Understanding

about
IT Governance and Risk Management

Jiri Cejka,
Senior Manager, dipl.El.-Ing, CISA
jiri.cejka@is-governance.com
 Outline
1. IT Governance Market Issues
Business Management and dependence on IT Technology
IT Governance Situation;
2. Holistic Framework for IT Governance
Approach; Scope
Objectives
– IT Processes: Alignment Business and IT
– IT Risks: Value/Cost Relationship and Risk measurement
– Operational Excellence

Client Benefits
3. Benefits of IT Governance framework
4. IT Governance Services & Methodologies
Risk Management Services
Methodologies and Tools
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 1. IT Governance

Market Issues

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 Business Management and
dependence on IT Technology
Today’s management:
More dependent on IT technology to run its business to
achieve competitive advantage
The IT responsibility of corporate executive is growing:
to ensure that systems and processes are properly
controlled
required level of governance is in place
Businesses are continuously looking towards lower costs
and value-for-money – from all aspects of business
IT is becoming a significant expenditure – second after
staff costs.

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 Example: What management need to know
before investing into SW development

Are funds available?

Will the investment save us money? What is project payback period and ROI?
Is this ROI higher then those who propose the alternative uses for money?
What are the implications to business? (business processes, tax)

Can SW be depreciated? If so can be used declining balance or straight

depreciation schedules?

How can the development engineer answer these questions?

Solution by using the method to measure to produce numbers in terms of:

productivity improvement
cost reduction/avoidance
quality improvements, and/or time-to-market reduction strategies

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 Situation

The requirement coming from businesses:

IT processes must be appropriately controlled
Management is under pressure from regulators and the
capital markets:
Competitive advantage is gained from IT investment
As a result companies seek incremental advantages from
use of cutting edge technology:
By turning to the third party providers
By implementing optimising programs

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 Issues to be solved

The reliance IT raises number of issues:

How can management effectively manage its
organisation?
How can management understand the control structure?
How can the external auditor gain sufficient audit
evidence?
“How could Business understand the impact of IT?”

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 2. IT Governance

Holistic Framework

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 Outline
Approach
Value of IT to Business - Examples, View
What do we need
Framework IT Governance - Objectives
Objective 1: Business - IT Alignment; IT Processes Analysis
Objective 2: Value /Cost Relationship; Risks Measures
Objective 3: Operational excellence
Implementation of Infrastructure, Outsourcing
Condition of success
Benefits
Communication channels
Summary of benefits

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 Value of IT to Business: Examples
To measure value of IT is not a new idea - Examples:
1. What Added Value is your IT giving?
– IT involvement in the business imperatives
– Vision of IT that could be shared by business and IT leaders

1. More money wasted in IT that created?

– IT System will pay off only if design and management are based upon culture
and politics that are intended to support

1. Focus on strategic instinct of Business Mgrs?

– Evaluating IT based on ability to improve operations?

Right ideas but:

business does not derive benefits it needs from spending on IT
required level of business-IT alignment and integration not good
enough.
As a result the Business leaders still have difficulties:
lack of understanding of how IT could contribute to business
difficult to reconcile IT costs with the value received.
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 Value of IT to Business: View 1
Since decades business-IT alignment has been emphasized - with
focus on management of IT projects
however they represent normally 25-30% of IT Budget only
To manage IT properly Value/Cost relationship need to be focused on
other IT components that project development:
operation of business applications
support service - marketing, sales, utility application
Example: operational and support services are production phase of IT
project
project not ready with acceptance tests but following maintenance,
operation support are included: project costs less relevant
Framework with value metrics to organize project, operation and support
phase:
integrated Project portfolio with development and production activities
accounting perspective: capital vs. operating expense
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 Value of IT to Business - View 2

Business value of new functionality delivered by IT project

created by both development nor production
shared and consistent approach to manage value/costs
Project management: post-implementation phase to be extended
continuing relevance/value to business
efficient and reliable operation is part of project
Benefit of this holistic approach:
limited focus on project as an “investment” is stopped:
– success/failure of project measured with operational work
– management has continuous cost/value overview
– the monitoring results are applicable to future projects

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 What do we need?
Challenge of governing enterprise’s IT is recognized since
years, however the results do not give the required level of
alignment and integration.

An approach is needed that is inclusive – with a scope

reflecting range of activities and responsibilities of IT –
and specific.

Holistic Framework addressing three Primary Objectives:

1. Fosters strategic and tactical alignment of IT with
Business
2. Relates costs of IT with the value brought to
business
3. Support drive toward operational excellence
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 Objective 1: How to align IT Business?
Goal:

“Identify the strategic important elements of business value to

which IT can significantly contribute:”
Two classical views of IT for businesses, i.e. providing of
information vs. supporting information services has changed
– Examples: Implementing new sales strategy, planning
responsive technology push of internet
Information is now an integral part of the business:
– Role of IT expands: alignment even more important for
business
Step 1. Identify main value-adding activities and linked strategies
Identify the opportunities to use information services to support
business strategy
Add new activities as a part of IT portfolio - basis for alignment
Metrics for business value have to be identified and implemented by
both business and IT
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 Objective 1: How to align IT-
Business?

Step 2. Ensure involvement of senior management: strategic planning

Ongoing dialogue necessary
Full understanding of planned use and impact of IT technology
Formal decision making - critical decision fully committed

Step 3. Organize the environment to optimise IT Processes

Implement process to perform planning by both IT and business mgr
– Business leader develop IT fluency
– IT leaders business fluency
Implement process of managing execution
– division in phases, definition of decisions stages
– Management commitments, contracts, project teams, deliverables
– develop of process to maintain and tune the strategy

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 Objective 2: How to manage Value-
Cost Relationship and IT portfolio?
Goal: “How to institutionalise the developed way of alignment
Business - IT?”
Focus on active management of IT portfolio
Initial development of IT portfolio needs adaptations with changed
needs, opportunities and priorities

Step 1. Find way how to characterize the IT portfolio for

management
Collection of techniques that provide understanding
– Risk-Business Transformation - Volume of value
measurement
– Interpretation allows Management to make decisions
– further views: Net present Value
Result balanced portfolio aligned with Strategy

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 Objective 2: How to manage Value-
Cost Relationship and IT portfolio?
Step 2. Clarify process for managing the IT portfolio
Annual review, reviews depending on changes
Checkpoints, balance resources

Step 3. Make sure that decisions are based on organisation’s needs

Example: Resources allocated on relative strategic value of
competing projects is better than even allocation across all units
using different tools to describe projects and analysing both
– risk profiles
– potential business value
Result:
– Business-visible impact of alternative decisions

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 Objective 3: Service management and
Operational Excellence

Goal: “By selection of right metrics that drive the performance provide
better understanding for management”
Step 1. Identify Elements of Business value

Step 2. Transform the Qualitative measures into Quantitative by setting

thresholds or targets

Step 3. Use metrics that are tied closely with business performance
predefined set of “interesting metrics” is not the right way.

Example 1: Install program where chosen measure is “higher yield”

Metric is ratio of products with higher quality: target financial benefit

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 Objective 3: Service management and
Operational Excellence
Example 2: Improve customer focus with installed support sales
system
Metric is ratio assessment of customer satisfaction

Example 3: Implementation of Cost / Performance with

preventive measurement system
Several metrics needed (depreciation, maintenance cots, lease)
If scope of system changes slowly (list of equipment) - total
costs fine
If changes are rapid: volume adjustment and unit cost are
relevant

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 Objective 3: Service management and
Operational Excellence

Required Implication for the organization:

Define formal organization structure responsible for service
– Assigning product / service management
– Positive effect: tightly focused responsibility and
accountability
Operation for business users requires both business and technical
expertise:
– business and technical aspects correct evaluated
– ensure accuracy, completeness, consistency
Ideal Goal: “Creating product-management organization including
both skills”

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 Objective 3: Operational Excellence

Goal : “Achieve the measurable efficiency, productivity and reliability of

services in terms of business value”

Step 1. Divide the overall budget for IT operations and support into a
set of defined products/services
Step 2. All costs to be mapped into valuable business services
Step 3. Measure the productivity in terms of total organization business
orientation:
Classic technical orientation: costs of mainframe, desktop, split into
parts that are difficult to follow by senior management
New approach: Costs directly oriented with business results: cost per
transaction, cost of SCM, personal action.
Benefits Result: Only a few metrics are used, however they are
compelling for senior management:
1-2 value metrics, 1 cost metric and 1-2 service metrics
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 Implication for Outsourcing
Benchmarking measurement of IT services with external providers
measurement of costs, volumes and quality of services
Further factors - dependency, hidden costs, flexibility
Two frequent factors for outsourcing:
The internal IT organization has failed to achieve cost/value
relationship required by management
Expectation that outsourcer performs task better
However two risks are frequent
the data to support these decision are missing
the approach to evaluate the outsourcer is not existing
Holistic approach developed can help to
Develop appropriate metrics to support necessary analysis
The same tool to be used to measure internal and external service
Management of outsourcing relationship and contracts
Business view: combination of costs, service level and quality
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 Implementing the IT Governance
Framework

Two aspects for successful implementation of IT Governance

framework:
1. Behavioural and procedural aspect
Disciplines involved in managing programs/projects must be
accepted
New practises of management ad reporting must be adopted
– Approach: starting with visible project
– Training new methods
2. Automation of data collection
Relying upon ad hoc methods is time and resources consuming
Automating allows more time to analyse and to communicate

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 3. Benefits IT Governance

Benefits of IT Governance
framework

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 Benefit 1: Communication between
Business and IT groups
Senior Business management
Business improvement that results from their knowledge participation
in IT decision making
Mid-level Business manager position not sure that IT function will
justify given resources
1. Win: IT governance management framework and tool to
communicate with senior management
2. Win: to help communicate with IT management to ensure that
business services they are responsible will meet commitments
Senior IT manager
1. Win: Communicate with senior business managers
2. Win: Communication with IT staff
Clear focus on important strategic and operational issues
Project and Product Service managers - proposed framework helps to
explain the IT issue in business terms
develop realistic “service contracts”
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 Benefit 2: Communication between
Business and IT groups

Senior Business Senior IT

Management Management

Middle level Middle IT Management

Business IT Projects,
Management Products & Services

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 Summary of Benefits of
IT Governance framework in place

Benefits extend business and IT functions

Facilitating communication about how IT contributes to the
business across levels and functions improves coordination and
cooperation-
Managers learns more about effort that they affect
Communication to leaders clear
Result
Synergy will increase
Duplication of effort reduced
Effectiveness of project delivery grows

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4. IT Governance and Risk Management
Services, Methodologies

Services
Methodologies and Tools

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 IT Governance Environment
Value for money:
is management getting value for money from their IT spend / IT
skills? is IT addressing the business strategy?; IT accountability;
KPIs in the business; managing constant change in IT; and project
directors increasingly being major budget holders.
Internal audit:
Internal IT audit skills
outsourcing of internal audit
Technology:
imaging, data capture and electronic document management; use of
the internet; and knowledge management.
Corporate Governance:
Governance of controls and risk self assessment
Initiatives on control and risk self assessment.
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 Governance Services
Either in terms of the target of the review/advice, or the readership
of the report
Outsourcing:
continued outsourcing of IT (service level agreements);
outsourcing security administration; third party reviews.
Regulation:
Regulatory authority reviews; privacy/data protection laws;
Software licensing laws; Ethical IT; and health, safety and
environment issues.
Transactions:
Transaction Services, Corporate Finance;
Increased focus on IT security in commercial sector - new security
techniques.

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 Governance Methods and Tools

Process Assessment and Improvement Tools

Business Management Process BMP
Strategic Analysis, Performance Analysis
Process Performance Improvement (BPI)
– Balance Score Card (BSC)
– Active Based Costing (ABM)

Risk Management Tools

Environment:
– IT Risk Management Benchmarking (ITRMB)

Project:
– Project Risk Assessment: Project management Methodology (PMM)
– Project management Control Method: Rational Unified Process (RUP)

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 Business Management Process BMP

BMP is about assessing the risk our clients face. Business risks
are diverse and constantly changing:
as the business world becomes more and more reliant on
technology, technology risks become critical to manage

there are many points within the BMP audit in which the
technology component of business risk are addressed

Equations:
Business risk = Audit risk
Technology Risk = Audit risk
BMP‘s added value: by assessing of client risk in all its forms and
delivering more valuable business solutions to meet the client's diverse
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 Strategic Analysis

Strategic Analysis is the framework to process

the fundamental business risks associated with the client's
strategy
and their ability to execute that strategy

Understand Document
Identify
Review Bus. Objectives Review Findings and
Significant
Background Strategy Findings and Conclusions in
Strategic
Information & Technology Conclusions Workpapers
Risks
Use

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 Business Performance Analysis BPA

Focused area:
risk assessment and process analysis,
utilising information on key performance indicators.
Strategic and Process analysis, Testing control.
Approach
involves identifying and gaining an understanding of the client's key
processes for identifying business risks,
understanding how the client mitigates risk.

Perform BPA
Assist in BPA Document
For Key Review
for Key Findings and
Processes that Findings and
Processes that Conclusions in
are Highly Conclusions
are Technically Workpapers
Techn. Dependent
Dependent

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 Business Performance Improvement BPI

New Performance Design

Details
Measurement
Design Build New Org.
Design
High Solution
Details Build and Structure
Test
Level Design
Conceptual
Solution
Performance
Performance
Imple-
Deploy
IT Management
Management ment
Program
Program
Assessment
Focus
Focus Management
Management
Enhance
Envision
Enhance
Envision
Awaken
Certification
Strategic Plan

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 BPI: Visualization of Perspective
using Balanced Score Card (BSC)
How do we appear to our
How should we appear Financial shareholders?
to our customers? Perspective What financial outcomes
• Critical SuccessFactors
• Performance Indicators
do we need to generate?
• Targets

Customer Organizational Learning

Perspective Perspective
• Critical SuccessFactors Vision • Critical SuccessFactors
• Performance Indicators and • Performance Indicators
• Targets • Targets
Strategy

Process/Product
Perspective
• Critical SuccessFactors
What business processes must • Performance Indicators Are we able to sustain
• Targets
we excel at to satisfy our innovation, change and
customers and owners? Are these improvement? How will
processes effective (i.e. adding we maintain our ability to
value for customers)? Are meet customer expectations?
they efficient?

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 BPI Approach: Process Improving
“Best-in-class” Long-term Rapid Highly Consistently Critical
product customer development accurate competitive Success
delivery loyalty and and launch of customer pricing Factors
times satisfaction new products orders Business
Processes

9 7 1 6 9 Define
Process Impact Analysis Develop
2 5 2 3 4

Critical Success Factors 9 3 8 7 8 Produce

2 8 5 2 4 Market

Weighted average 2 9 1 2 2 Service

8 2 3 9 6 Account
Identify focused areas
Total Elapsed Time

Customer

Process Workflow
Visualization of bottlenecks

This Segment This Segment This Segment

Elapsed Time Elapsed Time Elapsed Time

Opportunities Benefits Costs Risks/Constraints

Estimating of Risks and Costs • Establish an Electronic Funds

Transfer (EFT) system in order
to eliminate the need to
generate cheques.
• Eliminates cost of cutting a
cheque. Savings of $1/claim
($110,000 a month)
• Increased customer satisfaction
• Comp-Sys can be used for
change at no cost; Time /
Resources required to revise
forms
• Need to create a link to Banks;
Banks require leadtime (3 and
15 days) to clear payments

• Implement a Document • Reduced time delays • ~ $1,000,000 ;

Benefits of Priority Opportunities Imaging Systemscanning and

processing to allow of forms,
receipts and related
• Reduced errors and inaccurate
payments to customers
• Reduced learning curve for new
Resources required to handle
the large volume of documents

documentation. staff
The new system must process over • Reduced hand-offs

Risks or constraints
30,000 documents/year.

• Enable Assembly Clerks to sort • Reduced bottlenecks • Requires retraining of staff • May require additional
and classify claim forms • Greatly increased productivity resources

• Create an electronic catalogue • Improved quality of reports • The cost of enabling this • Requires method for updating

associated with implementing

of existing reports. (Comp-Sys • Improved customer service change with Comp-Sys is the catalogue; Use of different
could be used to enable this $200,000. platforms makes access for all
change). difficult

• Process ID cards in Sales • Reduced delays to process and • Cost of forty new printers for • Requires additional time to
Offices (may require additional print cards ID cards at a cost of $2,000 install printers in offices
printers) each, plus installation/tests
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 Risk Assessment Methods

Risk Assessment considers management's perceptions,

assumptions, and judgments about business risks and controls. It
delivers audit evidence through substantive audit procedures.
IT Risk Management Benchmarking (ITRMB)
Project Management Methodology (PMM) Project Risk Assessment
Project management and control: Rational Unified Process (RUP)

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 IT Risk Management Benchmark
ITRMB
Scope:
provide an objective means of reviewing the risks in relation to use
of IT, and ensure that they are being controlled
provide a means of benchmarking organisation’s key IT Risks and
Controls against other organisations;
review organisations' IT Controls against the BS7799.
Benefits:
Substantiate issues reported to management
Allow management to benchmark corporate performance in the
fields of IT risk and IT controls.
Provide a high level assurance to management of their compliance
with the British Standard on IS Management;
Allow management to benchmark internally. i.e. between different
operations.
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 Project Risk Assessment

Scope of Process:
involves the identification, analysis, management and monitoring of
risk
Approach after identification of potential risks:
determine the relative exposure in terms of time and cost, to reduce
the level of risk to an acceptable level.
identify both preventive actions and contingency actions (to mitigate
the impact of the risk if it materializes)
Benefits of Risk Management Process :
Is proactive, focusing on prevention rather than cure
Includes periodic risk assessments throughout the work lifecycle
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