How good do you think you are?

How good do you think you are?

Optimising TCO Resourcing IT Projects for Success Darren Capehorn 17th November 2010 My Background some highlights! Joined Lloyds Bank in 1986. 1991 - Lead designer of a customer and account database solution - the largest online DB2 installation in the World. 1997 - Lead designer Lloyds and TSB IT integration. 2001 - Lead architect on a message based money transmission system at the time the largest WMB solution in the World. 2005 - Business Unit Architect for LTSB Money Transmission. 2005 LTSB Bank representative at APACS developing the business and technical proposition for UK Faster Payments. 2 TECHNICAL KNOWLEDG E

D T R EL I RR AC VE EC K- RY O RD In 2007 left Lloyds TSB to start an IT Banking Practice BU KN SI O NE W S LE S D G E 3 Company background Evolution of a ten year old Integration Services company.

Led by three directors (formally leading services at STG) Tom Kelleher Commercial Director Ben Hallifax Operations Director Darren Capehorn Director of Banking Practice Offices based in Wimbledon 35% growth 2010 IBM Premier Business Partner Specialists in relating technology to business problems, and understanding what this really means. 4 Parameters dictating IT delivery strategy Three parameters influence a companys IT strategy:COS T QUALITY I want to invest in a scalable, robust, flexible architecture. Budgets are being cut just give me something which does

the job TIME If I can have a solution tomorrow I will gain market advantage Traditionally acknowledged that these 3 parameters conflict: Cheap solutions = poorly architected = costly to maintain. Quick delivery = gain market advantage BUT Requires higher calibre resources = increasing costs. 5 BUT CEOs demanded Better, Cheaper, Faster Over the years there have been several initiatives and approaches to meet this demand through improved IT effectiveness by improving process, control and/or delivery approach. Some Ive enjoyed over the years..... Capability Maturity Integration Model (Integration) Technologies SSADM

JSP (Fast) Function Point Count Rational Unified Process SOA Use of Packaged Solutions Use of Off-Shore Providers 6 The reaction to the use of

Off-Shore providers? Few IT initiatives have polarised opinion so much particularly when it comes to complex IT delivery: Wed never offshore I can get six off-shore resources for Payments Its too the price of one It must improve complicated TCO Since off-shoring my Payments IT budget is all consumed keeping the lights on! These providers are CMM level 4 or5 they must be better at IT than we 2009 saw the highest rate of IT Project failures for a are.It works for Internet Banking decade why cant it work for Im a CIO why do I feel the Payments? need to attend code walkthroughs?

7 This presentation is our experience of why companies are not getting the optimum TCO after off-shoring. 7 Factors impacting TCO Total Cost of Ownership encompasses more than delivery cost and will be impacted by:High cost of supporting and maintaining poorly architected application (up to 4X cost of initial build). Missed opportunities to re-use well architected components. Business revenue lost through delayed delivery of revolutionary products. Fines incurred through late delivery of regulated / mandatory enhancements. Lack of time to train and mentor during delivery increases costs and risk of subsequent support and enhancement. 8 Can we assess the effect

of Off-Shoring on TCO? COST - IT does not produce ubiquitous widgets, so it is difficult to compare the cost of delivery before and after change. QUALITY - Seldom is the cost of support, maintenance and enhancement traced back to a root cause of poor architecture, design or delivery in the initial delivery. TIME - The impact of late delivery is generally accepted as a given, so the cost benefit of earlier delivery is not understood. The impact remains based on gut-feel and experience, though often supported by decline in customer satisfaction about the effectiveness of the IT department. In the absence of science, perhaps it is fairest to conclude that off-shore introduces some risks and that failure to mitigate these means that few companies are optimising their TCO whilst using this model. 9 Top Ten Risks of OffShoring* The secret to optimise TCO is to understand and mitigate these risks, which broadly fall into three categories: Hygiene Risks: Data Security / Protection (2) Cultural Differences (8) Commercial Risk:

Unrealistic expectation of labour arbitrage (1) Supplier Failure (5) Underestimation of cost of scope creep on fixed price contracts (6) Capability Risk: Process maturity to support off-shoring (3) Loss of business knowledge (4) Lack of industry / regulatory oversight (7) High turnover of key personnel (9) Cost of knowledge transfer (10) * - Source The Ministry of Commerce The Peoples Republic of China** ** - Although they may have copied it! 10 Hygiene Risks Some observations Cultural Differences Most commonly includes: Communication issues Note - regional accents are an issue in both directions. The issue is magnified by poor telecommunications Consider investing in technology to reduce impact. Accept the need to have off-shore resources onshore (about 20%) Interface protocol and procedures can also help mitigate the issue

(e.g. Have conference calls run through written status reports). Lack of Openness (e.g. Poor status reporting). This is generally not subterfuge/deceit but often caused by communication issues described above. However, if resource capability is over-sold then fear can drive this behaviour (which is not unique to off-shore resources). Create relationships which break-down the barriers (e.g. Technical surgeries, site visits to put names-to-faces). 11 Commercial Risks Some observations Unrealistic Expectation of Labour Arbitrage: Business cases assume a >40% real term cost saving per person. In reality it is more like 15% in year 1. Improving this figure in year 2 depends on addressing the capability risks. Supplier Failure: Most contracts outsource to a single off-shore provider which is essential to optimise supplier capability. But it limits the options if suppliers fail to deliver. It can also limit the customers ability to independently

gauge project costs. Retain sufficient independent knowledge to enable alternative delivery options and /or to challenge estimates. 12 Capability Risks Some observations Loss of business knowledge: In old or poorly documented systems this resides in the heads of the programmers who are being replaced. Lack of industry / regulatory oversight: An ever increasing burden on stretched budgets (especially in Payments). High turnover of key personnel: Rapid growth of off-shoring has created a vibrant labour market for key personnel. Cost of knowledge transfer: It takes a long time to become highly capable (a key resource). BUT there high risk this investment will be wasted through staff turnover. 13

So what are the attributes of a High Capability resource? IP H Collaborative RS E Delivery N T RMentoring A P IT Processes & Governance Low Risk Solutions Payment Solutions

Communication S BU ES N SI D Strategic Insight EL IV E RY IT Discipline Leadership

Domain Knowledge T I O N LE W O KN E G D IT S O LU Technology

Technology Bigger teams Complex industry Core to enterprise Heavily regulated 14 The Need for High Capability resources in Payments? Relative Team Size / Mix Payment Solutions demand more highly capable individuals: RISK ASSESSMENT: Impact = HIGH Probability = HIGH Capability Key = HIGH

= MEDIUM = LOW Impact = MEDIUM Probability = MEDIUM Study Architect Design Impact = LOW Probability = MEDIUM Build Phase Test Support 15 Impact on TCO of losing high capability personnel As observed above:

Key resources hold the business and industry knowledge Key resources are most likely to leave. Training this knowledge into the next key resource is costly and time consuming. BUT Crucially, impacts which are often ignored: The Time to deliver solutions will be impacted. The Quality of delivered solutions will suffer. Support Cost for the solution will rise And... these poor solutions can become the template for future best practice. All factors which will impact TCO. 16 Summary steps to Optimise Total Cost of Ownership Assess how mature the organisation is to support off-shore development (e.g. Does SDLC have sufficient governance steps for remote team-working? Remediate the organisation to mitigate potential hygiene risks (e.g. Invest in appropriate communication technology). Recognise the impact on TCO if high capability resource is lost and be prepared to retain these

roles through alternative models (e.g. In-house or through optimised on-shore SME provision). As part of the high capability resource model, ensure that the organisation retains sufficient knowledge to address the commercial risk (e.g. validate project costs). If off-shoring has already hit these issues then consider remediation activities to regain control and realise the TCO savings(e.g. Recruitment, training). BUT... Used smartly and appropriately Off-Shoring will reduce TCO. 17 Discussion......

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