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Besides deploying Six Sigma practices and cutting costs by freezing projects, laying off employees and contractors, or renegotiating supplier contracts, many companies are utilizing supply-side self-funding IT activities to get through turbulent times, including:
Simplifying, migrating, retiring, and/or consolidating legacy systems to decrease operations and maintenance costs and increase flexibility and agility
Standardizing, reengineering, and utilizing commercial off-the-shelf technologies and open standards for new product development to speed time to market and avoid the expensive use of proprietary technologies
Externalizing processes through outsourcing and establishing value-network partner ecosystems and shared services, resulting in lower costs and focus on core competencies
IT portfolio management is a tool that supports companies during times of both robust growth and economic downturn. IT portfolio management supports disciplined improvement and thrives on consistency, repeatability, and accountability. However, a key challenge for companies during periods of boom
10 CHAPTER 1 IT PORTFOLIO MANAGEMENT: AN OVERVIEW
or bust is aligning to the corporate strategic intent and developing a framework for measuring, balancing, prioritizing, selecting, and flexibly changing the composition of IT investments and assets. Many companies are hemorrhaging in IT spending due to:
A prevalence of pet projects
A reluctance to kill projects and/or retire assets
Too many active projects and a huge backlog of projects
A myopic focus on exotic and cool technologies
A lack of a detailed cataloged, organized, and aggregated view of critical versus immaterial assets
Inconsistent and incomplete criteria to assess IT investments
Underestimation of the total cost of ownership
Ad hoc program management processes
This situation is reflected in the following survey results that highlight the shortfalls of the majority of companies in attaining optimal value at acceptable risk levels for their IT investments:
84% of companies either do not do business cases for their IT projects or do them on a select few key projects.
83% of companies are unable to adjust and align their budgets with business needs more than once or twice a year.
67% of IT organizations are not market ready. Benchmarking is done less frequently than once a year.
89% of companies are flying blind, with virtually no metrics in place except for finance.
57% of companies perceive they are balancing the pressures of cost cutting and IT effectiveness.
Most companies maintain a list of more IT projects than their budgets can support. Ironically, many business and IT managers are unaware of:
The types of ideas and concepts being worked on within research and development
How many IT projects are in the development cycle and their alignment with the future strategic direction
The amount of resources allocated to, or the risks associated with, each IT investment
FOCUS ON IT INVESTMENTS
The reason why IT investments were initiated or the criteria used to approve IT investments
In addition, information regarding the size and magnitude of the operations and maintenance budget as a percentage of IT spending, and how this funding is allocated among new systems versus legacy systems, is typically not readily available. Hiding IT costs associated with pet projects, political power plays that override strategic objectives, and implementation and execution of rogue systems is easy and commonplace. Unfortunately, most companies lack the discipline to continuously measure performance. To complicate matters, it is not unusual that accountability to initial assumptions made in IT investments is nearly impossible to trace, since roles, responsibilities, and ownership are vaguely defined. Welcome to the world of configuration management, change management, transition management, and governance processes at the lowest levels of maturity. It is impossible to effectively and efficiently manage IT resources without awareness and a detailed catalog of all IT investments, identifying who is accountable, and relevant metrics.
The flaws and disconnects as discussed are manifested in the figures:
72% of IT projects are late, overbudget, lacking in functionality, or never delivered.
Of the 28% successful projects, 45% were overbudget and 68% took longer than planned.
50% of managers said they could have realized value with 50% of the cost.
Only 52% of the projects realized strategic value.
According to the Project Management Institute, North American firms spent more than $1 trillion on IT deployments and surrendered nearly $300 billion on late, overbudget, or failed implementations during 19992001.1 Focus, direction, and control mechanisms are not core competencies within many companies. These figures are particularly alarming considering that projects and initiatives in the pipeline should represent the engines for growth, modernization, and transformation. Projects and initiatives typically average approximately 25% of the total IT budget (the remainder allocated to assets within operations in such areas as existing applications, infrastructure, people, processes, etc.). Assuming a 30% success rate, only $1 out of $14 spent by the average companys IT budget can be correlated with new benefits. This is a relatively accurate assertion.