Best Practices for Senior Management
Generally, best practices are techniques and approaches that have been proven to provide a desired result. In IT governance, best practices are designed to align IT and the organization's objectives. IT governance best practices require the company to meet two specific goals:
- Align the goals of IT to the goals of the company—Both must be focused on and working for the common good of the company.
- Establish accountability—Accountability requires that individuals be held responsible for their actions. Accountability can be seen as a pyramid of responsibility that starts with the lowest level of employees and builds itself up to top management.
The auditor is responsible for reviewing the placement of these items.
Alignment requires strategy, or the path that the company will use to move from overall policy and goals to delivery of product, accounting, and audit. Figure 2.1 depicts an example of this goal alignment.
Figure 2.1 Organization and IT alignment.
Senior management's role in this process comes at a strategic level, not a tactical one. Consider eBay as an example. Although eBay's senior management is very concerned about merchandise being listed for the duration of an auction and about bidding and closing occurring seamlessly, they should have little concern about the operating system and platform. As long as the technology can meet the stated business goal, the choice of Windows, Linux, or UNIX should be left up to the IT department. Senior management's goal is to ensure that goals are aligned, IT is tasked with meeting those business needs, and the auditor is responsible for ensuring that controls are present and operating effectively.
Audit's Role in Governance
The primary role of an auditor in IT governance is to provide guidance and recommendations to senior management. The objective of providing this information is to improve quality and effectiveness. The first step of this process is to review the following:
- Learn the organization—Know the company's goals and objectives. Start by reviewing the mission statement.
- Review the IT strategic plan—Strategic plans provide details for the next three to five years.
- Analyze organizational charts—Become familiar with the roles and responsibility of individuals within the company.
- Study job descriptions—Job descriptions detail the level of responsibility and accountability for employees' actions.
- Evaluate existing policies and procedures—These documents detail the approved activities of employees.
Auditors play a big role in the success of the organization. Auditors must be independent from management and have the authority to cross over departmental boundaries. Auditors usually report governance issues to the highest level of management. Auditors must also have the proper set of skills. If individuals in-house do not have the skills required to lead the audit, an external independent third party should be hired. This situation requires careful attention. It's natural to develop relationships with those we work with. External auditors interact extensively with their clients. This can lead to problems because the level of closeness between management and external auditors might affect the results of an audit. External auditors might be too eager to please the client. Unfortunately, such an example arose in the Enron and Andersen fiasco.
Finally, both external and internal auditors can burn out as a result of staleness and repetition, and thus start to lose attention to detail, which is very important. Let's now turn our attention to the role of the steering committee.
IT Steering Committee
This committee might have more than one name: It might be referred to as an IT steering committee or an IT strategy committee. The steering committee is tasked with ensuring that the IT department is properly aligned with the goals of the business. This is accomplished by using the committee as a conduit to move information and objectives from senior business management to IT management. The committee consists of members of high-level management from within the company:
- Business management—The committee is managed by the CEO or by a personally appointed and instructed representative.
- IT management—This group is represented by the CIO or a CIO representative.
- Legal—This group is represented by an executive from the legal department.
- Finance—A representative from finance is needed to provide financial guidance.
- Marketing—A representative from marketing should also be on the committee.
- Sales—A senior manager for sales should be on the committee to make sure that the organization has the technology needed to convert shoppers into buyers.
- Quality control—Quality control ensures that consumers view products and services favorably and that products meet required standards. As such, quality control should be represented on the committee.
- Research and development (R&D)—Because R&D focuses on developing new products, this department should be represented on the committee. IT must meet the needs of new product development.
- Human resources (HR)—Managing employees is as complex as the technology needed to be successful. HR should be represented on the committee.
These represent a sampling of the department heads that might be on the IT steering committee. Figure 2.2 shows the basic organizational makeup of the committee.
Figure 2.2 Steering committee structure.
Although membership might vary, the goal of the committee should be consistent. The committee is responsible for reviewing major IT projects, budgets, and plans. These duties and responsibilities should be defined in a formal charter. If an organization lacks a charter or doesn't have a steering committee, this gives clear warning that IT and business may not be closely aligned. Although the charter gives the committee the power to provide strategic guidance, it should not be involved in the day-to-day activities of the IT department. Evidence that indicates otherwise should alert auditors that the committee has strayed from its charter or that the charter is not clear on the committee's responsibilities. A steering committee is just one of three items needed to build a framework of success. The other two include performance measurement and risk management. Performance measurement, or score carding, is our next topic.
Measuring performance includes activities to ensure that the organization's goals are consistently being met in an effective and efficient manner. Historically, performance was measured only by financial means. In the early 1990s, Robert Kaplen and David Norton developed a new method, named the balanced score card. The balanced score card differs from historic measurement schemes, in that it looks at more than just the financial perspective. The balanced score card gathers input from the following four perspectives:
- The customer perspective—Includes the importance the company places on meeting customer needs. Even if financial indicators are good, poor customer ratings will eventually lead to financial decline.
- Internal operations—Includes the metrics managers use to measure how well the organization is performing and how closely its products meet customer needs.
- Innovation and learning—Includes corporate culture and its attitudes toward learning, growth, and training.
- Financial evaluation—Includes timely and accurate financial data. Typically focuses on profit and market share.
Figure 2.3 illustrates how these items balance the overall perspective.
Figure 2.3 Balanced score card.
Use of the balanced score card at the organizational level is a good method for the steering committee to measure performance and align business strategy with IT objectives. It can be used to foster consensus among different organizational departments and groups. The information gathered by using the balanced score card should be passed down the organizational structure to supervisors, teams, and employees. Managers can use the information to further align employees' performance plans with organizational goals.
Information Security Governance
Information security governance focuses on the availability of services, integrity of information, and protection of data confidentiality. Information security governance has become a much more important activity during the last decade. The growing web-ification of business and services has accelerated this trend. The Internet and global connectivity extend the company's network far beyond its traditional border. This places new demands on information security and its governance. Attacks can originate from not just inside the organization, but anywhere in the world. Failure to adequately address this important concern can have serious consequences.
One way to enhance security and governance is to implement an enterprise architecture (EA) plan. The EA is the practice within information technology of organizing and documenting a company's IT assets to enhance planning, management, and expansion. The primary purpose of using EA is to ensure that business strategy and IT investments are aligned. The benefit of EA is that it provides a means of traceability that extends from the highest level of business strategy down to the fundamental technology. EA has grown since John Zachman first developed it in the 1980s; companies such as Intel, BP, and the U.S. government now use this methodology.
Federal law requires government agencies to set up EA and a structure for its governance. This process is guided by Federal Enterprise Architecture (FEA) reference model. The FEA is designed to use five models:
- Performance reference model—A framework used to measure performance of major IT investments
- Business reference model—A framework used to provide an organized, hierarchical model for day-to-day business operations
- Service component reference model—A framework used to classify service components with respect to how they support business or performance objectives
- Technical reference model—A framework used to categorize the standards, specifications, and technologies that support and enable the delivery of service components and capabilities
- Data reference model—A framework used to provide a standard means by which data may be described, categorized, and shared
Determining Who Pays
Senior management must select a strategy to determine who will pay for the information system's services. Funding is an important topic because departments must have adequate funds to operate. Each funding option has its advantages and disadvantages. The three most common include these:
- Shared cost—With this method, all departments of the organization share the cost. The advantage of this method is that it is relatively easy to implement and for accounting to handle. Its disadvantage is that some departments might feel that they are paying for something they do not use.
- Chargeback—With this method, individual departments are directly charged for the services they use. This is a type of pay-as-you-go system. Proponents of this system believe that it shifts costs to the users of services. Those opposing the chargeback system believe that it is not that clear-cut. As an example, what if your city of 1,000 people decided to divide electrical bills evenly so that everyone pays? Many might complain, as not everyone uses the same amount of electricity. Opponents of the chargeback system make the same argument, as end users don't consume IT resources evenly.
- Sponsor pays—With this method, project sponsors pay all costs. Therefore, if sales asks for a new system to be implemented, sales is responsible for paying the bills. Although this gives the sponsor more control over the project, it might lead to the feeling that some departments are getting a free ride and, thus, can cause conflicts.