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• Regularly validating costs, benefits, and risk data used to support IT investment decisions. The information and data are accurate, reliable, and up-to-date, forming the basis for grounded decision making.
• Focusing on continuously measuring and evaluating progress and results.
• Assess the effectiveness of the IT portfolio management process.
• Determine the impact on performance.
• Evaluate efficiency of the generation of relevant data and decisionmaking processes.
• Assess the completeness as to how faithfully the processes, stages, and activities are being followed across the company and how often investments are being revisited.6
Prior to discussing the stages and tasks associated with building the IT portfolio, three important staples of IT portfolio management are briefly described: value, risks, and costs. Companies must have a keen understanding of IT and business with respect to value, risks, and costs. Throughout this chapter, additional detailed information is provided in these three areas.
180 CHAPTER 5 BUILDING THE IT PORTFOLIO
Information about transactions has often become equal to if not more important than the transactions themselves (e.g., stock market performance, express package tracking, etc.). Technology enables specific information and performance attributes (e.g., timeliness, accessibility, quality, and accuracy), which in turn determines its value. IT management will increasingly be judged on its ability to increase information value.
Value is derived when the benefits of an investment exceed its costs. However, defining the benefits and costs for a future investment is subject to the interpretation of key stakeholders and gatekeepers. What might be valuable to one stakeholder might not be to another. Benefits can be based on intangibles (e.g., customer satisfaction, improvements to core competencies, etc.) that might not be obvious and highly visible to some decision makers. Gaining consensus as to what value means and how it is measured can be challenging. Often, individuals project their own value system onto their business and IT decisions. IT portfolio management is a technique that can be used to articulate the core values of the company so that decisions can be made that align with those values.
In order to optimize value in the IT portfolio, there must be agreement and alignment between IT and business regarding the definition of value and how each can mutually contribute to establishing value. IT portfolio management helps align IT efforts with business efforts to maximize value. However, if value is not understood within the enterprise, IT portfolio management will fail. A listing of value categories and value factors can be found in Appendix 5A.
It is not unusual to see differing opinions among senior management regarding their priorities of value drivers, as shown in Exhibit 5.2 from United Management Technologies. Risk tolerance, current trends, interpretation of data presented, personal and political agendas, and other potential blockers all impact the ability to reach consensus on value priorities as shown on the left side of this exhibit. The right side shows that senior management has reached consensus.
IT portfolio management must constantly drive and deliver value to succeed. Driving value means knowing what is valued at all times. Value must be approached from key stakeholder perspectives (this chapter addresses the key stakeholder assessment, which identifies key stakeholder values). Value must be communicated. IT portfolio management must not only drive value but communicate this value again and again. Thus, an integral part of the IT portfolio management process is understanding what the company values, what key stakeholders value, and ensuring that both the company and key stakeholders understand the value proposition set forth through IT portfolio management. The analog in the investment world is understanding the financial objectives of the individual investor prior to developing the investment portfolio. Some value
EXHIBIT 5.2 DIVERGENCE AND CONVERGENCE REGARDING VALUE DRIVER PRIORITIES
Source: Copyright © 2004 United Management Technologies (UMT), www.umt.com.
security and safety of principles over higher returns, whereas others value socially conscious investments.
Most people do not know what risk is. They just know they do not like it! And, according to research, less than 10% of global 2000 organizations proactively manage and quantify portfolio risk. For all intents and purposes, risk is the potential deviation from expected results. Risks can negatively impact the costs of investments through dramatic change in scope and unplanned funding requirements. They can impact other interdependent projects, therefore delaying value, influencing schedules, affecting performance, and causing a loss of trust, confidence, and competitive advantage. There is a correlation between identifying and mitigating risks and the probability for a successful outcome.