IT GOVERNANCE WITH ISO 38500

firms with effective IT governance have 20% higher profits than their competitors (MIT, 2009)

Gooimeer 4 1411 DC Naarden Netherlands Tel: Web: Email: +31 35 6783922 www.bastagroup.nl office@bastagroup.nl

MATS BEEM @ gmail.com +31 614 026 541

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MATS BEEM @

Content

- introduction - the courses & workshops - why should I have IT governance at all? - why ISO 38500? - ISO 38500: for whom? - the 6 principles - the model - evaluating, directing and monitoring

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- these are the supporting slides, used in a half-day

introductory course on ISO 38500

- ISO 38500 has a stakeholder rather than shareholder focus tells you what you should have, not how you should
do it, but some have far reaching consequences

- some suggestions on how to implement are included. - Our implementation guideline comes with an
implementation workshop.

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The courses and the workshops

introduction to IT governance with ISO 38500 ISO 38500 gap analysis training & workshops day, max 15 participants 2 day training, 8 hours preparations + homework, 2 day workshop. 3-7 participants

ISO 38500 implementation training & workshop

2 day training, + homework, 2 day workshop. 3-7 participants

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- IT is a business responsibility* - effective use of IT requires effective governance

for value delivery & IT impact risk management

- ISO 38500 compliance requires formalised

governance as you need to be able to demonstrate that you comply

- existing IT governance frameworks (like BiSL) do not address the board & director level or are
too complex (COBIT)

are more suited to a bottom up extension to ISO

38500, than to be used on their own

are more ITish

*According to ISO 38500: Responsibility for specific aspects of IT may be delegated to managers within the organization. However, accountability for the effective, efficient and acceptable use and delivery of IT by an organization remains with the directors and cannot be delegated.:

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Different studies show:

- when true costs are added up only 20% of projects with a

positive ROI
(Mercer, 2001, BASTA 2004-2010)

- only 32% succeeded (Standish Group 2009), even worse

than 2002 with 34% successful projects (Standish Group)

- estimated over $50 Billion write-offs per year on IT - after software development projects have been delivered: - the estimated costs of software defects are still $60 Billion
annually (USA, National Institute of Standards and Technology, 2002) but:

- results with very experience project managers and good

governance are twice as good
(Chris Sauer 2007, Mats Beem 2010)

- firms with effective IT governance have 20% higher profits

than their competitors (MIT, 2009)
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Failing IT can have major impact on the bottom line and can even cause the company to fail example, case CETECO: - during explosive growth, a software implementation failed - as a result the company no longer had insight in who owed them money or who had payed - the company is now bankrupt and all directors have been sentenced to pay damages to the shareholders (current estimation 190 Million)

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ISO 38500: for whom? Internal:

- all of senior management (all the way up to the

supervisory and executive boards)

- auditors - internal service providers

External:

- advisors/specialists - service providers - auditors

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ISO 38500: what is it for? Board of Directors:

- assurance that you can have confidence in your IT

governance as part of your corporate governance All directors:

- guidance in how to govern IT

Auditors and directors:

- basis for objective evaluation of IT governance

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ISO 38500: the principles 1. responsibility 2. strategy 3. acquisition 4. performance 5. conformance 6. human behaviour

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ISO 38500: responsibility the responsibility principle:

- understanding (what is included and

what does the responsibility mean) and accepting (I agree that I am responsible and I feel responsible) responsibility for supply and demand of IT have the authority (explicit and well documented, part of the normal, overall command structure)

- those who have the responsibility also

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ISO 38500:strategy the strategy principle:

- business strategy takes into account current and

future capabilities of IT (does the strategy make appropriate use of what IT can and cannot do, does the strategy take into account what needs to be changed in IT in order to achieve the business goals) business requirements (having been involved in establishing current requirements and being involved in regular evaluations, being involved in the processes of business planning and strategic planning)

- the IT strategy takes into account current and future

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ISO 38500:acquisition the acquisition principle: - IT is acquired for valid reasons (in line with business & IT planning) based on appropriate and current analysis (positive business case with regular evaluations), with clear (unambiguous) and transparent (process and reasoning are clear to all who need to know) decision making - there is appropriate balance between benefits, opportunities, costs and risks, both in the short and long term (does the business case take all of the above into account?)

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ISO 38500:performance the performance principle: - IT is fit for purpose in supporting the organisation, providing the right services at the right service levels, for both current and future requirements (there is no such thing as a good car, a minivan, a truck, a sportscar all serve different purposes, there is no such thing as good IT, it needs to be fit for purpose)

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ISO 38500:conformance the conformance principle: - IT complies with all mandatory legislation and regulations (e.g.: security standards, privacy legislation, spam legislation, trade practices legislation, record keeping requirements, environmental legislations, health and safety legislation, accessibility legislaton, social responsibility standards)

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ISO 38500:human behaviour the human behaviour principle: - IT policies, practices and decisions demonstrate respect for human behaviour, including the current and evolving needs of all the people in the process

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Business pressures

evaluate direct
Plans & Polici es

Business needs

Propo sals

monitor
Perfor mance Confor mance

Business processes

IT projects

IT operations

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Directors should govern IT through 3 main tasks:

N.B.: not just the IT directors, but directors in general including the board(s) (one of the starting points of ISO 38500 is that the director responsible for IT is a business person). all three tasks are processes, that should be repeatable and that you should be able to demonstrate that you have them and that hey work if you organise the processes well, you get formal compliance (being able to demonstrate compliance) for free, if you dont organise them well, it will be extra overhead, resulting in extra costs and lowered agility 1. give direction and manage, where should we go with IT: direct preparation and implementation of plans and policies, to ensure that the use of IT meets business objectives 2. check if it works, did we do what we planned: monitor conformance to policies and performance against plans 3. judgement, how are we doing with IT: evaluate current and future use of IT. Evaluation is beyond checking if you have done what you planned to do

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ISO 38500 xample where/how to implement -1

- strategy:

have the IT director in on all meetings where you have business

- business planning have the IT director in on all meetings where you have business

directors & have actions & decisions documented of each meeting at least once a year, organise a session, challenging the business directors, IT director, BIM & architecture, to come up with ways to address strategic business issues, solving problems & coming up with possibilities to improve the competitive position make sure business and IT make it a common activity

directors & have actions & decisions documented of each meeting organise a session (at least once a year), challenging the IT director, BIM and architecture, to join forces with at least one business director and his delegates, to come up with concrete improvement plans based on the suggested ideas in the strategy sessions

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ISO 38500 example where/how to implement -2

- portfolioplanning have the IT director in on all meetings where you have business directors have actions & decisions documented of each meeting have 3-7 (preferable 3-5) business programmes that are to implement the business goals from the business plan have the business owners of the business goals be the business owners of the programmes, be the chairpersons of the respective steering committees it is likely, that IT plays a role in all programmes, make sure sessions are organised, where the business programmes and ideas for implementation are confronted with the best specialists in IT* in order to get good estimates on consequences track progress on all programmes, document well - IT budget have the IT director in on all meetings where you have business directors who has the benefit will pay the cost if benefit allocation is hard or impossible, who drives the cost will pay the cost if owners of cost drivers are (too) hard to find, allocate costs by generic overhead rules rule of thumb: maximum of 20% via general overhead**
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ISO 38500 example where/how to implement -3

- business cases have the IT director in on all meetings where you have business directors use discounted cashflows for each business case use a risk adjusted interest rates for all calculations close to your normal cost of capital for replacing something you already have 1% up to 15% risk adjustment for individual projects, depending on the specifics of the project calculating consequences for your financial accounts is a separate exercise, that should not be the basis for decision making - ops review have the IT director in on all meetings where you have business directors part of the agenda: tracking ops consequences of the portfolio, get input from the portfolio-committee and give conclusions as feedback

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The responsibility principle in practice: - evaluate: what are the options for assigning responsibilities? taking into account the way IT should support the business & the competencies of the people give those responsibilities business managers should be responsible, supported by IT specialists. In order for them to be responsible and successful, the business managers need to be IT savvy (be able to judge IT) and IT managers need to be business savvy (at least understanding business processes and values in the context of the business strategy) direct: directors should assure that plans are carried out in line with responsibilities and that they get the right information to carry their (directors) responsibility - monitor: are the right mechanisms in place? do all understand and take their responsiblity? what is their performance?

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The responsibility principle in practice -2:

- although the principle is clear, responsibilities in practice often arent, how to solve it*? An example of a pragmatic approach that works (a more detailed program is available): - make 2 - 5 teams, 1-2 from IT, 1-3 from the business & a facilitator that knows corporate governance, IT governance, ISO 38500 and has hands on IT management and executive experience - ask the IT teams to produce a list of their outputs for the business and the business for a list of their expected outputs from IT - ditto for the processes: what are the processes that create the outputs according t IT and what according to the business - create one list of outputs and processes in a combined IT/business workshop - in a second workshop: define the responsibilities per step, make sure the authorities are aligned with the responsibilities - confront the responsibility chart with the formal organisation and resolve issues where necessary

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The strategy principle in practice -1:

- evaluate: regularly look at how IT and the business (processes) are developing, ensuring that IT will provide for future business needs in all plans and policies, ensure that IT activities are in line with requirements (possibly changing due to changing circumstances) and risks are appropriately dealt with - direct: directors must make sure that the organisation benefits from IT, including innovative use of IT that is necessary to respond to new challenges or opportunities - monitor: directors should monitor progress of IT proposals (projects, renewals) in all their aspects, including the achievement of its intended benefits

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The strategy principle in practice -2:

(a more detailed program to set up IT-business alignment/integration is available): IT needs to be in the process of strategy development and understanding the strategy needs to be in the process of IT development* this requires business savvyness in IT and IT-savvyness in business, including the board Business Information Management and Architecture are the critical functions to get right to get these functions right, you need the right competencies

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ISO 38500: strategy, about competencies

- some competencies can be learned or improved significantly but some competencies cant, they are more or less hardwired in the individuals brain - if a competency that cannot be trained is essential for a certain role, be sure to treat this competence or these competencies separately (competence management frameworks typically do not distinguish between the two (can be trained/cannot be trained)!) - 3 As and an F is still good on average, but an F for an essential competence that is not trainable will always lead to failure - ideally, all competencies mentioned per role/function will be present in each employee with that role - it is usually sufficient however, to have the competencies for the role rather than the individual, as that makes it easier (but still difficult) to get the right people - in italics are the skills that everyone in the role should have (distinguishing between technical- and business architects) - there are some extra conditions to be met, that will be different in each situation
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ISO 38500: strategy, about competencies and business IT alignment/integration - 60-80% of IT project failures* can be contriabout the business buted to poor requirements, poor analysis, miscommunication. What to do:

put together a program for (at least) senior IT staff, to learn ditto for teaching non-IT managers & directors enough about
IT (IT-savvyness programme)

an IT posting should be part of all career paths to the top dont compromise on quality when hiring Business Information
Managers and architects (see next two slides)

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Business Information Management:

- can conceptualise operational, technical & business issues - can operationalise concepts (NOT the same as the above!) - oversees the whole and understands how things are connected and how they impact each other - can explain a problem to different audiences, changes wording accordingly - score high on the in basket test - know the business domains - can visualise concepts

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Architecture:
- technical architects: can conceptualise technical issues can operationalise technical concepts (NOT the same as the above!) oversees the whole of the technology architecture and understands how things are connected and how they impact each other know about construction by theory and experience - business architects: can conceptualise business issues can operationalise concepts (broader than just technical) oversees the whole and understands how things are connected and how they impact each other - translate business goals in technology solutions working with technical architects and specialists - score high on the in basket test

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The acquisition principle in practice: - evaluate professional judgement of business cases (treated like other

business cases) look at IT alternatives for the proposed solution (there is always an alternative) use the appropriate interest rate/IRR (internal rate of return): cost of money in the financial markets: when there is risk, you risk adjust (see SFBs Return on IT presentation) direct have the right people involved (judgement, professional skills & the numbers and use a professional process and documentation monitor make sure you can get the numbers from your financial system exactly the way you made your business case involve suppliers enough in the process to have a common understanding of why and under what conditions you want to acquire

*our experience shows that responsibilities arent as well described as the board expects them to be

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The performance principle in practice fit for purpose: being able to judge if IT is fit for purpose, requires
alignment to function properly (see the strategy principle and the SFB presentation: how to get business IT alignment right) addressed by having proper processes for the whole of IT in place and get the risk management as a result. If all risk areas are addressed in isolation, the cost usually rises and the agility will suffer relevant issues and if we agree on the proposals, does it provide us with the IT we need? what it needs when it needs it and make sure the right resourcing is available organisations needs? (supporting the business, right priority resourcing, policies followed properly)

the focus on risk in ISO 38500s performance principle is best

- evaluate: are proposals for renewal or innovation addressing all - direct: direct those responsible to make sure the business gets - monitor: can you actually conclude that you get the IT your

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The conformance principle in practice: - evaluate: conformance to internal policies and guidelines, regulatory, legal and -

contractual obligations and to professional guidelines where applicable conformance to the (organisations own) system of governance of IT direct: those responsible to establish mechanisms that ensure compliance with relevant obligations to ensure that policies exist and are enforced that enable the organisation to comply with internal obligations that IT staff follow relevant guidelines for professional behaviour and development actions relating to IT to be ethical monitor: compliance and conformance using appropriate reporting and audit practices IT activities to ensure that all relevant obligations are met

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The human behaviour principle in practice: - evaluate: ensure that human behaviours are identified and considered - direct: It activities to be consistent with human behaviours that any issue (risk, opportunity, concern, generic issue etc) can be
raised by anyone at any time

issues that are raised are addressed according to the rules (policies,
procedures) and escalated to the right level of decision making

- monitor IT activities to ensure that identified hman behaviours are relevant

and paid proper attention

work practices, to ensure consistency with the right use of IT

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