Exercise: This case focuses on IT strategic alignment with business objectives and strategies. Introduction Dan O'Reilly is the chief executive officer (CEO) of DentDel Inc. He is facing a critical decision on whether to terminate or continue development on a systems development project that affects the future of DentDel. The further he investigates the issue, the more uncertain he becomes about the viability of the project and the more concern he has over the lack of alignment between IT and business objectives. Background Company DentDel began operations as a regional provider of dental supplies to dental providers. The initial marketing plan was to employ sales staff, travel to dentist offices and take orders. Because this business is extremely competitive, timely ordering and delivery of the products was the key differentiator between DentDel and its competitors. Industry DentDel is a wholesale distributor; it purchases and resells dental equipment. The wholesale distribution business has been undergoing significant change as companies move from a direct sales approach to a consumer-driven order process through the Internet. Key Players The key players are: Dan O'Reilly, CEO Cedric James, Chief Information Officer (CIO) Chuck Hernandez, Director of Systems Development Sarah Stein, Vice President of Sales Rafael Colon, Chief Financial Officer (CFO) Alicia David, Audit Committee Chair Issue The sales staff would take orders on paper and, nightly, bring the orders to the office for processing. This proved to be too costly and time consuming, and in response, the sales people were provided with portable fax machines to send the orders after each visit. This, too, was inefficient because the orders had to be transcribed from the faxes, which were often illegible. The IT department, led by Cedric James, decided that wireless technology had become reliable and secure enough to begin equipping the sales team with hand-held devices. Since Cedric had a Pear P-Phone, he decided that this would be the platform on which to build a new order entry system. Cedric brought his idea to Chuck Hernandez, who began developing a business case. Chuck spoke with Sarah Stein and Rafael Colon to get some initial feedback on the current sales system. He also met with several members of the field sales force to determine which technologies would make their sales efforts more efficient. Chuck completed the business case and conceptual design. He presented it to Cedric, who forwarded it to Sarah and Rafael with a recommendation that they approve it. Cedric, Sarah and Rafael held a 10-minute meeting in which the project was discussed. Cedric presented his representation of the operational benefits and financial savings, using his assumptions and cost estimates. After limited discussion, based on Cedric's representations of the savings and benefits, Rafael approved the US $20 million project, which included systems development and acquisition of the equipment. Because of the desire to implement the project development quickly, the project was not presented to the executive committee, comprised of the CEO, CFO, chief operating officer (COO) and general counsel. It was decided that Sarah, Cedric and Chuck would oversee the project as an ad hoc committee. Rafael would sit in on meetings affecting financial issues. No chairperson was established. In preparation for the later rollout, Cedric decided to replace the sales team's mobile phones with the P-Phone to save the expense of replacing the phones later. At the last status meeting, involving Rafael, Sarah, Chuck and Cedric, the following issues were raised: The project team has spent US $8 million, but reports that only 25 percent of the project plan has been completed. The original plan was to spend US $3.5 million by this point in the project. The project team was having internal difficulties: - The business subject matter experts were only available in the late afternoon, after they had finished their routine responsibilities. - The IT project team feels that the business is not providing enough resources or attention. - The project team reports that the sales team has been complaining about phone service at the locations they visit. The IT project team suggests that the signal is good enough and that the sales team members can always find a place with an adequate signal. - The project team has not reported any issues to the executive committee. Sarah reported that the dentists have less time to visit with the sales team members and would prefer to have their administrative assistants place the orders directly via the web. She questioned whether it would be best to convert this project to a web-only order entry system and abandon the sales visits. Cedric was angered because Sarah questioned the viability of his technology strategy. Rafael indicated that he was concerned that the write-off of this project could be unsettling to the shareholders. After this meeting, Rafael was quite concerned about the whole tenor of the project and foresaw a write-off of US $8 million, which would be considered financially material and require a US Securities and Exchange Commission (SEC) disclosure. He decided to bring this issue to Dan O'Reilly. Dan was extremely concerned and requested an internal audit of the process to determine how to stop the haemorrhaging. Since the situation also involved a material financial impact, he was obliged to notify the Audit Committee Chair, Alicia David. Alicia shared all of the concerns identified by Dan, but felt that the internal audit assessment should have a wider scope. Decision to Be Made Alicia David requested that the Internal Audit Department prepare a discussion document to provide the Audit Committee and CEO with an understanding of what happened and what actions should be taken. Questions As the internal audit team lead for IT Audit, you have been asked to utilise COBIT as a framework to: 1. Identify which processes were ineffective and allowed this situation to occur. 2. Suggest the steps management should take to assess the situation, and create an action plan. 3. Identify which governance processes should be initiated to prevent reoccurrence of a project failure such as this one