Second, for extremely sensitive data applications, use two-factor authentication. Username/password authentication in an SSO environment is much riskier than two-factor authentication, as you note. And two-factor authentication doesn't mean all users have to carry a smart card; tokenless two-factor authentication services are readily available and not as expensive as their hard-token counterparts.
But the biggest recommendation I have to offer is to do a market study on whether hardening single sign-on environments is even necessary. (Ask the single sign-on vendor(s) you're working with to help with this.) Generally, organizations are able to implement single sign-on internally with few to no issues of compromise using username/password schemes. Also, be sure to discuss security concerns with the senior managers to better understand what their actual fears are and address them directly.
This was first published in June 2010