial. Th
e customer should take ownership of the whole
transaction from defining requirements and selection all the way through to enga
gement, operation and termination. It is
essential that what is outsourced by the customer is NOT its core competency as
this is what defines what the organisation
is, how customers perceive it and how it retains its position in the marketplace
. Only under a limited set of circumstances, one
example being technology catch-up, should core competencies be outsourced. The s
upplier is of course also a stakeholder
and will want to ensure the relationship is properly managed, and that the finan
cial and operational requirements are
acceptable. It will be in the customer s interest to balance the supplier s needs wi
th his own in order to arrive at a solution that
provides reasonable incentives for the supplier while properly meeting the custo
mer s needs.
If the relationship is critical in support of the customer s business strategy (wh
ich will be the case if significant outsourcing
is planned, or if critical infrastructure needs to be supported), then the custo
mer s role in ensuring effective governance will
be particularly important and should address:
Unclear buyer
expectations
23%
Misaligned
interests
15%
Poor Governance
13%
Not mutually
beneficial 11%
Other 11%
Poor
communication
11%
Provider's poor
performance 8%
Poor cultural
fit 5%
Buyer's
multi-buyer
environment
3%
Figure 7.1: Causes of outsourcing failures
source Outsourcing Center 2004
39
Discipline over managing the transaction and transparency of the results
Independence from the supplier
Accountability and responsibility for key decisions
Increasing stakeholder value (both internal and for the supplier)
Key governance steps at each stage, best defined in a governance schedule in
the contract, and in a shared procedure manual where key responsibilities and
escalation procedures are defined.
How to be an effective customer
Organisation
Focus on what s critical
Have the right capability to manage IT suppliers

Ensure there are clear roles and responsibilities on the customer s side of the
relationship
Ensure there is an Executive level sponsor who will be responsible and accountab
le
for all significant decisions regarding key suppliers
Commit long-term
Establish relationships at multiple levels
Organise suppliers according to criticality and roles
Technical
Manage technical IT issues to ensure conformance where necessary and
compatibility with in-house technical standards
Ensure all relevant legal and regulatory requirements have been considered
Standardise and commoditise solutions wherever possible
Set realistic expectations regarding service delivery
Take time to understand product and service offerings
Understand how your own IT assets may be affected by supply of external products
or service
Ensure there is good control of the internal environment affected by the externa
l
supply
Project Approach
Take care to manage all staff related issues
Set up a co-ordination committee of senior customer representatives
Make sure there is a process for both parties to follow
Build into the requirements and contract plans for transition/transformation fro
m the
current state to an outsourced service
Approach contracts and relationships in a balanced way ensuring risks have been
considered in the context of the value expected from the supplier
Avoid the danger of mixed messages coming from different parts of the customer
organisation
Make sure there is top-down management commitment to support all key decisions
How to monitor and measure
1. Identify a limited range of meaningful and measurable key measures e.g.:
Performance
Financial
Risks
Compliance
Relationship
Value added
Delivery
2. Take ownership and define and obtain agreement for all measures
3. Supplier senior management should:
Supplier Governance7
IT Governance Developing a Successful Governance Strategy
40 Provide data for all measures he is responsible for
Monitor delivery performance
Agree remedial action with customer
Commit remedial actions
4. Customer IT service management should:
Be responsible for monitoring and reporting
Prioritise and recommend actions
5. Customer should:
Provide customer satisfaction measurement data
Consider benchmarking to other organisations and other services
What functions should be retained by the customer?
(Reference Forrester Research Functions to Retain when Outsourcing, July 2004)
Even when the bulk of IT is outsourced, several key functions should be retained
because they supply continuity for clients
of IT, provide for the oversight of the outsourcer, are highly specific to the w

ay the business operates, and are strategic to the

organisation. To some extent, the mix will vary with the reason for outsourcing.
However, all organisations will need to retain
some expertise in strategic functions.
7.3 How best to select a supplier
The following steps are suggested:
1 . Research the markets to identify preferred suppliers
2 . Consider the size of supplier compared to your organisation and your
requirements
3 . Consider the need to integrate several suppliers
4 . Do due diligence reviews
5 . Prepare an effective RFP
6 . See key people
7 . Consider pilots and pre-project trials
8 . Check track record
9 . Consider impact of any off-shore situations
7.4 The customer/supplier relationship
One of the best ways to establish effective supplier governance is to focus on t
he relationship:
How both parties engage with each other
Commitment by both parties at a senior level
Responsibility and accountability by senior decision makers on both sides
Specification of governance responsibilities in a governance schedule within the
contract
Make sure each party understands its role. Figure 7.4 summarises how IMPACT SIG
members believe each group of
stakeholders should focus in the customer/supplier relationship.
41
7.5 Service management techniques and SLAs
Underpinning the customer/supplier relationship should be formal service level a
greements, managed according to service
management best practices. ITIL is recommended as the best source of guidance in
this area, and the IMPACT SIG
members recommended the following techniques:
Use a supplier governance framework to drive service management practices
(figure 7.5).
Create a service management board to oversee service delivery
Create a service code of practice how to engage
Adopt standard processes for managing the services
Develop a common language and common understanding of service objectives
Ensure there is a clear definition of service scope
Define the scope of the retained IT function
Maintain the contract as a result of service changes
Create a policy and procedure manual for both parties to follow
Where possible define a service credit regime
this describes how overs and
unders on the service provision are handled without recourse to hard, fixed
penalties
Supplier Governance7
Party Stakeholder Focus
Customer
Investors
Define outsourcing and procurement strategy
Define supplier governance framework
Provide supplier with strategic direction
Approve contracts and any changes
Consider future business requirements
Define business objectives
Evaluate performance
Providers
Specify architecture

Define business requirements

Manage relationship
Manage projects
Monitor service
Controllers
Verify financial ROI
Manage contract
Assess and monitor risk
Ensure legal/regulatory compliance
Perform financial analysis
Ensure supplier service audit
Establish security policy
Supplier
Investors
Define business objectives
Protect supplier and customer investments
Commit resources for delivery
Define service strategy
Define governance framework
Providers
Define services
Define service levels
Monitor service quality
Controllers
Measure financial performance
Monitor risk management
Manage contracts
Figure 7.4
IT Governance Developing a Successful Governance Strategy
42 7.6 The supplier/outsourcing governance lifecycle
The outsourcing lifecycle is useful in determining major points for governance t
hroughout the contract, but more importantly
ensures a common understanding of the major processes (Figure 7.6).
Figure 7.5
Figure 7.6
43
8 IT & Audit Working
Together & Using
CobiT
8.1 Introduction to CobiT . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .43
8.2 How is CobiT being used? . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44
8.3 What are the roles of IT and Audit for IT Governance? . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
8.4 How can IT and internal audit work better together? . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
The growing interest in IT Governance and increasing pressure to deal with regul
atory compliance (e.g. Sarbanes Oxley),
and a continuing focus on security, has made IT management much more involved in
risk management and control
activities. There is therefore a need for IT management to work more closely wit
h IT auditors.
For many years there have been barriers between auditors (both internal and exte
rnal) and auditees (IT functions and
business units). This can be due to communication gaps, hidden checklists, and a
failure to collaborate on control assessment
and control improvement. A more effective approach requires better recognition o

f one another s role and alignment to a

mutually accepted and understood control framework, so that everyone is on the sa
me page .
CobiT is an IT Control and Governance Framework that is increasingly being adopt
ed by organisations around the world as
a common reference model for IT Control. CobiT has historically been mostly used
by IT auditors but the trend now is for IT
management to use CobiT as a basis for IT process ownership, a reference model f
or good controls and as a way to integrate
other best practices under one umbrella aligned to business needs. More advanced u
sers make use of CobiT s maturity
modelling and metrics to measure performance and drive improvement initiatives.
As a consequence, many IT functions and IT service providers are adopting CobiT
as part of their operational control
framework.
8.1 Introduction to CobiT
Business orientation is the main theme of CobiT. It is designed to be employed n
ot only by users and auditors, but also, and
more importantly, as comprehensive guidance for management and business process
owners. Increasingly, business practice
involves the full empowerment of business process owners so they have total resp
onsibility for all aspects of the business
process. In particular, this includes providing adequate controls. The CobiT Fra
mework provides a tool for the business process
owner that facilitates the discharge of this responsibility. The Framework start
s from a simple and pragmatic premise:
In order to provide the information that the organisation needs to achieve its o
bjectives, IT resources
need to be managed by a set of naturally grouped processes.
The Framework continues with a set of 34 high-level Control Objectives, one for
each of the IT processes, grouped into four
domains: planning and organisation, acquisition and implementation, delivery and
support, and monitoring. This structure
covers all aspects of information and the technology that supports it. By addres
sing these 34 high-level control objectives, the
business process owner can ensure that an adequate control system is provided fo
r the IT environment.
IT Governance guidance is also provided in the CobiT framework. IT Governance pr
ovides the structure that links IT processes,
IT resources and information to enterprise strategies and objectives. IT Governa
nce integrates optimal ways of planning and
organising, acquiring and implementing, delivering and supporting, and monitorin
g IT performance. IT Governance enables
the enterprise to take full advantage of its information, thereby maximising ben
efits, capitalising on opportunities and gaining
competitive advantage.
In addition, corresponding to each of the 34 high-level control objectives is an
Audit Guideline to enable the review of IT
processes against CobiT s 318 recommended detailed control objectives to provide m
anagement assurance and/or advice
for improvement.
IT & Audit Working Together & Using CobiT8
IT Governance Developing a Successful Governance Strategy
44 The Management Guidelines further enhances and enables enterprise management
to deal more effectively with the needs
and requirements of IT governance. The guidelines are action oriented and generi
c and provide management direction for
getting the enterprise s information and related processes under control, for moni
toring achievement of organisational goals,
for monitoring performance within each IT process and for benchmarking organisat

ional achievement. CobiT s Management

Guidelines are generic and action oriented for the purpose of answering the foll
owing types of management questions: How
far should we go, and is the cost justified by the benefit? What are the indicat
ors of good performance? What are the critical
success factors? What are the risks of not achieving our objectives? What do oth
ers do? How do we measure and compare?
(CobiT Framework 2000, www.itgi.org)
ISACA recognised in the early 1990 s that auditors, who had their own checklists f
or assessing IT controls, were talking a
different language to business managers and IT practitioners. In response to thi
s communication gap, CobiT was created as
an IT control framework for business managers, IT managers and auditors, based o
n a generic set of IT processes meaningful
to IT people. The best practices in CobiT are a common approach to good IT contr
ol implemented by business and IT
managers, and assessed on the same basis by auditors. Over the years CobiT has b
een developed as an open standard and
is now increasingly being adopted as the control model for implementing and demo
nstrating effective IT Governance.
Today, as every organisation tries to deliver value from IT while managing an in
creasingly complex range of IT related risks,
the effective use of best practices can help to avoid re-inventing wheels, optim
ise use of scarce IT resources, and reduce
the occurrence of major IT risks such as:
Project failures
Wasted investments
Security breaches
System crashes
Failures by service providers to understand and meet customer requirements
Due to its high level and broad coverage, and because it has been based on many
existing practices, CobiT is often referred
to as the integrator , bringing disparate practices under one umbrella and just as im
portantly, helping to link these various
IT practices to business requirements.
8.2 How is CobiT being used?
Although the long-term aim of CobiT was to be a common framework used by managem
ent and auditors, it began as an Audit
reference. This was largely due to its origins within ISACA and its early adopti
on by ISACA members who are mostly from the
computer audit profession. Over the years its usage has widened out into the IT
community and nowadays this is the fastest
growing user segment. Whereas auditors have been using CobiT mostly as a control
s checklist, IT managers see it more as a
best practice framework for performance measurement and improvement planning. With
increasing regulatory requirements
such as Sarbanes-Oxley in the US, both auditors and IT managers are adopting Cob
iT as the compliance framework for IT
controls. The CobiT IT Process model has helped convey a view of IT understandab
le to business management, auditors and
IT, and at the same time provide a basis for IT functions to organise themselves
into a process structure with accountable
process owners.
The maturity modelling and metrics concepts within CobiT are probably the most p
opular for IT managers, providing an easy
and powerful technique for positioning IT control gaps in the context of busines
s requirements. The profiles and scorecards
that results are a powerful tool for communicating with senior management and de
monstrating the reality of current IT
capability in relation to what the business might have expected.

As organisations have adopted the CobiT approach, it has driven the professional
Audit firms to follow similar approaches,
and to integrate CobiT into their internal proprietary methodologies. This has h
elped to break down communication barriers
and improve the mutual understanding of IT controls. There is also a trend among
service providers to use CobiT and other
best practices to improve their market image and quality of service. This is als
o helping to improve communication of control
issues and make it easier to manage and audit IT activities against a commonly a
ccepted basis. Because CobiT is open and
independent of any specific vendor all parties can use it freely. It is not a sta
ndard as such but a best practice framework
and set of guidance materials to be tailored for each specific situation.
There is currently a great deal of focus on the Sarbanes-Oxley Act in the US, an
d the reporting requirements that this
legislation requires for Company Directors. Many companies are using CobiT as th
e framework for reporting the status of IT
systems and controls, and consequently a massive CobiT-based controls documentat
ion effort is underway. While SarbanesOxley has been very useful for putting IT governance and control on the Board s ag
enda, there is a danger that the effort will
be limited to a documentation exercise to achieve compliance. The real value fro
m any control evaluation, especially when
based on CobiT, is the identification of control gaps and the implementation of
a sustainable improvement programme. There
45
is an analogy with the Y2K experience in that Sarbanes-Oxley should not be a one
off exercise but an ongoing programme for
improving management control and establishing governance.
8.3 What are the roles of IT and Audit for IT Governance?
Role of IT Audit
IT Governance is a management responsibility, and therefore not the sole
responsibility of an Audit function. The Audit function should remain independen
t,
but this can provide an excellent position to influence and recommend change.
Independence should not inhibit provision of advice, so long as management take
full responsibility and accountability for implementation and operation of contr
ols.
Taking responsibility for enabling an IT Governance initiative or for initiating
governance projects should not compromise Audit.
IT Governance requires management commitment and ownership within IT and the
business in order to make it happen. Audit can then determine if it is happening
, and
provide assurance to the board.
When reviewing Governance, Audit must do more than just identify problems. They
need to identify root causes and make constructive recommendations.
Audit can test controls especially where control is critical and assurance is
required. But increasingly there is a trend for IT to test themselves by performin
g
self-assessments.
Audit can play a part in setting standards, and providing control criteria and c
ontrol
benchmarks, particularly in respect of external regulation.
Given the speed of IT change and the high cost of development projects, it makes
sense to involve auditors in projects. To be effective auditors must:
- Be credible and confident to gain the respect of IT
- Not wait until the end of a phase to critique but give pro-active guidance on
what should be done
Role of IT
IT has to be responsible for changing the culture of the IT organisation, for

managing the IT processes, and adopting a focus on controls.

IT professionals often have a poor understanding of what controls are and why th
ey
are needed. Education in control principles may be needed, and audit can help wi
th
this by working together with IT, and by providing training, workshops and staff
secondments.
A common framework and understanding is needed in order to ensure that IT
Management is exercising IT Governance. Using a common framework for control
such as CobiT, will help to ensure that everyone is on the same page .
The CIO and Head of Internal Audit should work together to drive change.
IT should take a lead on governance; audit can sow the seeds .
If IT (as so often) is in `fire fighting` mode it is harder for them to drive
governance.
Executive management may point to historic data as showing no problems- so
why should they worry about governance? However, the problems can usually be
identified by IT digging into process failures e.g. project delay and excess cos
t.
IT management have to be confident of their position to draw attention to intern
al
weaknesses.
8.4 How can IT and internal audit work better together?
Increasingly, control self-assessments are being performed by IT functions becau
se it is more efficient than relying on limited
IT audit resources, and more likely to motivate corrective action.
Typical examples using self-assessments are:
Risk assessments
Compliance with specific standards (ISO 17799)
Compliance with regulatory requirements such as Sarbanes-Oxley
Quality of service assessments
IT & Audit Working Together & Using CobiT8
IT Governance Developing a Successful Governance Strategy
46 IT Process Maturity assessments (e.g. CobiT)
The methods used vary from formal schemes, perhaps based on IIA (Institute of In
ternal Auditors) or Internal Audit
guidance to less formal approaches. All approaches can provide value e.g.:
Questionnaires based on policy (e.g. security) How do you consider you have
addressed each objective?
Self certification by management e.g. Sarbanes-Oxley
Face-to-face interviews and workshops
Pre-defined checklists
IT contribution Governance Phase Audit contribution
Common approach
culture, charter, communication and language, clear ownership
Get CIO commitment.
Know your audience when explaining IT
Governance, controls adoption and CobiT.
Get ownership from the business side, using
business language, RAG charts and scorecards.
Demonstrate strengths and weaknesses.
Influence the business and the board about IT
management issues (use ITGI Board Briefing)
(www.itgi.org).
Achieve a balance between regulation and
improvement planning. Leverage regulations for
positive effect.
Coordinate with service providers who may be a
trigger and may be using CobiT.
Building Awareness &
Ownership
Provide thought leadership.

Influence the Board and Audit Committee to take

issues seriously and mandate change.
Use objective and independent position to
recommend organisational change.
Don t just make general recommendations
point
to root causes.
Provide independent view of the risk profile.
Regulations like Sarbanes-Oxley can be an
enabler of change
encourage response to be
more than just a documentation exercise.
Demonstrate benefits.
Adopt a Framework e.g. CobiT.
Appoint process owners.
Liaise with 3rd parties and service providers.
Integrate existing and other best practices.
Framework Approaches
Provide thought leadership on available
techniques.
Perform open book audits (no hidden checklists
or issues).
Ensure business and IT orientation to audit
approach and recommendations.
Share audit information and documentation.
Perform risk self assessment.
Perform business impact analysis with business
units.
Define business requirements for IT Governance
together with business units.
Understand impact of regulatory and compliance
issues.
Perform a maturity self assessment on critical IT
processes.
Understand risk appetite.
Focus
Ensure scope alignment (audits versus
governance).
Identify key risks.
Analyse audit history and use to prioritise.
Share planning approach.
Identify key control weaknesses.
Define regulatory compliance requirements.
Coordinate with external auditors.
Do internal/external benchmarking.
Internal/external analysis.
Perform controls self-assessments.
Perform detailed self maturity assessments.
Assess
Provide assurance of IT self assessments.
Provide positive statements where appropriate.
Provide independent control evaluations for critical
areas.
Produce scorecards and RAG charts for IT
performance in business terms.
Provide explanations for deviations, successes
and significant trends.
Scorecard
Review and assure measures.
Provide Audit scorecards showing performance
against past audit reports.
Provide where appropriate independent

scorecards of IT performance.
Define HOW improvements can be made.
Create business case for changes.
Create implementation action plan.
Provide Project Control and QA.
Facilitate job rotation/secondees.
Improvement
Advise on WHAT should be improved.
Provide training in controls.
Provide workshops to improve understanding.
Organise shared events.
Facilitate job rotation/secondees.
Figure 8.5
47
The effectiveness of a self-assessment depends on the quality, objectivity, skil
l and experience of the people performing the
review. Using an alternative means of checking to supplement the questionnaire c
an help as can obtaining Internal audit input
in an educating/reviewing role.
There are a number of constraints and challenges relating to self-assessments:
Level of maturity
Number/volume of testing
Reliance on the results
- Objectivity
- Completeness and Rigour
Resources
IT is typically overloaded with day to day pressures
Political issues need to be addressed
how to get management buy-in, and there
may be a reticence to identify and quantify risks
Cultural aspects should be considered e.g. the need to balance positive messages
with weaknesses
Avoid routine ticking boxes exercises which are much less valuable
The following are some practical requirements for self-assessments:
Individuals performing assessments recognise accountability
There will be a need framework/objectives/policy to self assess against (e.g. ba
sed
on CobiT)
Well designed questionnaires keep them simple with no ambiguity, and examples
to aid interpretation
Coaching/training may be needed if using a web-based questionnaire
Require supporting evidence to be documented
Training may be needed on risk identification, definition, and quantification
IT & Audit Working Together & Using CobiT8
IT Governance Developing a Successful Governance Strategy
48 9 Information
Security
Governance
9.1 Background . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . .48
9.2 What is information security? . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.49
9.3 Where to focus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . .50
9.4 Roles and Responsibilities . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.50
9.5 Action planning and best practice . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .52

Executive management has a responsibility to ensure that the organisation provid

es all users with a secure information
systems environment. Sound security is fundamental to achieving this assurance.
Information systems can generate many direct and indirect benefits, and as many
direct and indirect risks. These risks
have led to a gap between the need to protect systems and the degree of protecti
on applied. Although awareness of these
security issues has increased significantly at board levels, most senior busines
s managers are uncertain about actions they
should take and rely heavily on technical advisors. Proper governance of securit
y, like any other aspect of IT, requires top
management to be more involved in setting direction and overseeing the managemen
t of risk. Faced with the fear of unknown
risks, and uncertainty regarding the effectiveness of existing controls, top man
agement naturally wonder where to focus
attention and set priorities. A risk assessment is usually the best place to sta
rt. A complimentary approach is to focus on
establishing a security baseline irrespective of the risks
i.e. ensure that all
the basic measures are in place.
Managing investments in the implementation and operation of controls is critical
, since security can be an expensive and
time-consuming task, and experience has shown that large sums of money can be wa
sted on ineffective or inadequately
implemented technical solutions. However, proving security ROI can be difficult
since actual reductions in losses or incidents
must be shown, and it is sometimes impossible to know if a risk has been prevent
ed.
There is no doubt though, that the easiest way to demonstrate cash return is by
showing the cost of incidents and wherever
possible this should be done even if the examples are based on assumptions rathe
r than actual figures. Increasingly, the
benefits of good security are being recognised by management who understand that
security is needed to enable e-business
and that a reputation for good security can enhance customer loyalty, sales and
ultimately share price. These benefits should
be considered when building the business case for security investments. Given th
at IT security is a specialised topic and there
is a shortage of skills, organisations will often seek support from third partie
s. Information security specialists can play a key
role although governance and final decision-making must remain in-house.
9.1 Background
In a global information society, where information travels through cyberspace on
a routine basis, the significance of
information is widely accepted. In addition, information and the information sys
tems and communications that deliver the
information are truly pervasive throughout organisations from the user s platform to
local and wide area networks to servers
to mainframe computers. Accordingly, executive management has a responsibility t
o ensure that the organisation provides all
users with a secure information systems environment. Furthermore, there is a nee
d for organisations to protect themselves
against the risks inherent with the use of information systems while simultaneou
sly recognising the benefits that can accrue
from having secure information systems. Thus, as dependence on information syste
ms increases, security is universally
recognised as a pervasive, critically needed, quality. (International Federation
of Accounts (IFAC) Statement on Managing
Security of Information 1998)
Because new technology provides the potential for dramatically enhanced business
performance, improved and demonstrated

information security can add real value to the organisation by contributing to i

nteraction with trading partners, closer customer
relationships, improved competitive advantage and protected reputation. It can a
lso enable new and easier ways to process
electronic transactions and generate trust. 5
The view of the IMPACT IT Governance SIG is that Information security concerns h
ave increased due to:
5. Information Security Governance: Guidance for Boards of Directors and Executi
ve Management, the IT Governance Institute.
49
Technical complexity
Hackers and virus spreaders
Increasing ease of use, and the accessibility of IT systems
Anywhere/anytime access
Although awareness of these security issues has increased significantly at board
levels, most senior business managers are
uncertain about actions they should take and rely heavily on technical advisors.
Proper governance of security, like any other
aspect of IT, requires top management to be more involved in setting direction a
nd overseeing the management of risk.
It is essential therefore for executive management to understand why information
security is important and take action to
ensure that:
The importance of information security is communicated to all and that a policy
exists to underpin activities in a changing environment.
The ownership and responsibility for information security is accepted by senior
management in the business as well as in IT.
Everyone understands that security will not be satisfied simply by the appointme
nt
the security function is there to assist management and
of a security manager
security is ultimately the responsibility of everyone.
Any shortage of skilled resource in this area is addressed, as it may be impossi
ble
to retain all the necessary skills and functions in-house.
Responsibility for any security aspects of corporate compliance is accepted by t
he
Board.
Management concerns are focused on:
Gaps what and where are the significant and specific weaknesses in security?
Are these weaknesses being addressed?
Are resources and money being wisely invested and are the right controls being
implemented in the areas most vulnerable to threat?
9.2 What is information security?
One of the causes of poor information security and ineffective governance of inf
ormation security is a misunderstanding
of what it actually covers and how it should be addressed. The ITGI publication,
Information Security Governance:
Guidance for Boards of Directors and Executive Management, describes information
security as follows:
Security relates to the protection of valuable assets against loss, misuse, discl
osure or damage. In this context, valuable
assets are the information recorded on, processed by, stored in, shared by, trans
mitted or retrieved from an electronic
medium. The information must be protected against harm from threats leading to d
ifferent types of vulnerabilities such as
loss, inaccessibility, alteration or wrongful disclosure. Threats include errors
and omissions, fraud, accidents and intentional
damage. The objective of information security is protecting the interests of thos
e relying on information, and the systems and
communications that deliver the information, from harm resulting from failures o

f availability, confidentiality and integrity.

Information Security Governance9
Policy Development The security objective and core principles provide a framewor
k for the first critical step for any
organisation
developing a security policy.
Roles & Responsibilities For security to be effective, it is imperative that ind
ividual roles, responsibilities, and authority
are clearly communicated and understood by all.
Design Once a policy has been approved by the governing body of the organisation
and related roles
and responsibilities assigned, it is necessary to develop a security and control
framework that
consists of standards, measures, practices, and procedures.
Implementation Once the design of the security standards, measures, practices, a
nd procedures has been
approved, the solution should be implemented on a timely basis, and then maintai
ned.
Monitoring Monitoring measures need to be established to detect and ensure corre
ction of security
breaches, such that all actual and suspected breaches are promptly identified, i
nvestigated,
and acted upon, and to ensure ongoing compliance with policy, standards, and min
imum
acceptable security practices.
Awareness, Training, &
Education
Awareness of the need to protect information, training in the skills needed to o
perate
information systems securely, and education in security measures and practices a
re of critical
importance for the success of an organisation s security program.
Figure 9.2
IT Governance Developing a Successful Governance Strategy
50 According to the IFAC guidance, the major activities associated with Informat
ion Security management relate to the items in
Figure 9.2.
9.3 Where to focus
Faced with the fear of unknown risks, and uncertainty regarding the effectivenes
s of existing controls, top management
naturally wonder where to focus attention and set priorities. A risk assessment
is usually the best place to start and this should
be based on analysis of the likelihood of different threats, vulnerability and i
mpact. Consideration of the impact of security
threats should always be the responsibility of business management, who should u
ltimately sign-off acceptance of the risk
management plan. In practice, this is an area where the business needs to be mor
e involved.
It will be helpful if the risk assessment can be converted to a financial value
derived from the impact
even if this is only
approximate and based on rough estimates or scales since decisions to improve se
curity will usually be made based on
financial parameters.
A complimentary approach is to focus on establishing a security baseline irrespe
ctive of the risks i.e. ensure that all the
basic measures are in place. This can be based on standard guidance such as the
ISO17799 (www.iso.org) standard or freely
available guidance such as the CobiT Security Baseline (www.itgi.org). A key ele
ment of this approach is to create security
within the infrastructure, rather than on a piecemeal basis.
9.4 Roles and Responsibilities

Executive management, information systems security professionals, data owners, pr

ocess owners, technology providers,
users, and information systems auditors all have roles and responsibilities in e
nsuring the effectiveness of information
security. Due diligence must be exercised by all individuals involved in the man
agement, use, design, development,
maintenance, operation, or monitoring of information systems. (International Fede
ration of Accounts (IFAC) Statement on
Managing Security of Information, 1998)
Too often information security has been dealt with as a technology issue only, wi
th little consideration given to enterprise
priorities and requirements. Responsibility for governing and managing the impro
vement of security has consequently been
limited to operational and technical managers.
However, for information security to be properly addressed, greater involvement
of boards of directors, executive management
and business process owners is required. For information security to be properly
implemented, skilled resources such as
information systems auditors, security professionals and technology providers ne
ed to be utilised. All interested parties should
be involved in the process. 6
Specific roles:
A Forum or Council should be established to set policy, ensure that consensus is
reached on where security investments
should be made, and for approving and overseeing execution of the risk managemen
t plan. The Forum should share
knowledge of IT and risks, be focused on business objectives not technical solut
ions and include representatives from key
business units, IT, internal audit and outsource suppliers. It should report int
o a governance board (or group IT board).
An IT Security Manager should be in place as an advisor to management and the pr
oject owner of security action plan.
However, care must be taken to avoid implying that security has now been dealt w
ith by hiring such a person (when it is
everyone s responsibility) or that this role relieves top management of their over
all governance responsibilities. The role can
be part time and is often supported by external advisors. It is often part of a
Risk Management function.
An Operational Team will be needed to maintain and monitor security processes an
d operate administrative procedures.
This is usually a technical function and it is increasingly being outsourced.
The Audit Function plays a key independent role in monitoring and assessing the
adequacy of security within the
organisation.
A useful approach to improving the understanding, awareness and ownership of sec
urity within the business is to appoint
Information Security Coordinators.
It is critical to influence the Investors, Providers & Controllers positively so
that they understand the objectives and
benefits of IT Governance and are able to communicate consistently to each other
and within their groups. The table below
6. Information Security Governance: Guidance for Boards of Directors and Executi
ve Management, the IT Governance Institute.
51
summarises how IMPACT SIG members believe each group of stakeholders should focu
s on their security responsibilities
(Figure 9.4).
Third party security providers
Given that IT security is a specialised topic and there is a shortage of skills,
organisations will often seek support from third

parties.
Information security specialists can play a key advisory role although governanc
e and final decision-making must remain
in-house. There is also an opportunity for cost reduction compared with permanen
t in-house staff. Examples of outsourced
security activities include:
Testing (e.g. following patches)
Vulnerability testing (note: Penetration testing must be performed with care as
it
may crash the system)
Incident management
Special care should be taken when dealing with outsourced suppliers:
Contractors need to be vetted for security purposes
Suppliers do have a responsibility to manage security within their own activitie
s
make sure this happens
Although the supplier has to be trusted to carry out checks, the client must ens
ure
that the necessary checks are in place
Regulations such as Sarbanes-Oxley requires that governance responsibility
remains in-house
Information Security Governance9
Who needs to be involved?
Investors Providers Controllers
The Board
IT Council/Management Team
Senior business unit managers e.g. key
customers of IT services
Business Partners
External investors/shareholders
as part
of corporate governance
Project and change managers (IT and
Business)
Programme managers
Business managers and users
Technical delivery and support teams
Key players e.g. Business sponsors,
Project champions
Relationship managers and internal
communications teams
Suppliers (especially outsourced service
providers)
Contract and procurement management
Peripheral players/influencers/Policy
owners e.g. HR, Facilities Management,
Legal
Internal audit and external audit (due
diligence)
External regulators
Corporate governance coordinator
Risk managers
Compliance
regulatory and internal
Finance/Project Managers/IT and
business managers
reviewers of
benefits/ROI
Post investment appraisal/Post project
review teams
Key Security Responsibilities
Risk sign-off
Own the business case

Set policy
Define expectations and requirements
Ensure legal and regulatory compliance
Review performance
Monitor delivery
Quantify impact of risk
Challenge the risk management plan
Approve proposals and metrics
Prioritise actions and investments
Supply necessary resources
Set culture and environment
Risk analysis
Design and implementation
Creation of business cases
cost and
solution
Security operations
Security administration
Monitoring security incidents
Education and training (both IT and HR)
Creation and maintenance of scorecards
for performance measurement
Understand impact of regulations
Monitor adequacy and performance of
controls (assessments and audits)
Test actual performance of controls
Monitor performance (execution of
improvements)
Provide independent assurance to
management
Figure 9.4
IT Governance Developing a Successful Governance Strategy
52 9.5 Action planning and best practice
IMPACT SIG members suggest the following action steps be considered:
1. Classify objectives and actions into technical and non-technical areas
2. Ensure that an effective security policy is in place
3. Establish a security baseline
4. Cover key vulnerabilities
5. Communicate management concerns for security to ensure staff awareness
6. Focus on changes
evaluate and test for security exposures
7. Ensure that Board presentations emphasise security as an enabler and not as a
disabler
53
10 Legal &
Regulatory
Aspects of IT
Governance
10.1 Legal and regulatory factors affecting IT Governance . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .53
10.2 Roles and responsibilities . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.54
10.3 Best approach to compliance . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .55
10.4 What IT has to do . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . .56
10.5 Dealing with third parties . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .58
10.6 Critical success factors . . . . . . . . . . . . . . . . . . . . . . . . .

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. .59
In recent years there has been a general increase in the number of regulations a
ffecting the use of IT and also the number
of situations where legal measures need to be considered. This is due to the nee
d to guard against a wide range of new IT
related risks and from a general increase in corporate regulations.
The impact of not taking sufficient care over legal or regulatory requirements c
an be considerable including:
Loss of reputation
Inability to trade
Financial penalties and losses
Loss of competitive advantage
Loss of opportunity
On the other hand the benefit of complying with regulatory requirements and usin
g legal measures to protect commercial
interests can be considerable, including:
General improvement in overall control of IT related activities
Reduced losses and administrative costs
More efficient and effective negotiation of commercial transactions
A greater ability and confidence to take risks
because senior management feel
more in control
There are a wide range of laws and regulations, some specific to industry sector
s that can have an impact on IT. Every
organisation must identify the specific regulations affecting them and respond a
ccordingly, and ensure that the roles and
responsibilities for understanding legal and regulatory matters are properly def
ined for each group of stakeholder so that each
group can apply its specific expertise effectively. External advice must be soug
ht whenever the issues are sufficiently risky
or complex.
Every organisation relies on a growing number of third parties for support of IT
services. From a legal and regulatory
perspective this means that there is potentially a complex hierarchy of responsi
bilities that combine to meet the legal and
regulatory needs of the customer. Ultimately it is the customer s responsibility t
o ensure that all the right controls are in place
with any third party that is relied upon for legal and regulatory compliance.
10.1 Legal and regulatory factors affecting IT Governance
The recent increase in the number of regulations affecting the use of IT is due
to a number of factors, including:
Legal & Regulatory Aspects of IT Governance10
IT Governance Developing a Successful Governance Strategy
54 A greater interest by regulators in the operations of all
organisations caused by major corporate financial failures and
scandals, which is resulting in regulations like the US SarbanesOxley Act forcing Boards of Directors to express opinions about
their systems of control.
Concerns about security and privacy fueled by the overall
increase in use of computers and networks and the impact of the
Internet.
Laws to protect personal information and its potential misuse in
electronic form.
A growth in the use of computer systems and networks for
criminal activity and terrorism, including viruses, hacking,
money laundering and pornography etc.
A growth in complex contractual relationships for IT services
and products (outsourcing, managed services, product licenses
etc.).
The growth in all forms of electronic media and the potential

for misuse of valuable information assets, resulting in copyright

and intellectual property issues of concern to both vendors and
users.
What might appear to be an initial regulatory burden can become an opportunity t
o transform to better
managed practices if the rules are used positively and applied productively. Cor
porate regulations like
the Sarbanes-Oxley Act can be just a minimalist compliance procedure with no pot
ential benefit to the
business or be used as an opportunity to invest in better IT controls. Complianc
e with IT-related legal and
regulatory requirements and the effective use of legal contracts are clearly par
t of the effective control and
oversight of IT activities by senior management and therefore key aspects of IT
Governance.
There are a wide range of laws and regulations, some specific to industry sector
s, that can have an impact
on IT. Every organisation must identify the specific regulations affecting them
and respond accordingly.
The IMPACT SIG has identified the following areas that ought to be considered:
Personal data and privacy
Corporate Governance, financial reporting, stock market
requirements
Money laundering, and other criminal acts
Intellectual Property, Trademarks and Copyright
Electronic communication, signatures etc.
Electronic commerce
Email monitoring, appropriate use and confidentiality
Email defamation
Document and record retention
IT products and services contracts
Sector specific regulations e.g. financial, health, pharmaceutical
etc.
10.2 Roles and Responsibilities
Dealing with legal and regulatory requirements and knowing how best to use legal
contracts can be
challenging for IT experts who are not knowledgeable about legal matters, and fo
r business managers
who may not appreciate all the legal risks and issues associated with the use of
advanced technology.
Organisations should therefore ensure that the roles and responsibilities for un
derstanding legal and
regulatory matters are properly defined for each group of stakeholder so that ea
ch group can apply its
specific expertise effectively. External advice must be sought whenever the issu
es are sufficiently risky
or complex.
55
10.3 Best approach to compliance
Ideally organisations should deal with legal and regulatory requirements on a bus
iness as usual basis instead of reacting on
a case-by-case basis.
In practice, it is recommended that a framework for dealing with legal and regul
atory issues be established. Because
IT is fast changing and new regulations are also emerging, any such framework mu
st be flexible and responsive to new
requirements.
Legal & Regulatory Aspects of IT Governance10
Who needs to be involved?
Investors Providers Controllers

The Board
IT Council/Management Team
Senior business unit managers e.g. key
customers of IT services
Business Partners
External investors/shareholders
as part of
corporate governance
Project and change managers (IT and
Business)
Project and change managers (IT and
Business)
Programme managers
Business managers and users
Technical delivery and support teams
Key players e.g. Business sponsors, Project
champions
Relationship managers and internal
communications teams
Suppliers (especially outsourced service
providers)
Contract and procurement management
Peripheral players/influencers/Policy owners
e.g. HR, Facilities Management, Legal
Internal audit and external audit (due
diligence)
External regulators
Corporate governance coordinator
Risk managers
Compliance
regulatory and internal
Finance/Project Managers/IT and business
managers
reviewers of benefits/ROI
Post investment appraisal/Post project
review teams
Legal and Regulatory Responsibilities
Understand requirements (what regulations
are to be complied with)
Set the mandate
Set priorities and expectations
Establish and ensure the expected degree of
compliance
Based on advice concerning risk and cost:
Assess impact on business
Provide resource and funding to ensure
issues are addressed
Define who is accountable
Obtain internal or external assurance as
required that issues have been addressed
and controls established
Monitor and evaluate compliance
programmes and significant commercial
contracts
Sign off specific compliance programmes
Provide approvals when required for
significant legal or regulatory decisions
Advise on IT related technical and
commercial risks that could impact legal and
regulatory requirements
Provide proposals and business cases for
legal and regulatory programmes, projects or
action plans

Formulate solutions for compliance or

commercial contracts
Identify best practices for ongoing good
control of legal and regulatory requirements
Exploit technology and tools where
appropriate for ensuring compliance (e.g.
asset registers)
Execution of compliance and contractual
processes, and operation of elated controls
Provide compliance framework to ensure a
sustainable business as usual approach to
compliance
Provide evidence of compliance
Provide information relating to the cost of
compliance and also cost of any incidents
Evaluate impact on business environment
together with business units
Ensure vendors, service providers, and
subcontractors are involved properly and
integrated within the overall compliance
approach
Maintain awareness of current and emerging
laws, and regulations affecting IT to assess
their impact on the organisation s business
Develop an understanding of their impact on
the organisation and advise accordingly on
what is needed - not necessarily how
Monitor adequacy of controls and
compliance processes
Monitor the business and IT functions
for performance in meeting legal and
regulatory requirements and report back
to management with advice regarding any
shortcomings
Provide independent assurance to
management that adequate controls are
in place to deal with legal and regulatory
requirements
Table 10.2
IT Governance Developing a Successful Governance Strategy
56 Figure 10.3 illustrates a common problem when new regulatory requirements are
imposed. To be effectively handled the
decisions concerning the regulation should be taken at the level at which busine
ss objectives are set and within the group or
business risk framework. This is the necessary level at which priorities can be
determined and the standards framework can
be applied.
However, as illustrated, a special programme is frequently set up outside the re
mit of existing standards and governance in
the hope that the new regulatory environment can be incorporated. This is usuall
y unsuccessful or inefficient because outside
of existing governance it is very difficult to allocate and establish responsibi
lities for monitoring and testing. Similarly, there
can be no clear prioritisation or co-ordination among different regulatory requi
rements. Conversely, when the left-hand route
is followed and a new regulation comes into force, it is possible to identify wh
ere there are already procedures in place that
enable the new requirements to be met.
For complex IT environments, the importance of the framework is emphasised by th
e need to understand which standards

affect which systems. Then it becomes possible to address all the relevant syste
ms when standards have to change:
Consider regulatory issues together
Do not set up separate projects which may conflict with the standard approach
Decision making must rest with the business in terms of the extent and nature of
compliance
10.4 What IT has to do
Historically, most IT people did not think about compliance- except in terms of
good practice, because regulations rarely
impacted the technical environment. Gradually this has changed, first with IT sp
ecific legislation like the Data Protection act,
and most recently by the realisation that corporate level regulations like Sarba
nes-Oxley must be inextricably linked to the IT
systems because corporate information and financial reporting has become so auto
mated.
Figure 10.3
57
In addition, due to the very significant cost of IT investments, and the complex
ity of customer and supplier relationships,
legal contracts for IT services are being given much more careful attention. The
se contracts in turn demand greater controls
be demonstrated by the parties to the contract, over many issues such as securit
y, intellectual property, service availability,
ownership of deliverables, support of products etc.
As a consequence, IT service providers, vendors, and internal IT functions are a
ll realising that they must be better organised
from a control and compliance perspective. It is only a relatively recent realis
ation that IT related controls should be
documented and monitored by IT functions, increasingly driven by regulatory pres
sure.
Business objectives and processes should drive the system of internal control an
d therefore the documentation process. The
flow should be:
For an efficient and effective compliance process, the documentation should be i
n a language that auditors would use, and
therefore it is best to work with the audit community and adopt a common languag
e and approach such as CobiT.
IT functions increasingly need to be more involved in legal and regulatory requi
rements and should:
Work with the business users and risk management groups to identify critical
systems and compliance priorities.
Document architectures so that the overall environment is understood on a
continuous basis.
Define processes in IT in a logical well ordered fashion, meaningful to auditors
and
management (e.g. based on CobiT).
Appoint process owners so there is accountability and responsibility.
Understand control concepts, the need for IT controls, and how they relate to
business level controls.
Document these processes and controls (especially for compliance critical system
s),
and maintain the documentation as changes occur.
Legal & Regulatory Aspects of IT Governance10
Figure 10.4
IT Governance Developing a Successful Governance Strategy
58 Standardise wherever possible to avoid duplication of effort.
Maintain evidence of controls being exercised to be better able to demonstrate
compliance.
Generate business benefits from the control and compliance projects by performin
g

gap analyses to drive improvements and efficiencies as well as building good

controls.
Consider the whole infrastructure rather than tackling items on a piecemeal basi
s.
Be responsible for diligent procurement and proper control and management of thi
rd
parties.
To achieve these objectives:
IT should seek advice from HR, Legal, and Audit, and if necessary external
experts.
Adopt standard approaches and best practices
don t attempt to reinvent the wheel
as it wastes time and makes working with partners and auditors much less effecti
ve
(compare with accounting- standard procedures are essential).
Build in the need for third party testing as required.
10.5 Dealing with third parties
Every organisation relies on a growing number of third parties for support of IT
services. From a legal and regulatory
perspective this means that there is potentially a complex hierarchy of responsi
bilities that combine to meet the legal and
regulatory needs of the customer. Ultimately it is the customer s responsibility t
o ensure that all the right controls are in place
with any third party that is relied upon for legal and regulatory compliance.
Conversely, service providers have their own corporate governance agenda, combin
ed with the pressures of their business
models usually to provide a better service at a lower cost than the customer had
previously experienced:
They have to work with differing governance models of business partners and
clients.
In theory they might use a standard model across all but in practice this is
unlikely.
- Large clients, in particular, are unwilling to change their own model.
- Clients cannot be obliged to do business in a way specified by the provider.
The outsourcer or provider may not ensure full coverage of legal and regulatory
requirements:
The customer may go to the provider and specify what is required or provide a
questionnaire, but the provider may still not have taken action himself or know
what
is required.
People who negotiate outsourcing contracts are usually at a commercial business
level, not driven by controls and compliance issues.
In order for both sides to be clear on responsibilities it is essential that suf
ficient in-house capability is retained. Most
organisations actually get more rigour when they outsource but most contracts ar
e built around existing operations with all
their limitations. The onus should be on the provider to spell out the risks
but
the provider will not improve controls unless
paid to do so, or can see a commercial benefit in making the necessary investmen
t.
Legally there is a standard reasonable expectation of basic service, and ultimat
ely it is a question of negligence if controls
were not operated properly.
The provider is unlikely to provide a higher level of control in specific situat
ions (such as security) than the client had originally
operated himself but must have nevertheless an adequate set of controls. Special
requirements such as vulnerability testing
will not normally be seen as part of a contract unless formally requested and pa
id for.
59
10.6 Critical success factors

The IMPACT SIG identified the following success factors to enable effective ongo
ing legal and regulatory compliance and
proper control of legal contracts:
Establish the right culture to encourage diligence and good controls
Communication throughout the organisation based on a Board level mandate is
essential to make sure everyone takes the issues seriously and uniformly
Involve the right people as advisors but do not abdicate responsibility
Retaining responsibility for control and compliance when using service providers
Standardisation and a common approach is the most effective and efficient way to
meet compliance requirements
Use frameworks and accepted compliance models especially those accepted by
auditors
Integrate compliance objectives into the IT strategy
Ensure management are actively involved
not just performing a sign-off at the
end
- Set the tone at the top
Institutionalise compliance behaviour
- Engage the governance and risk management groups (those who own the
framework) as soon as possible
- Provide a positive spin good controls can be very beneficial
- Make compliance normal business practice rather than a project
Make compliance meaningful and relevant
- Translate into normal language
- Explain business context
- Carry out awareness training
Establish mechanisms for evidence and documentation
Establish metrics for monitoring performance
Create incentives and/or penalties as part of personal objectives
Do regular compliance checking and tests
Do regular review of risks (include 3rd parties)
Have good incident management procedures to learn from legal and regulatory
incidents
Legal & Regulatory Aspects of IT Governance10
IT Governance Developing a Successful Governance Strategy
60 11 Architecture
Governance
11.1 Why is Architecture Governance important? . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .60
11.2 What are the objectives of Architecture Governance? . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .61
Given the complexity and fast-changing nature of IT, architectures are important
for defining technical direction, captured
in a formal design that will support evolution and change, based on generally ac
cepted standards as well as specific
design standards. Architecture governance is therefore to do with ensuring that
the principles of architectures are properly
applied to the design and maintenance of information systems, meeting technical
design standards as well as the business
purpose and strategic objectives for IT.
There are generally three overall end goals with respect to architecture governa
nce:
Business and IT Alignment (fit for purpose)
Risk Management (reduced likelihood of design failures)
Resource Management (cost effectiveness and value for money)
The process of determining technological direction via an IT Architecture satisf
ies the business requirement to take advantage
of available and emerging technology to drive and make possible the business str
ategy. This is enabled by creation and
maintenance of a technological infrastructure plan that sets and manages clear a
nd realistic expectations and standards, of

what technology can offer in terms of products, services and delivery mechanisms
. Given the significant amount of outsourcing
of IT services, the effective governance of architectures in these situations is
a key consideration. The business strategy may
depend on an effective IT architecture, but who defines the architecture in the
outsourced situation? The customer should
always take control of his own requirements including architectural decisions ev
en if the provider offers existing solutions
and approaches. Senior management may assume that providers will develop technol
ogy to improve productivity
this is
not always the case. A capability for setting the direction for technology impro
vement should be retained in house and often
contracts will call for customers to control their own technical direction. Cost
will usually be the driving factor in contractual
arrangements who will pay for architectural upgrades?
The group identified the following critical success factors for achieving archit
ectural governance:
Ensure that the Architecture process and its governance is adequately funded
Ensure good communications among all the groups concerned
Align the architecture with the business strategy and the culture of the
organisation
Recognise that persuasion is always needed for compliance and that this can be
enhanced by active project involvement, technical consultancy, provision of read
ilyavailable,
cost-effective tool-kits and components
Share all artefacts with outsource providers
11.1 Why is Architecture Governance important?
Architecture (in Greek a??? = first and t???? = craftsmanship) is the art and sc
ience of designing structures. In the context
of computers, the term architecture is used to describe the technical design and
interoperability of components that together
make up the information system i.e. hardware, software and network components.
Given the complexity and fast-changing nature of IT, architectures are important
for defining technical direction, captured in
a formal design that will support evolution and change, based on generally accep
ted standards as well as specific design
standards. There is an analogy with the original use of architectures for defini
providing the
ng the design of buildings
blueprint that demonstrates what the end product should look like, that it is fo
rmed on a solid foundation, that it is built
according to defined design standards, and that it meets the purpose for which i
t was intended.
Architecture governance is therefore to do with ensuring that the principles of
architectures are properly applied to the
design and maintenance of information systems, meeting technical design standard
s as well as the business purpose and
strategic objectives for IT. The IT Governance and Technical Architecture SIG me
mbers believe that in many organisations the
61
challenge is to commit to a properly funded and business driven architectural ap
proach. Often it is treated as too technical an
activity, with inadequate or insufficiently skilled resources, and with limited
business and top management direction.
The group assessed the maturity of Architectural activities based on the CobiT ma
turity model (see Appendix). This
assesses maturity on a scale from 0 to 5. An analysis of the maturity level of t
he organisations represented showed the
following:
Current maturity ranged from 1+ to 4
- In larger organisations there was a spread (e.g. from 2 to 4) across the diffe

rent
parts of the organisation
- The lowest maturity was in a business where IT had recently been outsourced
The maturity level aspired to was between 3+ and 4
- No organisation saw level 5 as necessary
11.2 What are the objectives of Architecture Governance?
The definitions CobiT provides for setting technical direction were used to help
define the purpose of Architecture
Governance:
The process of determining technological direction via an IT Architecture satisf
ies the business requirement to take advantage
of available and emerging technology to drive and make possible the business str
ategy. This is enabled by creation and
maintenance of a technological infrastructure plan that sets and manages clear a
nd realistic expectations and standards of
what technology can offer in terms of products, services and delivery mechanisms
.
It considers:
Capability of current infrastructure
Monitoring technology developments via reliable sources
Conducting proof-of-concepts
Risk, constraints and opportunities
Acquisition plans
Migration strategy and roadmaps
Vendor relationships
Independent technology reassessment
Hardware and software price/performance changes
Covering the following activities:
Technological infrastructure planning
Monitoring future trends and regulations
Assessing technological contingency
Planning hardware and software acquisitions
Defining technology standards
The group believe that measurement of these activities is difficult and may ofte
n rely on perception of trends.
CobiT suggests focusing on these key measurable outcomes:
Number of technology solutions that are not aligned with the business strategy
Percent of non-compliant technology projects planned
Number of non-compatible technologies and platforms
Decreased number of technology platforms to maintain
Reduced applications deployment effort and time-to-market
Increased interoperability between systems and applications
And these performance measures:
Percent of IT budget assigned to technology infrastructure and research
Number of months since the last technology infrastructure review
Business functions satisfaction with the timely identification and analysis of
technological opportunities
Percent of technological domains within the technology infrastructure plan that
have
sub-plans specifying current state, vision state and implementation roadmaps
Average length of time between the identification of potentially relevant new
technology and the decision as to what to do with that technology
The Open Group (www.opengroup.org) defines an Architecture Governance Framework
which covers:
Architecture Governance11
IT Governance Developing a Successful Governance Strategy
62 Governance processes
Policy management
Compliance assessments
Dispensation procedures

Monitoring and reporting

Business control (compliance with the organisation s business policies)
Environment management (the physical and logical repository management) and
governance environment (administrative processes).
Given the significant amount of outsourcing of IT services, the effective govern
ance of architectures in these situations is a
key consideration. The business strategy may depend on an effective IT architect
ure, but who defines the architecture in the
outsourced situation? The customer should always take control of his own require
ments including architectural decisions
even if the provider offers existing solutions and approaches. Unfortunately, we
aknesses and bad practices in outsourcing
arrangements can lead to architectural misunderstandings or restrictions that ca
n be costly or damaging to business
performance. On the other hand the provider may enable a customer to adopt a pro
ven, reliable architecture at much lower
cost and in much faster timescales than agreeing and developing a solution in ho
use (for example hosting services).
Senior management may assume that providers will develop technology to improve p
roductivity this is not always the case.
A capability for setting the direction for technology improvement should be reta
ined in house and often contracts will call for
customers to control their own technical direction. Cost will usually be the dri
ving factor in contractual arrangements
who will
pay for architectural upgrades? Even when improvements are called for by the con
tract, they may not be provided.
63
12 Managing the IT
investment
12.1 Why is managing the IT investment important? . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .63
12.2 Portfolio management . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.64
12.3 Benefits management . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
65
12.4 Measuring investment performance . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .65
12.5 Improving value delivery and ROI . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
12.6 Measuring and controlling IT operational costs . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .66
12.7 Project risk managment . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
.66
Ensuring that value is obtained from investment in information technology is an
essential component of IT governance.
No investment, whether IT-related or not, should be undertaken without full know
ledge of the expected cost and the
anticipated return. Expected return should always be related to risk as, given t
he higher likelihood of failure, high-risk projects
should always have an anticipation of a higher return. Ensuring that the right p
rojects are approved in the first place implies
a need for accurate predictive costing of the total project across its lifetime
and robust predictions of the potential return,
including quantification of the direct and indirect benefits. To ensure that the
total process works and becomes part of the
culture of the organisation, it is essential to establish proper tracking mechan
isms to determine the actual value delivered and

enable accountability.
Given the volatility of a portfolio of IT-related business projects, it is essen
tial to embed active portfolio management into the
organisation to maximise value creation and minimise the risk of value destructi
on. As with any aspect of IT governance, the
process needs visibility, leadership and commitment from the top.
12.1 Why is managing the IT investment important?
The basic principles of IT value are the on-time and within-budget delivery of ap
propriate quality, which achieves the benefits
that were promised. In business terms, this is often translated into: competitiv
e advantage, elapsed time for order/service
fulfilment, customer satisfaction, customer wait time, employee productivity and
profitability. Several of these elements are
either subjective or difficult to measure, something all stakeholders need to un
derstand. Often, top management and boards
fear to start major IT investments because of the size of investment and the unc
ertainty of the outcome. For effective IT value
delivery to be achieved, both the actual costs and the return on investment need
to be managed (ITGI Board Briefing V2
2004).
20% of all expenditure on IT is wasted7, representing, on a global basis, annual
value destruction of US$500bn according
to a 2002 Gartner paper (Gartner, The Elusive Business Value of IT , August 2002).
It is then no surprise that there is an
increasing demand from boards and executive management for generally accepted gu
idelines for investment decision-making
and benefit realisation. While particularly applicable to IT-enabled business in
vestments, where IT is a means to an end, the
need is equally applicable to all investment decisions. In the case of IT, the
end
is to contribute to the process of value
creation in the enterprise.
IT-enabled business investments, when managed well within an effective governanc
e framework, provide organisations
with significant opportunities to create value. Without effective governance and
good management, they provide an equally
significant opportunity to destroy value. Horror stories abound around the value
destruction suffered by major organisations
through the failed implementation of IT enabled business investments. Nike repor
tedly lost more than US$200m through
difficulties experienced in implementing its supply chain software, failures in
IT enabled logistics systems at MFI and
Sainsbury in the UK led to multi-million pound write-offs, profit warnings and e
rosion of share price. Other organisations have
suffered in a similar fashion.
On the other hand, many successful organisations have created value through sele
ction of the right investments, and
successfully managing them through implementation to realising the expected valu
e. Examples include IBM who reportedly
was able to save more than US$12bn over two years by linking disparate pieces of
its supply chain and thereby reducing
inventory levels, and Southwest Airlines who were able to reduce procurement cos
ts and increase service levels through their
supply chain transformation project.
Managing the IT Investment12
7. IT Governance Institute research on IT Value.
IT Governance Developing a Successful Governance Strategy
64 The message is clear. IT-enabled business investments can bring huge rewards
with the right governance and management
processes and full commitment from all management levels. The process for managi
ng IT investments can be summarised

as developing, implementing, operating and maintaining financial controls over I

T investments and expenditures in line with
the IT strategic and tactical plans. Essential elements in this process are bene
fit and cost justification, budget ownership and
accountability and control of actual spending. The process should enable the eff
ective and efficient use of IT resources and
provides transparency and accountability into the benefit realisation, total cos
t of ownership and return on investment of IT.
The role of IT Councils
Organisations should establish an IT Council (or Strategy Committee or similar g
roup) at board level to ensure that IT
governance, as part of corporate governance, is adequately addressed. This commi
ttee reviews major investments on behalf
of the full board and advises on strategic direction. Below this committee an IT
steering committee (or equivalent) should be
established to oversee the IT function and its activities and developing IT plan
s. The committee should determine prioritisation
of IT resources and projects in line with business needs and should be composed
of executive management, business and IT
representatives. This committee structure will provide the oversight and directi
on of IT investments, ensuring accountability at
senior level and proper involvement of all stakeholders.
12.2 Portfolio management
Portfolio management is a good practice for coordinating any group of investment
s and can be effectively applied to IT
investments. It consists of:
Working with the business to establish and maintain a portfolio of new and exist
ing
IT-enabled investment programmes that are needed to achieve business goals
and which, together with existing IT services and assets, form the basis of the
IT
budget.
Building a portfolio that recognises that there will be a variety of categories
of
investment which will differ both in complexity and in the degree of freedom in
allocating funds.
Aligning the portfolio with the strategic direction of the enterprise in order t
o
achieve the right balance of investments.
Having evaluation criteria in place that should include, at a minimum: alignment
with the enterprise s strategic objectives; financial worth (as determined by the
practices of each enterprise); and risk, both delivery risk (the risk of not del
ivering
a capability) and benefits risk (the risk of not realising the expected benefit
from the
capability).
Implementing a decision-making process to prioritise the allocation of resources
for IT operations, maintenance and systems development in order to manage and
deliver an optimal return on the IT portfolio.
Portfolio management is needed to balance and prioritise between new projects an
d the operating costs of existing systems.
It can lead to possible savings on operating costs
e.g. via outsourcing or estab
lishing shared services. Real portfolio
management implies a group at the top with an overview of priorities and what is
needed
otherwise decisions will be based
on relationships and sometimes who shouts loudest rather than an objective analysi
s. Portfolio management should focus on
the total ongoing commitment not only the cost of the initial implementation. Ma
naging portfolios can be difficult and requires
sound business judgment as well as disciplined management otherwise projects tha

t may be significant to the business may

be overlooked or missed in the detailed management processes. For example, proje
cts that are significant to aligning with the
business strategy or small initiatives that are critical opportunities may be ov
erlooked. Like all governance activities decisions
made at the top level regarding the portfolio investment approach must be commun
icated down to individual programmes and
projects and be monitored.
Portfolio Monitoring
Having created an investment portfolio approach, and approved individual investm
ent programmes, there is a need to monitor
(post sign-off) all active programmes, just as one would a financial investment
portfolio of for example, equities or properties.
Costs need to be monitored as well as cost reduction in business areas and reven
ue generating potential in the business.
The portfolio should also be monitored to ensure continuous alignment with strat
egic business drivers which may be changing
with time and with risk factors
both internal to projects and externally. Projec
ts can be very hard to stop, although it is a good
practice to review projects on a regular basis and cancel those that are not lik
ely to deliver value. It is recommended that a
project office be established working at the programme level, monitoring standar
ds, targets and deliverables. It can be difficult
to find and keep the appropriate people in place for this kind of work. Experien
ce has shown that it can be effective to use
bright, temporary people or contractors who will also be more likely to give obj
ective assessments.
65
Acquisition programmes and procurement projects in the UK central civil governme
nt are subject to OGC Gateway Reviews.
The OGC Gateway Process examines a programme or project at critical stages in it
s lifecycle to provide assurance that
it can progress successfully to the next stage; the process is based on well-pro
ven techniques that lead to more effective
delivery of benefits together with more predictable costs and outcomes. It is de
signed to be applied to delivery programmes
and procurement projects, including those that procure IT-enabled business chang
e. The OGC Gateway Process provides
assurance and support for Senior Responsible Owners (SROs) in discharging their
responsibilities to achieve their business
aims. For more guidance refer to www.ogc.gov.uk.
12.3 Benefits management
Monitoring whether or not benefits are being delivered is a key aspect of invest
ment management. Without it, it will be
impossible to know whether a return on the investment has been realised. In prac
tice though, it seems this is rarely done for
IT investments.
The objectives of benefits management should include:
Implementation of a benefit monitoring process.
Identification of IT s expected contribution to business results, either as a
component of IT-enabled investment programmes, or as part of regular operational
support and then agreed, monitored and reported on.
Reporting opportunities to improve IT s contribution, appropriate actions should b
e
defined and taken.
Updating the programme business case where changes in IT s contribution impact
the programme, or where changes to other related projects impact the programme
The IMPACT IT Governance SIG members believe that seldom does true benefit monit
oring take place. Business sponsors
should manage benefits but usually they do not. This may be because of job movem

ent in the business, or because the

business owner of change is often not the operational owner of the benefits. The
main reason though is probably a lack of
willingness for the senior business sponsor to take ownership and accountability
for monitoring benefits. Investment oversight
and the drive to apply discipline to the monitoring process should be directed b
y the IT Council or management team via a
standard process.
12.4 Measuring investment performance
Management should establish a general monitoring framework and approach that def
ines the scope, the methodology and the
process to be followed for monitoring IT s contribution to the results of the ente
rprise s portfolio management and programme
management processes. The framework should be integrated with the corporate perf
ormance management system. The
objective is to assess the overall performance of the portfolio of investments.
Investment performance assessment should
review how the products of IT activities are performing
not just IT as such but
the whole process. Many lessons can be
Managing the IT Investment12
Figure 12.4
IT Governance Developing a Successful Governance Strategy
66 learnt from analysing why projects are successful or not successful. Setting
actual targets and metrics should be driven by the
stakeholders who should also approve and monitor them.
12.5 Improving value delivery and ROI
To optimise the business value realised from IT-enabled investments it is recomm
ended that8 :
IT-enabled investments are managed as a portfolio of investments.
IT-enabled investments include the full scope of activities that are required to
achieve business value.
IT-enabled investments are managed through their full economic life-cycle.
Value delivery practices define and monitor key metrics and respond quickly to a
ny
changes or deviations.
Value delivery practices engage the business and assign appropriate accountabili
ty
for the delivery of capabilities and the realisation of business benefits.
Value delivery practices are continually monitored, evaluated and improved.
A disciplined approach is enforced to portfolio, programme and project managemen
t,
insisting that the business takes ownership of all IT-enabled investments and th
at IT
ensures optimisation of the costs of delivering IT capabilities and services.
Technology investments are standardised to the greatest extent possible to avoid
the increased cost and complexity of a proliferation of technical solutions.
12.6 Measuring and controlling IT operational costs
When managing IT investments, there is a tendency to concentrate on new projects
rather than ongoing operations. The
operational budget is likely to be a much larger financial amount than new inves
tments, and there are often opportunities
to optimise these ongoing costs. It is therefore recommended that a cost managem
ent process be implemented comparing
actual costs to budgets. Costs should be monitored and reported. Where there are
deviations, these should be identified in
a timely manner and the impact of those deviations on programmes should be asses
sed and, together with the business
sponsor of those programmes, appropriate remedial action should be taken and, if
necessary, the programme business case
should be updated. If the costs are recorded and analysed down to the lowest serv

ice level, then the business can decide

whether to use the service. Doing this may be costly
especially if carried to to
o low a level, so it is most effective to focus on
significant services and cost areas.
12.7 Project risk management
Project risk management is a very valuable process, providing an independent mon
itoring function. Its purpose is
to eliminate or minimise specific risks associated with individual projects thro
ugh a systematic process of planning,
identifying, analysing, responding to, monitoring and controlling the areas or e
vents that have the potential to cause
unwanted change. It can include a focus on costs and benefit realisation. In thi
s context project risk management should
focus on the following:
Risk assessments that look beyond the internals of the project
Identifying the factors to be considered in advance in a risk register
Tracking these items on a continuous basis
Understanding the proximity of the risk
when might it hit?
Evaluating the severity of the risk to determine the frequency of monitoring
needed
Risks considered to be high should be closely monitored
by the steering committe
e
if appropriate and feedback should be obtained
Project risks that relate to execution and delivery; examples of external busine
ssrelated
risk include:
- Will the customer want it?
- Need for market testing
- Proof of concept needed?
8. IT Governance Institute, ValIT Framework.
67
13 Success
Factors
Focus on the following success factors:
Treat IT governance initiatives as a project not a one-off
step. The goal is to m
ake
governance business as usual .
Obtain top management buy-in and ownership. This needs to be based on the
principles of best managing the IT investment.
Remember that implementation involves cultural change as well as new processes.
Make sure you enable and motivate these changes.
Manage expectations. In most enterprises, achieving successful oversight of IT
takes some time and will involve continuous improvement.
Success Factors13

NATIONAL COMPUTING CENTRE
IT Governance
Developing a successful governance strategy
A Best Practice guide for decision makers in IT
Throughout the past five years, we have witnessed unparalleled corporate scandal
s and
failures in global businesses. The result; heightened focus on corporate governa
nce, stricter
regulations and new directors responsibilities, all adding to the pressure on IT
Directors and
CIOs. They must now demonstrate to auditors that IT systems which support financ
ial reporting,
as well as monitor and manage business performance are based on sound management
systems and controls.
Against this background, it has never been more important to ensure your organis

ation
governs the use of IT properly. With corporate governance on every boardroom age
nda and increasing scrutiny of IT s performance - IT governance has become a hot topic
around
the world. For some many businesses, IT governance initiatives are already trans
forming the
way their organisations take responsibility for IT. For others, it is a challeng
e just knowing
where to start.
Recognising the challenges faced by CIOs in establishing effective IT governance
, the NCCs
IMPACT Programme launched an IT Governance Special Interest Group (SIG). Its aim
was
to identify not just the issues that need to be addressed, but also practical ap
proaches for
organisations to follow. Over the past two years, heads of IT governance from Ab
bey, Aon,
Avis, Barclays, BOC, DfES, Eli Lilly, Learning & Skills Council, Legal & General
, Marsh, NOMS,
Royal Mail, and TUI Group examined the key challenges. They shared successful ap
proaches
and defined best practice.
This IT Governance Best Practice Guide is a comprehensive insight of the princip
les and
practices that the group put together. It is presented in a form that should hel
p you to
understand better how to guide successful IT governance initiatives and make eff
ective
management and control of IT resources business as usual .
This Guide forms part of the NCC Best Practice Guides series and is intended to be
of
practical use for decision makers in IT. This guidance is achieved through indus
try consensus,
managed by NCC, across the broadest range of professionals and experts.