Do Boards Need a Technology Audit Committee?

What do FedEx, Pfizer, Wachovia, 3Com, Mellon Financial, Shurgard Storage, Sempra Energy and Proctor and Gamble have in common? Which board committee exists only for 10% of listing companies, but brings these companies an additional profit of 6.5%? What is the most important budget item after wages and production equipment?

Technological decisions remain in place within the authority of the management team that makes these decisions. While the current rapid pace of technological change means that business technology solutions are frequent and radical, the consequences of these decisions – good and bad – will remain in business for long. Technology decisions are usually made unilaterally within the INFORMATION Technology Group (IT), which senior management prefers not to interfere with or control. In order for the company’s board of directors to perform its responsibilities for making business judgments on important decisions, the board of directors must have a mechanism for analyzing and making technological decisions.

A recent example where this type of monitoring could help is the Enterprise Resource Planning Mania (ERP) of the mid-1990s. At that time, many companies invested tens of millions of dollars (and sometimes hundreds of millions) in SAP and Oracle ERP systems. . Often these purchases were justified by financial, human resources or operating managers, who strongly defended their purchase as a way to be aware of their competitors, who also installed such systems. ICOs and line managers often do not think enough about the successful transition to these extremely complex systems. Asset alignment and management of organizational changes caused by these new systems have been ignored, often leading to crisis. Several billion dollars were spent on systems that should not have been bought at all or that were bought before the client’s business was prepared.

Of course, no successful medium or big business today can operate without computers and software that makes them useful. Technology is also one of the most important capital and operating items of commercial expenditure, with the exception of manpower and production equipment.

Can the board still leave these fundamental decisions to the discretion of the current management team? Most basic technological decisions are inherently risky (research has shown that less than half keep their promises), while bad decisions take years to fix or replace. More than half of technological investments do not generate expected business returns; Therefore, boards of directors are involved in making technological decisions. Surprisingly, only 10% of listing companies have IT audit committees on their boards of directors. However, these companies have a clear competitive advantage in the form of a combined annual yield of 6.5% higher than that of their competitors.

There are tectonic shifts in the way technology is delivered, which the Council needs to understand. It consolidation drastically reduces strategic flexibility, undermining management’s ability to consider competing options, and creates potentially dangerous reliance on only a few key vendors.

The main asset of a successful and sustainable business is the ability to respond or even anticipate the impact of external forces. Technology has become an obstacle to the flexibility of the organization for several reasons:

Outdated basic systems have been scaled
o IT infrastructure fails to keep pace with business changes
o Inflexible IT architecture means that the high percentage of IT costs to maintain existing systems is not sufficient for new features.
Short-term operational decisions affect a company’s ability to remain competitive in the long run.

Traditional councils lack the skills to ask the right questions to ensure that technology is seen in the context of legal requirements, risks and flexibility. Indeed, technology is a relatively new and fast-growing profession. CEOs have existed since time immemorial, and financial advisers have evolved over the past century. But the technology is so new, and the cost of implementing the changes is enormous, that the profession in the field of technology is still in its infancy.

Recent regulatory requirements, such as the Sarbanes-Oxley Act, have changed the relationship between a business owner and a financial manager. They, in turn, demand similar guarantees from the technology leader. The business owner and financial manager have professional advisors who make decisions, such as lawyers, accountants and investment bankers. The technologist relied on a community of suppliers or consultants who have their own opinions and who can’t always make recommendations for business. The Board of Directors’ It Audit Committee can and should fill this gap.

What role should the IT audit committee play in an organization? The Board of Directors IT Audit feature should help:

  1. Agree a technology strategy with your business strategy.
    Make sure that technology solutions are in the best interests of shareholders.
    Promoting organizational development and coordination between business units.
  2. Increase the board’s overall understanding of the company’s problems and technological implications. Such an understanding cannot be obtained only on the basis of financial analysis.
  3. Effective communication between the technologist and the members of the commission.

The IT Audit Committee does not need additional board members. Existing board members may be assigned responsibilities and consultants may be invited to help them understand the problems sufficiently to lead a technology leader. A review of existing IT audit committee charters reveals the following general characteristics:

  1. To study, evaluate and give recommendations on technological issues of interest to the company.
    Assess and critically assess the financial, tactical and strategic benefits of proposed major technology projects and alternatives to technology architecture.
    Monitoring and critical analysis of the progress of major technology projects and solutions related to technology architecture.
  2. Advise the company’s technology management team.
    Monitoring the quality and effectiveness of technological systems and processes that relate to or affect the company’s internal control systems.

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