IT portfolio management

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IT portfolio management is the application of systematic management to large classes of items managed by enterprise Information Technology (IT) capabilities. Examples of IT portfolios would be planned initiatives, projects, and ongoing IT services (such as application support). The promise of IT portfolio management is the quantification of previously mysterious IT efforts, enabling measurement and objective evaluation of investment scenarios.

Debates exist on the best way to measure value of IT investment. As pointed out by Jeffery and Leliveld (2004) [1], companies have spent billions of dollars into IT investment and yet the headlines of mis-spent money are not uncommon. Nicholas Carr (2003) has caused significant controversy in IT industry and academia by positioning IT as an expense similar to utilities such as electricity.

IT portfolio management started with a project-centric bias, but is evolving to include steady-state portfolio entries such as application maintenance and support, which consume the bulk of IT spending. The challenge for including application maintenance and support in portfolios is that IT budgets tend not to track these efforts at a sufficient level of granularity for effective financial tracking.[2]

The concept is analogous to financial portfolio management, but there are significant differences. IT investments are not liquid, like stocks and bonds (although investment portfolios may also include illiquid assets), and are measured using both financial and non-financial yardsticks (for example, a balanced scorecard approach); a purely financial view is not sufficient.

Financial portfolio assets typically have consistent measurement information (enabling accurate and objective comparisons), and this is at the base of the concept’s usefulness in application to IT. However, achieving such universality of measurement is going to take considerable effort in the IT industry. (See Val IT.)

IT Portfolio management is distinct from IT financial management in that it has an explicitly directive, strategic goal in determining what to continue investing in versus what to divest from.

At its most mature, IT Portfolio management is accomplished through the creation of three portfolios:

  • Application Portfolio - Management of this portfolio focuses on comparing spending on established systems based upon their relative value to the organization. The comparison can be based upon the level of contribution in terms of IT investment’s profitability. Additionally, this comparison can also be based upon the non-tangible factors such as organizations’ level of experience with a certain technology, users’ familiarity with the applications and infrastructure, and external forces such as emergence of new technologies and obsolesce of old ones.
  • Project Portfolio - This type of portfolio management specially address the issues with spending on the development of innovative capabilities in terms of potential ROI and reducing investment overlaps in situations where reorganization or acquisition occurs. The management issues with the second type of portfolio management can be judged in terms of data cleanliness, maintenance savings, suitability of resulting solution and the relative value of new investments to replace these projects.
  • Resource Portfolio Management - RPM involves analyzing and forecasting the talent that companies need to execute their business strategy, proactively rather than reactively, it is a critical strategic activity, enabling the organization to identify, develop and sustain the workforce skills it needs to successfully accomplish its strategic intent while balancing career and lifestyle goals of its employees. RPM helps control labor costs, assess talent needs, make informed business decisions, and assess talent market risks as part of overall enterprise risk management. RPM's chief goal is helping companies make sure they have the right people in the right place at the right time and at the right price.


Information Technology portfolio management as a systematic discipline is more applicable to larger IT organizations; in smaller organizations its concerns might be generalized into IT planning and governance as a whole.

Contents

[edit] Benefits of using IT portfolio management

Jeffery and Leliveld (2004) have listed several benefits of applying IT portfolio management approach for IT investments. They argue that agility of portfolio management is its biggest advantage over investment approaches and methods. Other benefits include central oversight of budget, risk management, strategic alignment of IT investments, demand and investment management along with standardization of investment procedure, rules and plans.

[edit] Implementing IT portfolio management

Jeffery and Leliveld (2004) have pointed out a number of hurdles and success factors that CIOs might face while attempting to implement IT portfolio management approach. To overcome these hurdles, simple methods such as proposed by Pisello (2001) can be used.

       -Plan-
     -        -
   -            -
  build      retire
   -            -
      -      -  
      Maintain

Other implementation methods include (1) risk profile analysis (figure out what needs to be measured and what risks are associated with it), (2) Decide on the Diversification of projects, infrastructure and technologies (it is an important tool that IT portfolio management provides to judge the level of investments on the basis of how investments should be made in various elements of the portfolio), (3) Continuous Alignment with business goals (highest levels of organizations should have a buy-in in the portfolio) and (4) Continuous Improvement (lessons learned and investment adjustments).

There is no single best way to implement IT portfolio approach and therefore variety of approaches can applied. Obviously the methods are not set on stone and will need altering depending upon the individual circumstances of different organizations.

[edit] IT portfolio management vs. balanced scorecard

The biggest advantage of IT portfolio management is the agility of the investment adjustments. While balanced scorecards also emphasize the use of vision and strategy in any investment decision, oversight and control of operation budgets is not the goal. IT portfolio management allows organizations to adjust the investments based upon the feedback mechanism built into the IT portfolio management.

[edit] History

McFarlan [3] is considered to be the first to propose portfolio management approach to IT assets and investments. Further contributions have been made by Weill and Broadbent,[4], Aitken,[5] Kaplan, [6] and Benson, Bugnitz, and Walton[7]. The ITIL version 2 Business Perspective[8] and Application Management[9] volumes and the ITIL v3 Service Strategy volume also cover it in depth.

Various vendors have offerings explicitly branded as "IT Portfolio Management" solutions.

ISACA's Val IT framework is perhaps the first attempt at standardization of IT portfolio management principles.

In peer-reviewed research, Christopher Verhoef has found that IT portfolios statistically behave more akin to biological populations than financial portfolios.[10] Verhoef was general chair of the first convening of the new IEEE conference, "IEEE Equity," March 2007, which focuses on "quantitative methods for measuring, predicting, and understanding the relationship between IT and value."[1]

[edit] McFarlan's IT portfolio matrix

                High
                ^
                |---------------------------------------------------------------|
                |strategic                      | Turnaround                    |
Impact          |---------------------------------------------------------------|
of IS/IT        |Critical to achieving          |May be critical to             |
applications    |future business strategy.      |achieving future               |
on future       |       (Developer)             |business success               |
industry        |                               |       (Entrepreneur)          |
competitiveness |Central Planning               |                               |
                |                               |Leading Edge/Free Market       |
                |---------------------------------------------------------------|
                |Critical to existing business  |Valuable but not critical      |
                |operations                     |to success                     |
                |       (Controller)            |       (Caretaker)             |
                |                               |                               |
                |Monopoly                       |Scarce Resource                |
                |_______________________________|_______________________________|
                |Factory                        | Support                       |
                |<---------------------------------------------------------------Low
                High                    
        
                Value to the business of existing applications.

[edit] Relationship to other IT disciplines

 This section does not cite any references or sources. (March 2008)
Please help improve this section by adding citations to reliable sources. Unverifiable material may be challenged and removed.

IT portfolio management is an enabling technique for the objectives of IT Governance. It is related to both IT Service Management and Enterprise Architecture, and might even be seen as a bridge between the two. ITIL v3 calls for Service Portfolio Management which appears to be functionally equivalent.

[edit] References

  1. ^ http://sloanreview.mit.edu/wsj/insight/pdfs/45309.pdf
  2. ^ Kaplan, J. D. (2005). Strategic IT portfolio management : governing enterprise transformation. United States, Pittiglio Rabin Todd & McGrath Inc.
  3. ^ McFarlan, F. W. (1981). “Portfolio approach to information systems.” Harvard Business Review (September-October 1981): 142-150
  4. ^ Weill, P. and Broadbent, M. (1998). Leveraging the New Infrastructure: How Market Leaders Capitalize on Information Technology. Cambridge, Massachusetts, Harvard Business School Press.
  5. ^ Aitken, I. (2003). Value-driven IT management. D. Remenyi, Computer Weekly Professional Series. Oxford, Butterworth Heinemann.
  6. ^ Kaplan, J. D. (2005). Strategic IT portfolio management : governing enterprise transformation. United States, Pittiglio Rabin Todd & McGrath Inc.
  7. ^ Benson, R. J., T. L. Bugnitz, et al. (2004). From business strategy to IT action : right decisions for a better bottom line. Hoboken, N.J., Wiley
  8. ^ Office of Government Commerce (2004). Business Perspective: The IS View on Delivering Services to the Business. OGC, ITIL© Managing IT Services (IT Infrastructure Library). London, The Stationery Office.
  9. ^ Office of Government Commerce (2002). Application management. OGC, ITIL© Managing IT Services (IT Infrastructure Library). London, The Stationery Office.
  10. ^ Verhoef, Christoper, "Quantitative IT portfolio management," Science of Computer Programming, Volume 45, Issue 1, pages 1–96 (October 2002).

[edit] See also

[edit] External links