IT Governance

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 Version Author                                  Change                                                                             Date
 1.0     David Heise and                                                                                                            June 2007
         Dale Williams
 1.1     David Heise                             Updated from Version 1.0                                                           22-Feb-2010
 1.2     David Heise                             Refined Annual Portfolio Review Cycle                                              13-May-2010


This document updates the IT Governance process for Sanitarium that was proposed in June 2007. It
aims to:
       - enhance the prosperity and profitability of the company through improved return on the
         investment in IT
       - raise the level of inclusiveness of IT in enterprise project planning to further improve the
         strategic relevance of project planning and approval
       - foster business ownership of decision making and accountability for projects involving IT
         resourcing
       - institute processes for:
              o defining enterprise architecture, standards, policies and procedures
              o prioritizing, approving, and managing the portfolio of projects that involve IT, both
                  those performed with internal resources and those requiring additional capital
                  funding


Contents
1.     Defining the IT Governance Role and Process ................................................................................ 2
       1.1.     The IT Steering Group (ITSG)................................................................................................. 2
       1.2.     Approving Enterprise Architecture, Standards, Policies and Procedures ............................. 2
       1.3.     Defining the Project Evaluation Framework ......................................................................... 2
       1.4.     Selecting the Optimum Portfolio of Projects ........................................................................ 2
       1.5.     Approving, Prioritizing, Resourcing and Monitoring Projects............................................... 3

2.     Portfolio Management Approach ................................................................................................... 3

3.     Portfolio Management Activities .................................................................................................... 3
       3.1.     Project Evaluation and Listing in the Portfolio ..................................................................... 4
                Project Evaluation ................................................................................................................. 4
                Listing in the Portfolio ........................................................................................................... 4
       3.2.     Annual Portfolio Selection, Prioritization and Approval ....................................................... 4
       3.3.     Approval for Release of Funds .............................................................................................. 4

Appendices.............................................................................................................................................. 6
       A1       Project Management Framework Categories ....................................................................... 6
       A2       Portfolio Management Tool .................................................................................................. 7
       A3       Portfolio Management Process Flowchart ........................................................................... 9

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            1. Identify Business Need .................................................................................................... 10
            2. Do Portfolio Assessment (in tool) ................................................................................... 10
            3. List in Portfolio? .............................................................................................................. 10
            4. Select & Prioritize Portfolio (Roadmap) .......................................................................... 10
            5. Complete Business Case ................................................................................................. 11
            6. Approve Funds? .............................................................................................................. 11
            7. Prioritize, Resource, Initiate, & Monitor ......................................................................... 11
    A4      Annual Portfolio Review Cycle ............................................................................................ 12
            1. Review Portfolio with Business Areas ............................................................................. 12
            2. Prepare 1st pass Portfolio Recommendations................................................................. 12
            3. Present Portfolio to ITSG................................................................................................. 13
            4. Approve Portfolio and Roadmap .................................................................................... 13


1. Defining the IT Governance Role and Process
1.1. The IT Steering Group (ITSG)
The peak decision-making body charged with the managing Trans Tasman IT investment is a group
consisting of the General Manager Australia, General Manager New Zealand, General Manager
Commercial and the Group IT Manager.

The responsibilities of the ITSG include the following:

        Approve Enterprise Architecture, Standards and Policies
        Define the Project Evaluation Framework
        Select a portfolio of projects that optimizes business value, cost, risk, and other factors
        Approve, Prioritize, and Resource Projects

1.2. Approving Enterprise Architecture, Standards, Policies and Procedures
Policies and standards are developed within the IT organisation to maximise the value and minimise
the maintenance and support costs for the IT investment. As new technologies and applications are
implemented, the enterprise architecture, standards and policies may need revision. Approving
revisions is an ongoing responsibility of the ITSG.

1.3. Defining the Project Evaluation Framework
A framework of strategically relevant criteria is used for evaluating, approving, and prioritizing
projects that are aligned with corporate objectives. This framework specifies enterprise-level critical
success factors (CSFs) for assessing projects and aligning them with corporate key objectives.

The framework was developed by IT management using interviews with other business managers as
part of the process of determining a set of critical success factors against which the strategic fit of
proposed projects are assessed. This framework forms the basis of the Portfolio Management
approach that is used for evaluating, comparing and prioritizing projects.

1.4. Selecting the Optimum Portfolio of Projects
Significant projects are listed in the project portfolio and are assessed against the approved
evaluation framework. Annually a portfolio of projects, a (or Roadmap, as it has been called in the
past), is approved and prioritised for the next budget year, along with any associated capital and
operational expense to purchase, implement, maintain and support the projects. These costs may


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include:- depreciation, hardware and software maintenance, telecommunication cost for greater
bandwidth and increases in staffing costs to cover additional technical and functional support, etc.

Processes are being also developed for projects and change requests with no capital requirement so
that business and IT management have better visibility of the demands being placed on IT resources,
allowing better informed decisions about prioritizing and resourcing.

1.5. Approving, Prioritizing, Resourcing and Monitoring Projects
Listing a project in the Project Portfolio does not imply approval to initiate the project, and neither
does selection of a project for inclusion in the annual Roadmap and allocation of IT Capital. A CapEx
must be raised, in accordance with the Capital Expenditure Policy, in order to request the release of
funds. The ITSG, or one or more of its members, authorises CapEx and resourcing requests and
monitors the project during implementation and beyond.

A Project Management Framework is being developed for all IT projects and change requests and
will be used to list and prioritize all projects, regardless of size or requirement for capital (See
Appendix A1).

In this Framework, only those change requests referred to as “Major Projects” have the possibility of
requiring a capital budget. Processes for assessing, prioritizing and approving capital projects are
quite well established but significant business value is obtained from projects that do not have a
capital component and the governance process for ensuring optimal value from the investment in
these projects is less well defined. One of the goals of the IT Project Management Framework is to
raise the visibility and level of business involvement in IT projects that do not have a capital
component.


2. Portfolio Management Approach
A Portfolio Management approach has been adopted to replace the somewhat informal process that
had been in place for approving IT capital requests. This provides a structure for evaluating
competing projects and for selecting and prioritizing projects that produce optimal outcomes using
criteria such as strategic goals and objectives, risk, costs, timelines, resources, and other critical
factors. Software tools are available to assist with project assessment against criteria (the project
evaluation framework) to ensure that the best competitive outcomes for the IT investment are
achieved (see Appendix A2 for further details).


3. Portfolio Management Activities
Managing the portfolio will involve three main activities. These activities are summarised in the
following table and are described in the following sections.

Activity                                              Performed by:                        When?
1. Project Evaluation and Listing in the Portfolio    Business stakeholders and IT staff   On demand
2. Portfolio Selection, Prioritization and Approval   IT Steering Group                    Annually
3. Approval for Release of Funds                      Members of IT Steering Group         As needed




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3.1. Project Evaluation and Listing in the Portfolio
The steps for getting projects listed in the IT Portfolio are performed by the Business Area
stakeholders and appropriate IT staff. The Project Listing process is used on demand as ideas arise,
are suggested, or are mandated. See Appendix A3 for further details of the process.

Project Evaluation
The research into alternatives and assessing them against the framework is the joint responsibility of
the IT Managers and the business owners for projects being proposed (this can include other
project stakeholders and others from IT as appropriate). As projects are proposed, this group will
score them against the Critical Success Factors identified in the framework. This approach will be
used to 1) select and recommend an option when there are multiple alternatives and 2) comparing
the relative business merit of one project versus another. Portfolio Management software tools will
be used to support this process. Project Evaluation takes place on demand as project requests are
raised.

Listing in the Portfolio
Projects will be listed in the portfolio as a result of regular interaction between IT and other business
areas. In addition to this regular interaction, IT will formally engage with business managers starting
in September of each year to proactively identify all projects that have not yet been shown on the
Roadmap. Ideally, projects for the coming financial year need to be listed in the Portfolio by the end
of December so that they can be properly assessed and ranked for capital and operating budget
purposes. Operational costs include ongoing depreciation, hardware and software maintenance, and
staffing for support, etc. (external implementation consulting costs are capitalized, internal
implementation resources are funded as part of the IT operating budget.)

3.2. Annual Portfolio Selection, Prioritization and Approval
The IT Steering Group will select a final portfolio of projects that optimises business value, cost, risk
and other factors, and maximises alignment with strategic business objectives. The group will
prioritize projects in the portfolio and place them on the roadmap for the coming year, reviewing
strategic evaluation scores where necessary. The roadmap process is performed annually.

Using the graphical aids in the portfolio management tool, this group will select and approve
projects for the annual IT capital budget (see Appendix A2 for more information about tools). The
annual approval process will have a view of the entire IT Portfolio, spanning 3 to 5 years, but it will
focus on the capital and operational cost implications of projects being proposed for the next budget
year.

For effective alignment between corporate objectives and IT strategies, the Enterprise Roadmap that
is approved will include New Zealand as well as Australian projects. This will help ensure consistency
in the IT Architecture across the enterprise and ensure adequate planning for managing resources
needed for project implementation and ongoing support.

3.3. Approval for Release of Funds
Process
The process of approving the release of funds is performed by the appropriate members of the ITSG
with input from Business Area stakeholders and IT as needed. The process includes the following
steps:


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    1. If the project warrants, prepare a Business Case – refer Capital Expenditure Policy
    2. Review the strategic alignment assessments in the Portfolio Management tool, and if
       necessary, repeat the scoring using information in the Business Case
    3. Approve project in line with strategy, and approved portfolio
    4. Revise operational budget expectations as necessary

Documentation
For projects to be approved for listing on the 12-month Roadmap, all that is required is a Project
Brief with Budget Estimates.

A Business Case is required for the Release of Funds. For small projects, this can be embedded as a
paragraph or two on the CapEx form. For projects larger than $100K, a separate Business Case
document will be compiled in accordance with the company Capital Expenditure Policy.

Signoff Authority
Depending on the CapEx amount, those with signoff authority for Australian IT Capital Projects are
David Heise (Group IT Manager), Dale Williams (General Manager Commercial) and Kevin Smith
(General Manager Australia). The signoff limits are set by the General Manager Australia and are
revised as circumstances demand.

 Project Value      Signoff
 < $20K             Group IT Manager
 < $300K            General Manager Commercial
 < $600K            General Manager Australia




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Appendices

A1 Project Management Framework Categories
All change requests that come to IT are classified into to one of four categories:

    1.   Simple Change   – a basic request
    2.   Large Change    – needs some organising
    3.   Small Project   – needs to be actively managed
    4.   Major Project   – significant resource impact, Politics, has OPEX &/or CAPEX Budget

The framework includes guides on the tracking tools to be used for each kind of change request,
such as iServe, Beacon, and Microsoft Project Server.

                                                 Simple      Large     Small     Major
              Tool                               Change     Change    Project    Project
              iServe                                Y          Y          Y          Y
              Additional Documentation              N          Y          Y          Y
              Documents stored in Beacon            N          Y          Y          Y
              Individual Beacon Site                N          N          Y          Y
              Project Management Tool               N          N          Y          Y
              Portfolio Management Tool             N          N         N           Y


The framework also includes guides for setting out the kinds of documents that are created and
maintained for each kind of change request, such as project brief or business case, technical
specifications, post-implementation review evaluation, etc.

                                                 Simple      Large     Small     Major
              Tool                               Change     Change    Project    Project
              Enhancement Request                   Y          Y          Y          Y
              Technical Specification               *          Y          Y          Y
              Implementation Plan                   *          Y          Y          Y
              Project Brief                         N          N          Y          Y
              Project Definition                    N          N          Y          Y
              Formal Acceptance Doc.                N          N          Y          Y
              Evaluation Report                     N          N          Y          PIR
              Budget, Stakeholder Reports           N          N         N           Y
                                                    * Text held in iServe Request




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A2 Portfolio Management Tool
Portfolio management tools are available that allow strategic goals and objectives to be captured.
Critical success factors derived from these strategies can be entered as evaluation criteria, and the
tools assist with evaluating projects against the criteria. Assessments of strategic fit and other
measures can be reported on and analysed interactively, including regular report formats as well as
graphical representations.

One of the graphical tools available in portfolio management software is the “bubble diagram”. In
the example on the next page, the axes represent Cost and Strategic Value (as scored against the
strategic objectives and critical success factors configured in the tool). The placement of the bubbles
on the chart indicates the value of these two measures. The colour of the bubble represents Risk,
and the size of the bubble represents Financial Benefit. So the ideal projects would be ones
represented by large green bubbles towards the top left of the chart. You would want to avoid red
bubbles at the bottom right, unless they were mandated by regulation or by customers.

The idea of “portfolio” comes from the fact that you would include a mix of projects where some
were mandatory, some were “safe” projects, and, budget permitting, some were higher risk but
potentially breakthrough projects strategically.

See the next page for an example of a bubble diagram. Note the following dimensions that are
plotted on the graph:

        X-axis          - Total One Time Cost
        Y-axis          - Relative Strategic Value
        Bubble size     - Total Financial Benefit
        Bubble colour   - Project Risk




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A3 Portfolio Management Process Flowchart
The process for gaining approval for IT projects can be represented simply by the flowchart below.
This flowchart highlights two important aspects of the process:

        1. Approval is a multi-step process
           Projects must first be listed in the Portfolio using the Portfolio Management tool to score
           the project against the assessment framework. This is done on demand by appropriate
           people from the Business and IT. The next step is for the ITSG to select and prioritize
           projects for the annual Roadmap and capital budget process. Finally, formal requests for
           capital funding are prepared and this may require the preparation of a formal Business Case.

        2. Business sponsorship of IT projects is essential
           It can be misleading to consider these projects to be “IT” projects. Typically, they are actually
           business projects with IT elements. For this reason, it is essential that the projects be
           sponsored by the requesting business areas, not by IT. IT will be closely involved in a
           consulting role and to help manage the implementation.

The following diagram charts a high-level summary of the process for approving IT projects, from
listing in the Portfolio through to prioritizing and implementing. The process is described on the
following pages.

IT Portfolio Item Approval Process
 Business Area
   (any time)




                   1. Identify
                 Business Need
 Business & IT
 (on demand)




                 2. Do Portfolio
                                       3. List in               5. Complete
                  Assessment                              No
                                       Portfolio?              Business Case
                     (in tool)

                                          Yes
 (annually)
   ITSG




                                      4. Select &
                                   Prioritize Portfolio
                                      (Roadmap)
 ITSG Member
  (as needed)




                                                                                                    7. Prioritize,
                                                                               6. Approve
                                                                                            Yes   Resource, Initiate,
                                                                                 Funds?
                                                                                                     & Monitor

                                                                                  No




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1. Identify Business Need
Business needs can arise at any time. They can come about because of external factors such as
changes in the market, customer initiatives, or regulatory changes, for example. Business needs can
also result from the execution of internal business plans. At times, changes in technology or business
processes allow solutions to be found that address previously identified needs.

Ideally, business needs will emerge as part of the ongoing dialogue between IT and the rest of the
business. The essential point about this step is that occurs in the business area. While IT has a role in
advising and consulting with the business about possible applications of information technology, the
business area owns and drives IT projects.

2. Do Portfolio Assessment (in tool)
The portfolio management tool will be used to assist with evaluating the project for inclusion in the
portfolio. The evaluation is performed by appropriate representatives from the business area and IT.
Before the evaluation can be started, it is necessary to prepare a Project Brief. The purpose of the
brief is to give enough information to get a feel for the strategic alignment of the project, and does
not need to include extensive justifications or detailed and precise costings.

Here is an indication of the kinds of headings that should appear in the Project Brief.

    1. Project identification
       a. Name
       b. Business Unit(s)
       c. Owners & Sponsors
    2. Purpose
    3. Scope
    4. Benefits
    5. Costs (including broad time and resource estimates where possible)

The group called to assess the project uses the Project Brief and the portfolio management tool to
assess the project against corporate key objectives and critical success factors. One of the outcomes
of this process is a strategic alignment score. Where several alternative solutions are being
proposed, this score will be calculated for each of them and the group will use this in its decision
making for choosing an alternative to recommend.

3. List in Portfolio?
Acceptance parameters can be defined for strategic alignment scores, and in simple cases, projects
will be included if they score sufficiently well, otherwise they will be rejected.

The aim of the evaluation process is to capture all decision-making factors of strategic importance in
the evaluation model. This may be refined and improved over time, but at least initially, the scores
produced by the tool may not always be sufficiently compelling one way or another. The tool can
accommodate manual intervention to include or exclude a project regardless of its score.

4. Select & Prioritize Portfolio (Roadmap)
Part of the annual review cycle of the ITSG is to inspect the portfolio of projects and apply factors
such as capital and operational budget constraints, strategic pressures, etc, to set the parameters for
the approval of the next year’s IT Project Roadmap. The portfolio management tool can be used to
prepare various scenarios showing the strategic value of various project mixes and budget spends.

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The result of this process is a draft IT Capital budget together with support for changes in operating
budgets for IT and any business areas subject to chargeback for direct project costs.

5. Complete Business Case
Depending on the nature of the project and projected cost, a complete business case may be
required at the point of approving the project for implementation. When this is required, detailed
business justifications with quoted costs and projected benefits are proposed in a formal business
case. IT and the business area collaborate on writing the business case, which may also involve
external consulting.

6. Approve Funds?
This is the step where the CapEx application is formally approved and signed off.

Approval to release funds cannot be assumed just because a project was listed on the official
roadmap. Many factors are considered at the time the request to release funds is made, including
the arguments presented in the business case, the continued relevance of the project to the
business area, the company’s financial position, and others.

7. Prioritize, Resource, Initiate, & Monitor
When the funds are approved in the previous step, it is implied that appropriate resourcing
arrangements can be made to commence the project. This may require changing other priorities,
funding back-fill or hiring extra project help for the project, both within IT and the business area
implementing the project.

IT will monitor the progress of the projects during implementation and following Go Live. A post-
implementation review may be required if requested in the approved business case, in line with the
Capital Expenditure Policy.




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A4 Annual Portfolio Review Cycle
The major steps in the annual review cycle are summarized in the following chart. The steps are
explained in further detail after the chart.

 ID Task Name                                  Start   Finish Duration Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

  1 Review Portfolio with Business Areas      16-Aug 30-Sep     6w

  2 Prepare 1st pass Portfolio Recommendations 01-Oct 31-Oct    4w

  3 Present Portfolio to ITSG                 01-Nov 14-Nov     2w

  4 Iterate Business Area and ITSG feedback   15-Nov 21-Mar    17w

  5 Approve Portfolio & Roadmap               01-Mar 31-Mar     4w




1. Review Portfolio with Business Areas
It is expected that the needs of the business will be understood by IT staff through formal and
informal meetings throughout the year.

As part of the annual budget cycle, there will be a deliberate review of the complete portfolio.
During August and September each year, the Group IT Manager will meet with stakeholders from
each of the business areas to review the portfolio. These meetings with stakeholders will yield
further information on relative priorities, and may also uncover projects not yet listed in the
portfolio. These can be added to the portfolio via the process described in Section 3.1.

2. Prepare 1st pass Portfolio Recommendations
The IT Managers will prepare a first pass draft of the prioritized Portfolio by the end of October,
using the Critical Success Factors and other evaluation criteria defined as part of the project
evaluation framework (see Section 1.3). They will select a portfolio of projects to recommend for the
IT Roadmap for next 12 months.

In addition to strategic value and capital cost, the managers will prepare estimates of the
operational effects associated with the recommended Roadmap. For projects that service the
enterprise as a whole, such as core IT services and infrastructure, these costs will be retained within
IT cost centres. Costs that relate directly to particular business areas will be recovered from those
areas (see 08-09-Chargeback - A Demand Management Model.doc).

The operational effects of Portfolio projects include the following:

        Part-year depreciation, maintenance and staffing costs due to the mid-year completion of
         new projects
        Take up of the balance of operational costs from last year’s new projects that were
         completed mid-year
        Ongoing deprecation from projects completed in prior years
        Drop-off of fully depreciated projects, retired hardware, etc

Using a Portfolio Management tool, several scenarios can be developed with Portfolio mixes
optimizing alignment to different strategic goal settings and to different target budgets, both capital
and operational.



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3. Present Portfolio to ITSG
The Group IT Manager will present the revised Portfolio and Roadmap to the ITSG by the middle of
November. The presentation may include interactive manipulation of the scenarios that have been
prepared, using the Portfolio Management tool.

4. Iterate Business Area and ITSG feedback
Negotiations and discussions take place within the ITSG and between members of the ITSG and
business stakeholders, starting around the middle of November and possibly extending to late
March. During these discussions, Roadmap targets are set, projects are tentatively approved, and
recovery and cost sharing arrangements are agreed.

5. Approve Portfolio and Roadmap
The Project Portfolio and in particular, the final Roadmap containing projects approved for the next
12 months, will need to be approved by the end of March to align with capital budget process. Part
of this approval process includes the following:

       Prioritize projects into the annual Roadmap, approving capital allocation amount and
        operational budget effects
       Approve the direct cost recovery calculations for projects specific to particular business
        areas




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