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Many companies base their IT investments on annual budget cycles, allocating the entire budget to run-the-business, grow-the-business, and transform-the-business opportunities. The expectation is that all of these investments will stay on track, avoid scope creep, and continue to align with company priorities. This static approach does not leave room for off-cycle IT investments, rebalancing priorities, or accelerating, delaying, or canceling investments in light of changing conditions. Often, it also fails to leave contingency for errors in estimating. Estimates, by definition, are inaccurate. For some odd reason, however, there is a belief that estimates are accurate. IT portfolio management, especially at the balancing stage, allows organizations to contend with differences between estimates and actuals. Mapping of resources, competencies, and capabilities to investments is a leading practice. Balancing these mappings or relationships assures allocation of resources is in line with the needs of the business.
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Identify Tuning Options
The first activity in this stage is to identify the various options that will lead to an optimal portfolio. IT portfolio management is as much an art as a science. The identification of portfolio tuning options involves leveraging work from previous stages, including the assessment of portfolio performance from stage 4. Portfolio tuning also requires consideration of the validated future-state portfolio and the impact of internal and external events. Given these inputs, several things occur:
Identification of options for eliminating differences between actual and expected portfolio results
Identification of options to meet investment targets if they differ from expected portfolio results, which after going through this exercise, they often do
Scenario analysis or what-if analysis to determine an optimal list of options
Most of this effort is done behind the scenes. The portfolio manager, the portfolio team, and the owners of the various subportfolios are involved, but the senior leadership is usually kept out of the loop. This is an analytical exercise that uses methods and approaches discussed in the previous stage such as scoring methods, standard financial models, and advanced modeling and simulation tools. Senior leadership tends to want well-thought-out bottom-line solutions to approve or reject.
The identification of portfolio tuning options should culminate with a first cut of the actions required for balancing. It tends not to be the final list, and it has not been approved or funded.
At this point, it will undoubtedly be known whether the tools used to support the IT portfolio management effort were appropriate. If the initial scope of IT portfolio management was small, simpler tools may get you through an entire cycle. If, however, the scope or quantity of data being analyzed is great, the what-if analysis will justify the cost of a tool designed to do IT portfolio management. It will also bring the office automation tools to their knees.
Trade-offs usually exist because of resource constraints. They must be analyzed to generate a list of prioritized actions against the portfolio replete with supporting analysis, which will come in handy as invariably some will not be pleased with the outcome of the analysis (e.g., the son-in-law of the CIO who no longer gets funding for his sticky web thing). The major steps in this activity are:
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Performing impact analysis on tuning options
Prioritizing tuning options
Identifying risk/return trade-offs
These steps require business representation. Someone with IT financial expertise should also be part of the process. Scenario planning is another skill required to get through these activities. This role can be filled by anyone who has done scenario planning before. The portfolio manager acts as a fund manager, balancing the risks and benefits of IT initiatives to manage IT investments.
Scenario planning is an important capability that decision makers use in developing multiple alternatives and assessing the viability and achievability of each alternative. Often, each scenario is mapped visually, and impacts of the scorecard are evaluated based on value, risk, balance, alignment, and capacity. The discussions for the discovery, project, and application portfolios are also applicable to subportfolios.
Trade-offs in the IT Discovery and IT Project Portfolios
After identifying the tuning options against defined and weighted criteria that have been vetted and approved by the decision makers, the portfolio is scored. A prioritized ranking of investments is shown based on a numeric scoring value, and the cost of the investment is also shown. A dynamic rank-ordered list shows the prioritized rank order of investments based on concurrent assessment of several criteria such as net present value, internal rates of return, strategic importance, probability of success, etc.13 Investments can be bucketed according to percentage allocations in such areas as: