Tag: IT organization

Social Networking Etiquette

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There are good use full blogs from lawyers stand point on social networking Etiquette. The recent cisco fatty is eye opener on the topic for those who are actively engaged in social networking and collaboration sphere. It must be coincidental, I heard a comment from one of my best friend during the weekend, “common sense is not common to every one” and cisco fatty incident is one of the best recent example for that comment. That comment needs deep thinking to understand purely. Common sense is a relative word.  A set of people may think a set of facts is common sense to everyone. But they are in a sub set and that set is closed (it is true mathematically  and it is called subspace) The real problem is, people in that set think they are in the universal set (super set) but they are not.

Social Networking Etiquette:

  • Collaborate and share knowledge on common topics with out offending anyone intentionally
  • Do not provide and do ignore unprofessional comments or feedback to  blogs, youtube,
  • Consider every one in your network and extended network is your colleague (not friend!) – The difference between colleague and friend is:  Colleague is the one you respect for their value and friend is the one you accept for who they are. In long run, in some cases, colleague will become good friends)
  • Be open, listen and you conclude in socnetsphere (I just invented a word. socnetsphere means Social network sphere)
  • My dad taught this when I was a little, the best way to gain respect is to show it first. That is also true in socnetsphere. If you do not like somebody’s view, that is fine. We all have freedom to have our opinion.
  • Social network is like your lungs. Use it or lose it. We can use social networks effectively to transform our country, our economy, our world & our universe

IT Finance Management Framework – Part 3

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Typically, the organization structure is,  managers, project managers & senior manager will be reporting to director in an IT organization. Directors will have a functional responsibilities like sales & marketing, customer service, finance and etc.  Managers and senior managers are responsible for the managing the project, lights on and enhancement. For a zero based budgeting, managers of each application area will be required to come up with forecast. The skills required for each managers to come up with forecast are given below.

  • Understanding of over all business process
  • Understanding of their respective business  strategy and their current annual business plan. For ex. if a manager supports call center systems, then that manager must understand customer and service business area’s plan for that year.
  • Understanding of external market condition
  • Understanding of work load in their area in the past and correlation with business strategy and its annual business plan
  • Understanding of technological obsolescence and flexibility of their systems
  • Trend analysis

The above skills will be used to develop the forecast for keep the lights on, discretionary and projects spend for their respective systems, infrastructure, shared service.

it-finance-structure

Each manager will have set of systems to support. Logical group of the system are assigned to an internal order number. Each internal order number will have a set of systems. The light on, discretionary and project spends are allocated for each internal order number.

Only the department level cost center and general ledger (GL) number level cost will be submitted to the controlling office and eventually in to the enterprise financial systems like SAP or Oracle Financials.   The cash budget will have line items only  GL level (like employee, contractor, and etc) , director level consolidation of GLs and department level consolidation of GLs.  The rest of classification like lights on , enhancement, internal order number and etc are just allocation within the ITM budget for better understanding and reporting.

This step completes the creation of budget for the IT organization. The next step is to track the actual and report to stakeholders. The next part will focus on tracking the actual cost and reporting it to the various stakeholders.

IT Finance Management Framework – Part 2

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Understanding how the IT budget process fit into the overall corporate finance is essential to grasp the big picture.  The following figure illustrates how the IT G&A operating budget fits into the over all corporate finance.

it_ga_budget2

IT organization must decide the technique suitable for the budget cycle. To select the best suited techniques the organization must make them self familiar with the available options. Let me list the various widely used technique available to create the IT G&A operating budget.

  • Static Budget – Presents one forecast for a given time frame and does not change for budget cycle
  • Flexible Budget – Budgeted Revenue and cost are adjusted during the budget cycle
  • Incremental budget – Previous year actual are taken as the base line and added or deleted additional cost for current year
  • Zero Based budget – Begins from ground up
  • Top Down budget – Each directors are given a budget task to align to CIO budget target
  • Participatory Budget – Developed as a collaboration with all directors (generally very difficult to make it practical)

There are other budgeting technique like activity based budgeting, Kaizen budgeting and etc. Kaizen  is a type of incremental budget with cost effectiveness target are given to each directors. To make the framework complete, I understand the widely used budgeting technique must be captured and it will eventually.

For this version 0.1, I want to start with zero based budget since I like the concept. It is very practical and gives an opportunity to each director or even senior manager or manager level to challenge every activities and look for some level of business case. Zero based technique can be used if it is top down budget and budget task are given by CIO to each director. Let me start with ZBB.

Zero based budgeting must be done in the manager or team leader level and rolled up to director and CIO level.  It requires the manager or team lead to understand the business and forecast the work required to keep the systems lights on, enhancements and G&A project.

it-finance-mgmt-how-to

The cost for lights on, enhancement and projects are will be incurred by employee, contractor, purchase servie, software cost & hardware cost. Each manager or team lead under each director will forcast for lights on, enhancement and project in terms of employee, contractor, purchase service, software cost and hardware cost.

The training required to perform the forecast will be the starting session of next part of this initial IT Financial Framework.

IT Finance Management Framework – Part 1

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There is a need to develop an IT finance management framework and I propose a general framework for a specific organization as a starting point.

Some of you may be wondering why EA & IT strategy person proclaims a need for development of a general IT finance management framework and proposes one for a specific organization type.

To develop practical enterprise architecture and receive value from it, understanding the financial management and integrating to the enterprise architecture is a key. IT Finance management plays a vital role in enterprise architecture analysis. For instance, to identify and report the cost drivers for systems with high maintenance cost in the enterprise, enterprise architects required to generate the list of software systems which has high maintenance cost first. If the enterprise system landscape is not integrated with the IT fiancé management, this of kind of analysis becomes manual, laborious and inaccurate.

Current state of IT Finance Management:

IT Finance management function is performed in non-uniform way across the industry. Lack of a general framework in IT Finance Management leads the IT industry to proliferate inconsistent methodology and creates a challenge to collaborate and share knowledge.

For broader utilization of the framework, the framework development needs collaboration and participation from IT financial analyst across multiple industries. As a starting point, I’m going to propose a general framework to manage IT finance for a specific organization type and welcome critiques from others to improve it.

Organization Type:
The proposed framework is for IT organizations which are business enablers, does not directly generate revenue, does not pay cash directly to payables and perform three major functions.

  • Lights on support to IT systems to enable business
  • Perform Enhancement/Discretionary changes to meet business requirements
  • Execute projects to transform/thrive/sustain the business

Key steps in IT Finance Management:

  • IT Financial Planning
  • IT Budgeting
  • IT Finance Reporting

IT Financial Planning: It is a first step in the ITFM. Financial planning must be aligned to corporate strategy. Corporate strategy provides a road map to reach corporation’s vision and corporate annual plan is a step towards reaching the organization vision. Annual corporate plan is an execution step of corporate strategy. Based on annual corporate plan, IT financial plan is developed by the IT Financial analyst, office of CIO in collaboration with financial controllers (Office of CFO) and office of Chief operating officers. The decisions like, invest in more product development, penetration to a new market segment, expand the presence to new country and etc are made, part of the annual corporate plan. IT financial plan is a high level executive plan to support the annual corporate plan. It will consists of major line items like, improve IT spend on new security projects, change systems to support multiple languages, continue the same level of lights on operation , improve the system reliability and etc. IT Financial plan will be created and will be used as base line to develop the IT budget.

IT Budget: Budgeting is a one of key piece of IT Finance management. Budgeting is a development of  IT organization cost plan for the year. Cost plan answers questions like, What is the total cost IT organization can spend and how they are going to spend. Once the budget is approved by CIO and corporate controlling, then the actual cost are tracked on monthly basis and variance analysis are preformed and reported to the various stakeholders like CIO, controlling office, senior management team, managers and others.

There are three different types of budget for different purposes.

  • Capital Budget – Lays out a plan for investment like plant installation, product development and provides a principle for investment life cycle steps like depreciation, amortization. Generally it is managed by a generalized group for the entire company. It is one of the functions under controlling organization under the CFO.
  • Cash Budget – It is a predication of expected cash balances the organization will experience during the forecast period. Cash budget depends on operating and capital budget. It also evaluates if the corporation has sufficient liquidity (like cash in hand, credit) available to meet the expected cash disbursements. It is part of the management accounting. The cash flow and fund flow of the corporation depends on the cash budget.
  • Operating Budget – It is a plan to reflect the daily operating expenses and depreciation. Typically the operating budget is developed annually.

For the organization selected, IT budget will be an operating budget. The major functions performed by the organization are lights on, enhancement and projects. It is so tempting to categorize all the cost under these categories in the highest level. It will become difficult to analyze different perspective of the IT cost structure like by hardware, provider etc.

Cost Categorization:

  • Employee – (On roll employees)
  • Contractors – (includes purchased service, consultants and etc)
  • Sourcing Providers – (in source, out source, multi source and etc for a specific service)
  • Software recurring fee – (includes software maintenance fee, service fee and etc)
  • Hardware recurring fee – (includes all servers, mainframe, disks, network, hardware maintenance fee and etc)
  • Others – (It is a catch all category includes like travel, training, depreciation, office & admin, rent, telephone, stationary, depreciation, rent)

The categorization is not a clean separation. As needed, the items in each category can be shifted between the category.

Direct cost vs indirect cost, project cost vs lights on cost are various categorization of cost structure. Those cost categorization  are just allocation issue. Once the cost are captured in the above categories, then the various other perspective can be easily created. I will demonstrate it specifically how to capture and how to report it.
Any line item in general & administration (G&A) spend in the IT organization should come under in one of the above category. This does not include the capital budget. Any capital project under taking or any new capital software purchase will not be included under IT G&A budget. That will come under capital budget. The scope of the framework at this point is to focus on G&A only. Once the framework is matured for G&A, capital budget can be added at the later stage. However, the capital budget will feed the depreciation value to the G&A.

Let us say the IT organization has the budget of $100. CIO has 4 directors reporting to him and there is a small set of staff in the office of CIO who directly support the CIO in the strategy, architecture, IT financement and etc. Let me show the end result of the budget and walk through the steps involved in the framework. After the budget cycles are complete the budget of IT organization of $100 will look like as given in the figure.

it-finance-mgmt

Let me walk through in part #2 what technique should be followed and each and every steps to develop an IT budget for the $100.

Management in business – Not a precision engineering

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I observed few management team members  got into the trap of making management in business, a precision engineering.  Philosophically, I completely differ that management in business can’t be precise in a corporate environment. Due to office dynamics, politics, internal and external uncertainties, management in business is all about approximation but not perfection.

In most of the cases, the practical approach should be : “THINK BIG, START SMALL, RUN FAST”

Technically, management in business can be precise but it’s very expensive. I had read few dynamic programming papers published from Nasa on how the project schedule conflicts are resolved using various optimization theories. Those techniques were published as a research paper. While management in launching a rocket to outer space business need precision engineering but, for instance, when you create a draft project charter, you do not.  Corporation should not be spending their time to make it perfect when they you are dealing with uncertainities. I understand, plan is nothing but planning is everything. But when a project lacks clarity on its scope, don’t spend  time on planning but use it wisely to improve the clarity of the project.

IT Sourcing Risk Management

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Risk in general can not be eliminated but it should be managed. The likelihood of geo-political risk and security exchange  risk of any IT sourcing partners located at India was very low three months ago. It is not low any more due to the recent terror attacks at Mumbai and last week financial scandal by the Satyam services and recent world bank backlists Wipro

Terror Attack:

Tension between India and Pakistan has been there for past 45 years and Kashmir is the center piece of the conflict. Three wars were  fought between these nations after their independence.  Yearly, there were thousands of people died on both sides for so many years. Both nations have nuclear weapons tested in last ten years. This is a known fact and the likelihood of any major conflict that would impact the out sourcing business was not ignored  but, before few months ago, the probabability of occurence was assigned as low as zero.

Mumbai terror attack caught many corporate America’s attention because the attack was strategically planned by terrorist  mainly to get corporate America’s attention.  It was executed during the Thanks giving holiday when majority of the American people spend their time with family eating turkey and watching TV (Lions and Dallas cowboys football games). Unlike terror bomb blast attacks, this attack was prolonged for three to four days and constanly the progress of the attack was updated in the television. (Human mind believes what it sees more) The geo-political risk what was considered as low as zero before in selecting the sourcing partner from India has increased significantly after this terror attack. It is not as low as zero from any out sourcing assessment.

Financial Scandal:

Satyam scandal is India’s Enron scandal. What happend after Enron collapse?  There were more regulation introduced, more stringent fedral, SEC policies and resulted in SOX. Does SOX will ensures that Enron similar debacle will never repeat in US again? In my opinion, I do not think so. It created more regulation and audit controls on IT general controls including processes, procedures, policies and etc. It is not guranteed to never repeat the similar corporate collapse, but it will make the corporate executives not easy to make the similar mistakes. Taking the reaction to Enron’s situation into consideration, I speculate, the similar steps will be taken by SEBI (similar to SEC in India) to tigthen the regulation in India.

How this is related to IT sourcing risk? Coincidently, Satyam is one of the top 5 sourcing provider to major clients in US. Had a client in US picked Satyam as their souring partner, they need to go through the motions and cycles to over come the Satyam’s situation which will not help the client in any form or shape to increase their productivity or their bottom line. In some case, if a client depends on Satyam for major core business functions, there are potential risk that their core operation would be interrupted due to this astronomical scandal by a sourcing provider. What happend to Satyam could happen to any sourcing provider or to any company managed by SEBI ? Adding fuel to the fire, world bank back lists Wipro, another major sourcing provider from India.

Based on the sourincg strategy and solution design, the risk management plan of sourcing strategy should consider these recent risks which are made visible to corporate America.

High Demand IT jobs in 2009

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In the recent well know IT industry research firm’s study, analysts (the authors of the paper)  identified list of IT roles hard to fill even in this market. In the  paper, the top most of list is enterprise architect. EA role is  hard to find even in this poor job market. The report also stated that the demand of enterprise architect in 2008 grew and predicted that the demand of enterprise architect will continue to grow in 2009. The sample taken in the study is in the range of 250 companies.

Why companies hire enterprise architects even in this poor job market and here are my rationale.

  1. Enterprise Architect is not like programming or administration skill. It can not be mastered by under going a certification process. It is a good balanced combination of  IT  and business knowledge to assist the senior executives to identify the discretionary and mandatory  spend of organization.
  2. Cost optimization ideas are most needed and common in this economic climate and enterprise architect would play a significant role. Enterprise architects would be able to come with out of box ideas to sustain in the market condition. The specific ideas are based on the industry. Just to amplify the above point, let me take BFSI industry. A seasoned enterprise architect in BFSI industry will understand the major driver of the business and propose an investment strategy to the office of CIO.  Even to be more precise, in this credit market, consumer leading companies shall look for a refined credit score cards and EA would provide recommendation to executive management office that the systems in the IT landscape should be flexible to accommodate the changes to support the credit score card. Influence the executive steering committee of investment strategy team to assign more weights to credit scorecard project since it has direct impact to the bottom line of the lending business. Even in some cases, based on their business knowledge depth, EA are in good position to even recommend the credit risk management team in the lending company  various options available to non traditional credit score card fit the current economical situation. In stead of traditional logistic regression credit scoring model, they would be in better position to recommend how the joint time frequency analysis (like wavelet analysis, Gabor transformation, short time Fourier transform and etc)  can be applied particularly in this economy. There is no standard scoring model available which analyze the behavior of the credit market in the joint time and frequency domains and it is very appropriate in this economic situation.