The Book on Better Investment

Without good governance, IT investments can be wasted. That's why the feds and other governments are turning to Val IT.

by / July 9, 2007
John Thorp, management consultant, author and leader of the "Val IT Initiative," has been saying it for 45 years: When it comes to IT governance, progress hinges on getting the right people to have the right conversation.

This paradigm is the basic objective of Val IT, an IT governance framework in book form released in April 2006 by the IT Governance Institute (ITGI). The manual details generally accepted principles for the definition, management, evaluation and selection of IT-enabled business investments, including benefit realization and delivery of value from those investments.

"Get them in the room -- the IT people and other stakeholders -- and make sure they don't leave the room until there is absolute clarity on what outcomes you want to achieve, what is the full scope of effort required to achieve the outcomes, who's accountable, what the metrics are to tell you are going in the right direction and how you're going to manage the process to realizing the outcome," Thorp said. "Val IT is intended to facilitate that conversation process."

The problem Thorp and others from the ITGI have found is that in many organizations, there is a chasm between IT investment and IT value. On average, 20 percent of IT expenditure is wasted each year, with annual losses of $600 billion worldwide, according to a 2002 Gartner publication. Without effective IT governance, organizations are finding their IT investments fail to create business value, and in some cases erode or destroy value.  

The problem lies in governance, Thorp said. Many organizations adopt what Thorp calls the "Star Trek school of management," where senior executives, like Star Trek's Capt. Jean-Luc Picard, give orders instead of using careful planning tactics.

"Executives say, 'Make it so' without themselves understanding what it is," Thorp said. "So everyone runs off and gets busy, so there's not clarity on what the outcome is."

But with successful IT governance, an organization can become a leader in its respective field, according to the ITGI, citing IBM's savings of more than $12 billion in two years by linking disparate pieces of its supply chain.  

COBIT Complement
Val IT was designed to complement the framework Control Objectives for Information and related Technology (COBIT), which provides managers, auditors and IT users with proven measures, indicators and best practices that help maximize the benefits of IT and develop appropriate IT governance. Indeed, Val IT focuses on investment decisions and the realization of benefits, while COBIT primarily concentrates on IT execution. Combined, these frameworks provide a wealth of information related to IT governance.

Val IT engages an organization's board, executives and other parts of the business, in partnership with IT, to ask four key questions: Are we doing the right things (alignment)? Are we doing them the right way (architecture)? Are we getting them done well (delivery)? Are we getting the benefits (value)? These questions, Thorp said, should form the foundation of a comprehensive governance framework that manages IT investments through their full economic life cycle.

"The bottom line is that we no longer invest in IT; we invest in business change investments that are enabled by IT," said Peter Harrison, consulting director at Fujitsu Consulting in Australia and a member of the Val IT Advisors Team. "So decisions are business decisions, not IT decisions."  

Harrison, who worked with Thorp on the Val IT initiative, outlines three main components of it:

  • value governance: establishing the right structures, processes and leadership;
  • investment management: managing investments as programs of business change and focusing on achieving business benefits; and
  • portfolio management: picking the most successful candidates based on value.

Any organization can implement Val IT practices, Harrison said, because Val IT processes can be tailored to the culture and size of the organization. Although the Val IT framework has been available for less than a year, its practices have been used by many organizations for more than a decade. Val IT principles are an integral part of the federal government's spending on IT. The federal Office of Management and Budget (OMB), which oversees the estimated $64 billion annual federal IT budget, has used Val IT principles. And the Federal CIO Council consulted Thorp's The Information Paradox as a reference.  

"The Capital Planning Investment and Control [CPIC] process has all the principles of Val IT -- to be able to rank and stack those assets in an objective way, the accountability for results, the process to determine where you are getting results, the rigor to cancel and modify investments," said Russ Caple, a vice president for Fujitsu Consulting and co-author of The Information Paradox. In 1997, federal agencies were mandated by the Clinger-Cohen Act to use the CPIC process to evaluate all IT investments.

Feds Warm Up to Val IT
A key to successful IT management -- as outlined by Val IT -- is accountability. To secure federal funds, federal agencies must first submit an "Exhibit 300" to the OMB, which is a "summary of the investment's current justification and management plans including a project plan, benefit-cost analysis, alternative analysis, acquisition plan, risk management plan, human resources management plan, enterprise architecture and IT security plan," according to the OMB.

Using predetermined scoring criteria to assess these submissions, the OMB can objectively rank and prioritize the federal portfolio for IT investments. For IT investments that are proposed or are under way, the OMB and the Capital Investment Review Board determine if investment funding should be continued.

Every year, each agency reports to the OMB, which then reviews the agency's investments and their current status, assessing whether the agency has accomplished its goals. If the investment doesn't perform as outlined, Caple said, funding may be reduced or discontinued.

Fujitsu Consulting acts as an internal OMB for the U.S. Department of Homeland Security (DHS), and Caple said his firm has already helped improve the DHS's investment quality by filtering out unnecessary projects.

"Every year literally hundreds of millions of dollars in investments get deferred or canceled," Caple said. "We wear the OMB hat for the DHS and prevent a great number of investments from even reaching the OMB because of the Val IT principles."

Organizations both public and private worldwide have adopted the Val IT principles, including in Queensland, Australia and Mendoza, Argentina. Private-sector examples include Unisys, Sun, Prudential Asia, Allstate and Harley-Davidson. Still, officials familiar with Val IT principles wonder why more organizations aren't adopting them.

"It is a remarkable accomplishment for the federal government to successfully adapt portfolio management principles such that they become business as usual," Caple said. "At the same time, it's an unusual way of business because very few public and private organizations have institutionalized the principles such as those defined in Val IT."


Chandler Harris is a regular contributor to Emergency Management and Government Technology magazines. He also writes for Digital Communities magazine and is the former editor of Shout Out newspaper. 

Chandler Harris Contributing Writer