Financial Models for IT Investments

FEDERAL SECTOR REPORT November 2006 IN THIS ISSUE Financial Models for IT Investments White Paper on Modeling IT Costs Fixing Knowledge and Communication Gaps Government Contract Management Conference Link of the Month: The Science of Change Services Home Page (c) 2006 by the P2C2 Group, Inc. .
FINANCIAL MODELING HELPS YOU PLAN AND MANAGE Budgeting and cost management for information technology (IT) investments can get out of hand without careful planning and control. Indeed, many IT projects do experience costs that spiral higher and higher. Inadequate budget formulation, estimating, and cost modeling are often underlying causes. Weak financial modeling defeats the purpose of Earned Value Management (EVM). After all, you cannot expect satisfactory results on EVM's Cost Performance Index (CPI) or Schedule Performance Index (SPI) if your financial model is based more on guesstimating than estimating. A compounding problem is that organizations require a project's financial plan and budget to be prepared showing a multitude of perspectives: Budget officers must apply a set of cost categories. The top level for Federal agencies tends to be the universal Budget Object Class categories. Project Management Office needs costs organized by Work Breakdown Structure (WBS) The Enterprise Architects may want to see the costs by Service Oriented Architecture (SOA) and/or technical service categories Your information security officer wants to identify costs that are associated with security The procurement office wants costs organized by acquisition (and acquisition segment) Management needs to know how much you will be spending by fiscal year, quarter, or month The Chief Financial Officer may have a few additional requirements. A financial model that integrates multiple perspectives and supports comprehensive planning can help you do a better job of budgeting and cost control. This is exactly the approach that the P2C2 Group recommends for its clients.	Generally we recommend beginning with a spreadsheet workbook (such as Excel). Over the longer term, migration of the tables to a database may be more practical as project managers begin incorporating actual cost performance data. If done on an enterprise-wide basis, it may also make sense to consider COTS software applications that also include other budgeting and cost management features.
WHITE PAPER: FINANCIAL MODELS FOR IT INVESTMENTS Our article this month is a white paper on Financial Models for IT Investments. You will need to click on the link to the article, because we're trying to keep our newsletter shorter to avoid spam filters. An IT financial model is an expression of the quantitative relationship between costs, assumptions, and risks associated with a defined investment in information technology. The model uses a common data structure across all dimensions to enable comparability over time, between alternatives, and among various perspectives. A simple example of the concept of a basic data structure is in Figure 1. GO to the White Paper.	Figure 1 White Paper
NCMA GOVERNMENT CONTRACT MANAGEMENT CONFERENCE The National Contract Management Association will be conducting its 25th annual government contracting conference at Tysons Corner (Virginia) on December 4 and 5. The keynote presenters are Lurita Doan, GSA Administrator, and Paul Denett, Admistrator of the Office of Federal Procurement Policy (OMB). General session panels will include: Inter-Agency Contracting Section 1423 Panel Final Report (on recommendations for improvements to acquisition laws and policies) Blended Workforce and Other Workforce Issues. There will also be a variety of breakout sessions, ranging from Earned Value Management to Domestic Emergency Contracting. More information is available at http://www.ncmahq.org/meetings/GCC06/. FIXING KNOWLEDGE AND COMMUNICATION GAPS One of the most widespread problems we observe in many Federal departments is the fragmentation of knowledge about IT management processes. Hard-working line-managers and IT project managers who are down in the trenches of the organization often don't have a clue about the enterprise's business strategy, Enterprise Architecture, IT decision-making processes, or best practices. Sometimes when I inquire why they don't simply ask the "go to" person in the enterprise (security, EA, CPIC, whatever), they look at me like I have asked them to hike across the Gobi Desert. Yet, when I talk with the "go to" managers in charge of these functions, these experts typically talk about their extensive efforts to "get the word out" about their vision, performance goals, and process requirements. So often, these different stakeholders seem like ships passing in the night, unaware of each other or the failure to communicate. The good news is that the problem can readily be solved. Knowledge management and communication solutions exist, and the first step is to get enterprise-wide commitment to improve the processes. The P2C2 Group can get you moving with a roadmap and implementation support. LINK OF THE MONTH: THE SCIENCE OF CHANGE Nothing is more frustrating than trying to get people to alter the way they do things. New research reveals why it's so hard and suggests strategies to make it easier. Find out more in CIO magazine (9/15/06): http://www.cio.com/archive/091506/change.html	.
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HOME PAGE A fringe benefit of working in Kensington is my cost-free athletic club, the trails that snake along Rock Creek Palisades. It's a magnet for bikers and runners. My own option is hiking, usually flanked by the two dogs that I adopted 10 years ago from the county animal shelter. We probably log at least 1,500 miles a year ... maybe more with our diversions through nearby communities. Best wishes, Jim Kendrick, PMP Enterprise Management Consultant P2C2 Group, Inc. 4101 Denfeld Avenue Kensington, MD 20895 kendrick@p2c2group.com 301-942-7985 NEWSLETTER ARCHIVE	Happy Trails For Hikers, Bikers and Runners Rock Creek Park

The P2C2 Group, Inc.
4101 Denfeld Avenue | Kensington, MD 20895
Point of Contact: Jim Kendrick, President
e-mail: kendrick@p2c2group.com
phone: 301-942-7985