IT decision makers need to start managing based on value that IT delivers if they want to be considered true business partners. We present a tool that provides business value intelligence that allows CIOs and IT directors to quickly pick the right projects to be executed, steer projects and programs more pro-actively and optimize portfolio management. Interested? Contact us via +31 20 737 05 37 or info@morganclark.com.

1.
Whitepaper
IT
Business
Value:
the
Key
Business
Intelligence
to
Manage
the
IT
Organization
Willem
van
‘t
Noordende
and
Amit
Manniesing,
Morgan
Clark
&
Company
September
2011
IT
decision
makers
need
to
start
managing
based
on
value
that
IT
delivers
if
they
want
to
be
considered
true
business
partners.
We
present
a
tool
that
provides
business
value
intelligence
that
allows
CIOs
and
IT
directors
to
quickly
pick
the
right
projects
to
be
executed,
steer
projects
and
programs
more
pro-­‐actively
and
optimize
portfolio
management.
Companies
are
producing
increasingly
more
business
intelligence,
but
are
they
collecting
the
right
data
to
effectively
manage
their
IT
organization?
Most
companies
gather
an
abundance
of
operational
intelligence
on
the
uptime
of
their
infrastructure,
the
uptime
of
business
applications,
the
number
of
support
requests
dealt
with,
the
number
of
changes
implemented,
etc.
although
few
of
these
companies
also
measure
if
these
systems
deliver
any
real
business
value.
This
reinforces
the
typical
perception
of
IT
as
being
a
cost
center,
wasting
budgets
on
projects
that
are
not
delivered
in
time
and
do
not
add
value.
This
does
not
mean
that
gathering
operational
intelligence
is
irrelevant;
rather
that
this
should
be
left
to
operational
managers
so
IT
directors
can
focus
more
on
the
high
level
objectives
of
their
organization.
As
the
IT
organization
matures,
business
value
will
become
an
increasingly
important
concept.
In
this
article
a
practical
approach
to
gathering
intelligence
on
the
business
value
of
IT
and
managing
IT
organizations
based
on
these
results
will
be
presented.
This
article
consolidates
elements
of
valuation
methods1
to
reach
a
recommendation,
meeting
the
objectives
of
this
article:
defining
the
key
business
intelligence
for
IT
business
valuation
and
proposing
a
practical
and
easy
to
implement
valuation
method.
First,
the
concept
of
IT
business
value
and
the
defining
business
intelligence
will
be
discussed,
followed
by
ways
to
measure
business
value.
In
conclusion,
recommendations
will
be
provided
to
make
intelligence
on
IT
business
value
actionable.
Defining
IT
Business
Value
(ITBV)
The
in
this
article
used
definition
for
IT
business
value
is:
“The
sum
of
the
quantitative
and
qualitative
benefits
that
any
form
of
Information
and
Communication
Technology
offers
to
the
business.”
Based
on
this
definition
a
number
of
facets
of
business
value
–
which
are
in
effect
categories
of
business
intelligence
–
can
be
distinguished.
Each
of
these
can
be
divided
into
a
number
of
metrics,
which
are,
depending
on
the
type
and
industry
of
the
company
and
the
nature
of
the
areas
to
measure,
applicable.
For
instance,
an
industrial
production
firm
will
benefit
from
production
automation
that
can
be
measured
by
metrics
such
as
the
amount
of
scrap
or
production
time,
while
a
financial
services
company
will
rather
implement
a
CRM
system,
of
which
the
value
can
be
measured
by
increased
revenues
through
cross-­‐selling.
The
following
overview
presents
a
(non-­‐exhaustive)
list
1
There
are
a
number
of
known
methodologies
to
measure
the
business
value
of
IT
(Symons,
C.;
2006;
Measuring
the
Business
Value
of
IT),
such
as
the
Business
Value
Index
(BVI),
Total
Economic
Impact
(TEI),
the

2.
Whitepaper
of
categories
of
business
intelligence
to
measure
IT
business
value.
Many
of
these
are
adapted
categories
based
on
the
value
dials
on
which
Intel’s
Business
Value
Index
is
based2:
-­‐ Financial
value.
In
order
to
avoid
comparing
tangible
(financial)
and
non-­‐tangible
benefits
this
category
needs
to
be
separated
from
the
other
values.
Further
in
this
article
the
way
to
use
financial
and
more
qualitative
metrics
in
a
coherent
fashion
will
be
discussed.
Financial
value
covers
all
measurable
monetary
value
of
the
benefits
that
IT
delivers.
In
short,
this
can
be
cost
saving
or
avoiding
or
revenue
increasing,
naturally
there
are
many
forms
of
those.
-­‐ Improvements
in
product
quality.
Depending
on
the
industry
of
the
company
and
nature
of
the
IT
application
the
following
metrics
apply:
o Increase
in
customer
satisfaction.
Customer
satisfaction
needs
to
be
measured
consistently
preferably
by
an
external
party
to
avoid
having
a
conflict
of
interest.
o Decrease
of
the
number
of
support
requests
or
product
returns.
-­‐ Improvements
in
operational
efficiency.
Again,
the
specific
metrics
are
largely
depending
on
the
type
of
industry
and
the
nature
of
the
IT
application.
The
most
important
metrics
are:
o Increase
in
employee
productivity.
Although
complex
to
implement,
there
are
several
companies
that
have
implemented
employee
productivity
measuring
successfully.
o Reduction
of
the
number
of
defects.
o Decrease
of
the
time
to
market.
The
more
efficient
the
production,
distribution,
marketing
and
training
process
is,
the
faster
a
product
can
be
ready
for
sales.
o Increase
of
production
unit
uptime.
This
can
be
cost
saved
because
of
reduced
factory
downtime
but
also
increased
revenues
because
of
web
shop
uptime
for
an
e-­‐
commerce
company.
o Reduction
of
the
number
of
days
of
inventory.
IT
offers
excellent
tools
to
facilitate
Just-­‐In-­‐Time
(JIT)
deliveries.
-­‐ Risk
avoidance.
This
benefit
is
delivered
by
systems
that
monitor
security,
processes,
systems,
etc.
to
avoid
costly
errors
or
disastrous
situations.
There
is
one
generic
metric:
Total
cost
avoided.
This
is
calculated
by
the
cost
of
a
risk
multiplied
by
the
probability
of
the
risk
to
occur.
-­‐ Social
improvements.
This
group
of
benefits
describes
the
improvement
of
the
contribution
of
the
company
for
society.
Popular
metrics
are
the
reduction
of
(direct
or
indirect)
CO2
emissions
and
the
reduction
of
the
amount
of
waste
produced.
-­‐ Business
agility.
This
group
is
based
on
Real
Options
Value
theory
(Oracle
Corporation
[2010])
and
defines
how
well
and
how
quickly
an
organization
is
able
to
adapt
to
changing
circumstances.
In
an
agile
value
chain,
IT
systems,
business
processes,
and
information
sources
must
be
set
up
such
that
they
offer
multiple
options
to
new
(and
sometimes,
yet
to
be
defined)
requirements,
rather
than
just
supporting
the
old,
well
defined
ones.
The
main
metric
here
is
the
reduction
in
time
and
impact
to
implement
changes
in
the
business
process.
2
Intel
Corporation:
1.
“Using
an
IT
business
Value
Program
to
Measure
Benefits
to
the
Enterprise”,
Carty,
M.M.
and
Lansford,
R.
[2009];
2.
“Managing
IT
Investments”,
Intel
White
Paper
[2003].

3.
Whitepaper
The
data
revealed
by
the
above
metrics
is
often
available,
although
hardly
ever
is
this
data
compiled
into
true
business
intelligence,
mostly
because
it
is
scattered
across
many
systems.
The
next
sections
will
discuss
how
the
retrieved
intelligence
can
be
used
to
measure
the
business
value
of
IT.
How
to
Measure
IT
Business
Value
As
demonstrated
in
the
above
section,
there
are
two
dimensions
of
IT
business
value:
the
financial
or
tangible
benefits
and
those
that
are
non-­‐tangible.
The
financial
benefits
are
best
assessed,
using
traditional
methods
based
on
ROI
(Return
On
Investment),
DCF
(Discounted
Cash
Flow),
EVA
(Economic
Value
Added)
and
NPV
(Net
Present
Value)
calculations.
In
addition
to
these
traditional
methods,
the
metrics
presented
above,
need
to
be
gauged
and
consolidated
into
a
single
business
value
indicator.
This
approach
roughly
follows
the
Business
Value
Indicator
methodology
successfully
used
by
Intel
for
more
than
a
decade.
For
each
of
the
metrics
introduced
in
the
previous
paragraph
a
conversion
needs
to
be
made
by
a
team
of
experts,
further
referred
to
as
Business
Value
Intelligence
team.
The
Business
Value
Intelligence
team
converts
the
metrics
to
a
simple
scale
from
-­‐10
to
10,
where
-­‐10
indicates
maximum
negative
value,
0
neutral
business
value
and
10
maximum
business
value.
Further,
depending
on
the
industry
of
the
company
and
the
nature
of
the
IT
investment
this
team
needs
to
weigh
the
contribution
of
each
metric
to
the
index.
The
sum
total
of
the
score
of
all
weighed
metrics
will
be
the
business
value
index.
The
methodology
described
here
uses
elements
of
the
Balanced
Score
Card
method
and
Intel’s
Business
Value
Index
framework.

4.
Whitepaper
There
are
two
major
challenges
in
the
above
methodology
that
need
to
be
addressed:
accuracy
of
business
intelligence
and
the
cost
of
measuring
IT
business
value.
Data
accuracy
needs
to
be
assured
by
the
Business
Value
Intelligence
team.
This
means
that
the
team
needs
to
be
given
enough
resources
and
political
power
to
deploy
data
enhancement
initiatives.
The
second
challenge
is
the
risk
that
the
cost
of
measuring
IT
business
value
exceeds
any
possible
benefits.
In
order
to
avoid
this,
focus
should
be
put
on
high
impact
projects
and
a
clear
and
sensible
prioritization
of
projects
to
be
measured
needs
to
be
made.
Small
investments
should
be
bundled
into
larger
programs
as
much
as
possible
to
create
a
coherent
IT
strategy
with
efficient
value
measurement.
The
Business
Value
Intelligence
team
The
Business
Value
Intelligence
team,
as
referred
to
in
the
previous
section,
is
a
new
organizational
entity
that
needs
to
be
setup
to
handle
the
following
tasks:
-­‐ Manage
corporate
IT
business
value
metrics
and
ensure
they
stay
current.
Further,
adjust
those
based
on
lessons
learned
from
previous
measurement.
This
could
include
modifying
metrics
that
are
initially
qualitative
to
become
more
quantitative
the
more
experience
the
team
gathers.
-­‐ Assist
business
owners
and
IT
managers
in
establishing
business
cases
for
IT
projects.
The
team
needs
to
ensure
business
cases
include
all
IT
business
value
generated,
based
on
the
metrics
defined
above.
Further,
the
business
case
should
point
out
when
business
value
is
delivered,
i.e.
the
team
should
offer
business
value
planning.
The
team
should
offer
solid
financial,
accounting
and
statistical
knowledge
to
define
the
financials
benefits
of
a
project
as
far
as
possible.
This
analysis
delivers
the
ROI,
DCF,
EVA
and
NPV
of
the
project
combined
with
the
IT
business
value
index.
-­‐ Setup
tools
to
gauge
metrics
during
and
after
the
project.
This
will
consist
of
setting
up
business
intelligence
tools
and
the
underlying
data
structures,
but
also
processes
to
measure
value
creation
in
cooperation
with
business
owners.
In
most
cases
data
will
need
to
be
pulled
from
multiple
sources.
For
some
metrics
periodical
qualitative
research
might
be
needed
(e.g.
to
measure
customer
satisfaction).
-­‐ Conduct
baseline
measurements
to
be
able
to
properly
measure
the
increase
of
value
per
metric
after
new
IT
investments.
-­‐ Manage
data
collected
and
manage
a
tool
to
represent
gathered
business
intelligence
in
a
dashboard.
In
this
dashboard
the
value
delivered
per
investment
or
project
will
be
visible
per
metric.
-­‐ Safeguard
the
uniformity,
accuracy
and
consistency
of
data
collected.
This
will
enable
trend
analysis
after
a
successful
period
of
data
collection.
Based
on
this
it
will
be
possible
to
build
a
reference-­‐card
for
the
cost
per
point
of
the
business
value
indicator.
The
team
needs
to
consist
of
employees
with
skills
in
finance,
accounting,
IT,
business
intelligence
and
reporting,
but
most
of
all
up-­‐to-­‐date
knowledge
of
the
business
and
its
key
processes.
It
needs
to
operate
outside
of
regular
project
organizations,
in
order
to
avoid
conflicts
of
interest.
After
all,
project
teams
are
focused
on
delivering
short-­‐term
results
and
there
is
often
no
interest
in
adapting

5.
Whitepaper
the
project
to
changed
environmental
conditions,
safeguarding
long
term
benefits
of
the
project
or
measuring
if
the
project
benefits
are
actually
delivered.
Making
IT
Business
Value
Actionable
There
are
a
number
of
critical
actions
and
processes
that
the
availability
of
IT
business
value
intelligence
will
support:
-­‐ The
ability
to
select
winning
projects
that
deliver
true
business
value.
-­‐ The
ability
to
constantly
steer
programs
and
projects
based
on
the
expected
business
value
that
will
be
delivered.
If
due
to
changing
environmental
conditions
this
value
is
decreasing,
CIOs,
IT
directors
and
steering
groups
will
need
to
take
action
by
terminating
the
project
or
ensuring
additional
business
value
meeting
the
new
requirements
will
be
generated.
This
is
especially
important
for
high
risk,
long
running
projects.
-­‐ Knowing
the
business
value
delivered
by
all
IT
initiatives
enables
strategic
portfolio
management.
Initiatives
delivering
much
business
value
should
be
given
higher
priority
within
a
portfolio.
Further,
the
IT
budgeting
process
will
change
from
a
cost
based
approach
to
an
investment
opportunity,
knowing
more
accurately
what
business
value
will
be
delivered.
-­‐ Reinforcement
of
the
position
of
the
CIO/IT
director
and
IT
organization
to
become
partners
assisting
in
accelerating
the
business.
Using
business
value
programs
will
also
make
it
clear
throughout
the
IT
organization
what
the
business
objectives
are
that
should
be
supported
and
where
and
how
business
value
is
required
to
be
delivered.
The
remaining
question
is
how
the
above
actions
and
processes
can
be
facilitated
by
the
business
value
intelligence.
First
of
all
the
business
value
intelligence
will
need
to
be
published
in
a
dashboard
accessible
by
decision
makers
such
as
CIOs,
IT
directors
and
steering
groups.
Existing
decision
making
processes
will
need
to
be
modified
to
incorporate
business
value
as
a
core
element.
Finally,
IT
performance
reports
to
business
will
need
to
include
the
actual
business
value
delivered
instead
of
only
operational
metrics.
These
reports
should
be
consolidated
in
an
annual
IT
performance
report,
which
focuses
on
business
value
actually
delivered.
More
information
on
this
subject,
this
whitepaper
or
Morgan
Clark
&
Company?
Send
a
message
to
info@morganclark.com
or
call
+31
20
737
05
37