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IT Portfolio management step by step - Maizlish B

Maizlish B, Handler R. IT Portfolio management step by step - John Wiley & Sons, 2005. - 401 p.
ISBN.: 978-0-471-64984-8
Download (direct link): itportfoliomanagement2005.pdf
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• Priorities of active projects are constantly being updated and evaluated
• Existing assets may be maintained, reengineered, phased out, or repositioned1
Building and maintaining the IT portfolio is a balancing act that is both an art and a science. It is an art due to the nonnumeric, subjective, qualitative, intangible, and uncertain variables factored into evaluating and assessing IT investments and the IT portfolio. It is a science due to the numeric, objective, quantitative, tangible, and reliable information and data that are also used for evaluation and assessment. The importance and criticality, and thus the weighting and priority, of the art and the science vary by company and by industry. In addition, rankings of these factors are constantly being adjusted due to continuous internal and external changes and events. There are three critical factors to keep in mind throughout this chapter:
1. The IT portfolio management process and framework do not make decisions—people do!
2. All models shown in this chapter, however sophisticated, in and of themselves are only partial representations of the realities they are meant to reflect.
176 CHAPTER 5 BUILDING THE IT PORTFOLIO
3. People with varying functional and disciplinary perspectives must buy in to the IT portfolio management process for it to be successful.2
Building the IT portfolio employs portfolio management techniques for investment, resource planning, and decision making to identify and select trade-offs involving costs, benefits, risks, and timing. Trade-offs for IT portfolio management are not limited to financial measures such as return on investment (ROI) and net present value (NPV) of a specific investment. Many other factors can and often should be included such as:
• Business and strategic fit
• User/customer needs
• Risks versus return
• Balance and diversification
• Trends
• Architectural impact
• Human resource capabilities and core competencies
• Intangible benefits
• Constraints due to costs, resource capacity, and scheduling
• Resource allocation
• Timing
• Practicality
• Interdependencies and correlations created between projects and existing investments
• Core capabilities
The IT portfolio management framework assigns weighting and criteria to these factors. An emphasis on one or a few of the factors at the expense of others will possibly lead to far different results. For instance, an emphasis on minimizing risks would lead IT investments (and the IT portfolio) to demonstrating poor shareholder returns (value) and many unhappy employees whose compensation might be tied to the performance of the company. The magic is identifying the critical parameters and obtaining the right emphasis and the right ranking of these factors, which are dependent on current and future internal and external priorities, conditions, trends, and events. Multiple iterations and trade-offs occur that require knowing which potential and existing investments are essential to meeting business objectives and which are undervalued, overvalued, redundant, and show diminishing rates of return. Research indicates that fewer than 10% of global 2000 organizations adequately measure indirect costs and benefits, confining their analyses to direct financial impacts.
INTRODUCTION
177
A balance between the rigor in which a portfolio management process is applied (high accuracy) and the level of precision required to make a decision must be determined. The amount of data collected and time required to reach a decision should be determined by the impact, criticality, size, and duration of an investment. However, diminishing marginal returns can result from collecting and analyzing too much data over a long period of time.
IT investment decisions in the discovery and project phases can be based on reasonably accurate estimates. Although the authors present advanced modeling and simulation techniques for valuing investments, highly detailed financial modeling, granular project and task plans, and comprehensive revenue and cost estimates to assess each potential discovery or project investment can be inefficient and do not necessarily translate into better decision making.3 Summary level data and estimates are usually reliable indicators, assuming that historical data are reasonably accurate, benchmarking data are attainable, and accounting systems and forecasts are kept up-to-date. However, if estimates consistently prove to be unreliable, assess the source of the information, the methodology behind the estimating techniques, and the assumptions used.
Before going into detail about the IT portfolio management stages and accompanying tasks, it is important to understand that business strategies drive company priorities. They might include improving productivity, expanding into new markets, transitioning from a product-based to a service-based entity, or developing new products and solutions. Strategic fit/alignment between an IT investment (or the IT portfolio) and business and strategic objectives are key factors in making portfolio decisions, so it follows that understanding business strategy is vital. In many instances, business strategy is not readily available or does not exist. This is why strategic drift, or the difference between actual strategy and intended strategy, is so wide and pervasive in many companies—all projects essentially fit the de facto strategy.
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