The basic management controls required to run an effective IT organization are quickly becoming a lost art. Many companies have lost touch with the fundamentals of IT management. The industry originally learnt these fundamentals during the 1970s and 80s, but today there are large numbers of IT organizations with surprisingly weak management controls.
As a result, these companies are often unable to perform basic IT functions, such as building coherent business cases, assessing project risk and developing accurate capacity plans.
How did this happen? The enormous expenses associated with Y2K, and the huge losses induced by the dotcom's bursting bubble, produced more animosity than gratitude toward IT. Many IT organizations (and CIOs) lost significant credibility in the post-Y2K era. Management's desire to cut back on IT was exacerbated by a struggling economy and falling profits. Consequently, most IT budgets were cut severely and repeatedly. Virtually everything beyond maintenance for existing systems often got axed, leaving few resources for new development.
To complicate matters further, the industry lost many experienced executives. CIOs grew tired of the never-ending budget wars and constant attacks, and many (who could afford to) retired. Unfortunately, they took their expertise with them. The CIOs who replaced them often lacked expertise in delivering new applications, since their experience was acquired in an era dominated by maintenance.
For that reason, many IT organizations no longer understand how to prioritize projects effectively, establish cost accounting procedures or accurately estimate a new system's production costs.
For example, one client recently requested a "sanity check" on a $US500 million plan to redevelop its legacy applications. The review revealed that the ongoing production costs for the new applications had been underestimated by roughly $40 million a year. The CFO postponed his presentation to the board of directors and sent the program team back to the drawing board, before the erroneous numbers became set in stone. Unfortunately, many CFOs don't learn of such errors until they show up as significant budget overruns, when it's too late to reset expectations.
Insufficient management controls also complicate outsourcing efforts. Without accurate business cases, you may make the wrong outsourcing decisions. And afterward, your ability to work well with your outsourcer will rely heavily on areas such as capacity planning, specification review, change control, acceptance testing and cost accounting -- basic management controls. Without these controls, you will have difficulty selecting, managing and benefiting from your outsourcer.
In order to upgrade your management controls, focus on basic blocking and tackling:
- Adopt well-understood management practices. Unfortunately, IT doesn't yet have an equivalent of generally accepted accounting principles or a financial accounting standards board to establish industry standards. However, well-defined procedures for systems development, change control, problem management and so on are available from sources such as consulting and research firms. Some companies are starting to use the IT Infrastructure Library framework from the UK, although it isn't yet widely used.
- Leverage existing expertise. Basic controls are well understood by "grey hairs" in the industry. Get advice from experienced executives or outside experts to speed the process and avoid reinventing the wheel.
- Enlist internal support. Partner with internal audit or accounting to help build the case for establishing strong internal management controls.
Regulations such as the Sarbanes-Oxley Act, and the Basel II (regarding financial services) demand strong controls to ensure compliance. Moreover, internal audits can often provide valuable feedback regarding the quality of any existing controls.
- Develop a rollout plan for implementing new controls. Don't attempt to establish all the needed controls at once. In large companies, this effort can easily require years to finish. Break up your control improvement program into a series of interleaved projects.
- Don't give up. Although basic controls are necessary, they are often unpopular. You will probably face resistance from people who don't like structure. Persevere!
Basic management controls are critical to successful IT management. They bring much-needed discipline to your organization and enable you to deliver products and services more effectively.
The success of your IT organization depends largely on effective use of basic management controls. Refocus on the basics.
Bart Perkins is managing partner at Leverage Partners and was previously CIO at Tricon Global Restaurants and Dole Food