PO05 Process Description

PO05: IT Investment Management

Description

Controls

KGI

KPI

CSF

Maturity Levels

1. Description

Periodic investment and operational budget established and approved by the business

2. Control Objectives

Annual Operating Budget - ensure that the annual information services function operating budget is established and approved in line with the organization’s long- and short- range plans as well as with the information technology long- and short-range plans. Funding alternatives should be investigated
Cost and Benefit Monitoring - establish and operate a cost monitoring process comparing actuals to budgets. The source of the actual figures should be based upon the organization’s accounting system and that system should routinely record, process and report the costs associated with the activities of the information services function
Cost and Benefit Justification - guarantee that the delivery of services by the information services function is cost justified and in line with the industry.

3. Key Goal Indicators

Percent of IT investments meeting or exceeding expected benefits, based on return on investment and user satisfaction
Actual IT expenses as percent of total organization expenses vs. target
Actual IT expenses as a percent of revenues vs. target
Percent of business owner IT budgets met
Absence of project delays caused by lags in investment decisions or unavailablity of funding

4. Key Performance Indicators

Percent of projects using the standard IT investment and budget models
Percent of projects with business owners
Months since last review of budgets
Time lag between deviation occurrence and reporting
Percent of project files containing investment evaluations
Number of projects where business benefits are not verified post-facto
Number of projects revealing investment or resource conflicts after approval
Number of instances and time-lag in delayed use of new technology

5. Critical Success Factors

All IT related costs are identified and classified
An effective IT asset inventory that facilitates accurate cost measurement is maintained
Formal investment criteria are defined for decision-making in a responsive approval process, adaptable to the type of project
An IT delivery plan is defined, providing context so that a clear view exists of on-going work and investments, technology life cycles and technology component reusability
An investment decision-making process is defined and considers short- and long-term impacts, cross-divisional impacts, business justification, benefit realization, strategic contribution, and compliance with the technology architecture and direction
To allow for clear choices based on impacts, measurable benefits, time-frames and feasibility, investment decisions need to be presented with options and alternatives
IT budgets and investments are aligned with the IT strategy and business plans
Expenditure approval authority is clearly delegated
Budgets that cover end-to-end expenditures have identifiable and accountable owners and are timely and closely tracked in an automated manner
Clear management accountability for realizing forecasted benefits and a process to track and report on benefits realization exist, eliminating cross-subsidies
There are clear management accountabilities for realizing and tracking forecasted benefits
Decision makers consider the full impact, including complete life-cycle and adverse effects, on other business units

6. Service Maturity Variations

0 Non-existent	There is no awareness of the importance of IT investment selection and budgeting. There is no tracking or monitoring of IT investments and expenditures.
1 (Initial/Ad Hoc)	The organization recognizes the need for managing the IT investment, but this need is communicated inconsistently. There is no formal allocation of responsibility for IT investment selection and budget development. Perceived significant expenditures require supporting justifications. Isolated implementations of IT investment selection and budgeting occur, with informal documentation. IT investments are justified on an ad hoc basis. Reactive and operationally focused budgeting decisions occur.
2 (Repeatable but Intuitive)	There is an implicit understanding of the need for IT investment selection and budgeting. The need for a selection and budgeting process is communicated. Compliance is dependent on the initiative of individuals in the organisation. There is an emergence of common techniques to develop components of the IT budget. Reactive and tactical budgeting decisions occur. Expectations based on trends in technology are beginning to be stated and their impact on productivity and system life cycles are starting to be considered in investment decisions.
3 (Defined Process)	The IT investment selection and budgeting processes are reasonably sound and cover key business and technology issues. Investment selection and policy is defined, documented and communicated. The IT budget is aligned with the strategic IT and business plans. The budgeting and IT investment selection processes are formalised, documented and communicated. Informal self-training is occurring. Formal approval of IT investment selections and budgets is taking place. The balance between the investments in human resources, hardware, systems software and application software is defined and agreed upon in order to leverage technological developments and the availability and productivity of IT professionals.
4 (Managed and Measurable)	Responsibility and accountability for investment selection and budgeting is assigned to a specific individual. Budget variances are identified and resolved. IT staff have the expertise and skills necessary to develop the IT budget and recommend appropriate IT investments. Formal costing analyses are performed covering direct and indirect costs of existing operations, as well as of proposed investments, using total cost of ownership concepts. A proactive and standardised process for budgeting is used. The shift in development and operating costs from hardware and software to systems integration and IT human resources is recognised in the investment plans.
5 Optimized	Benefits and returns are calculated in both financial and non-financial terms. Industry best practices are used to benchmark costs and identify approaches to increase the effectiveness of investments. Analysis of technological developments is used in the investment selection and budgeting process. There is a continuous improvement process in place. Investment decisions incorporate price/performance improvement trends, supported by new technologies and products. Funding alternatives are formally investigated and evaluated within the context of the organization’s existing capital structure, using formal evaluation methods. There is proactive identification of variances. An analysis of the long-term cost of ownership is incorporated in the investment decisions. The investment process recognizes the need to support long-term strategic initiatives by creating new business opportunities through the use of technology. The organization has a well-understood investment risk policy regarding the lead or lag use of technology in developing new business opportunities or operational efficiencies.