IT Strategic Plan Part 1

Chapter Twelve: Information Technology Portfolio Management

Pamela Vaughan

Information Technology is at a critical juncture in today's business climate. The proliferation of business applications, increased scrutiny to cost-justify expenditures, and regulatory changes like the Sarbanes-Oxley Act of 2002 have contributed to an increased need for greater discipline and control within IT organizations. With seemingly exponentially increasing information requirements coupled with reduced budgets and staff, most CIOs face demand for projects that far outstrips their ability to deliver. With IT investments typically ranging from 1.5 to 7 percent of revenues, it is clear that an approach is needed to ensure that these investments meet or exceed expectations. This chapter prescribes Information Technology Portfolio Management (ITPM) as the commonsense approach to aligning, prioritizing, selecting, managing, and monitoring IT investments to ensure optimum alignment with and contribution to the organization's goals.

WHAT IS INFORMATION TECHNOLOGY PORTFOLIO MANAGEMENT?

ITPM is increasingly recognized as a management discipline to improve returns on IT investments and overall align IT with the business. ITPM has become a critical component in the IT business lexicon. It provides structure and consistency to the processes associated with the planning, prioritization, management, and control of IT investments. ITPM is a blend of management disciplines that combines:

1 A business management focus to ensure that all IT projects align with and support the corporate strategy

2 A project management focus for reviewing, assessing, and managing IT projects to ensure that they are meeting or exceeding their planned contribution to the portfolio

3 A general management focus for managing an organization's resources and risks

Combining project management disciplines with business and general management practices at the portfolio level gives an organization the ability to:

· Select the right projects that are aligned with the organization's strategy

· Provide resource optimization, ensuring that resources are working on the highest-priority projects

· Regularly assess how projects are contributing to portfolio health

· Take management action to keep the portfolio in compliance with business objectives

ITPM is the best means of addressing the issues of aligning projects with strategies and attempting to select the best projects for the health of the organization. ITPM enables us not only to do projects right but to select and do the right projects in the first place. Flawless project execution is meaningless if the right projects are not being tackled.

ITPM is the nucleus to assure that IT is aligned with the business, avoiding the costly problem of overspending or unnecessary spending, and bucketing investments according to categories that help run, grow, and transform the business. ITPM provides the discipline of balancing risk against expected returns, evaluating the performance and utilization of existing systems, analyzing and assessing alternatives and trade-offs, and removing waste, resulting in significant efficiencies and cost savings.

ITPM is a set of business practices that brings the world of projects into tight integration with other business operations. It brings projects into harmony with the strategies, resources, and executive oversight of the enterprise. ITPM focuses on all IT projects across an organization and consolidates one view of the overall value and risks, providing a unified view of IT spending in its entirety.

ITPM provides a sound and proven business approach to optimizing investments in IT. Much the way an investment manager dynamically manages a portfolio of financial investments, business leaders must make a series of buy, sell, or hold decisions around their IT investments, balancing the organization's needs, resources, and risk tolerance to optimize revenue and growth opportunities, improve customer experience, and streamline operations. When ITPM is done properly, the productivity improvements and cost savings that result will positively impact the bottom line and allow organizations to fulfill their primary obligation of increasing shareholder value.

UNDERSTANDING WHAT ITPM IS NOT

Some may view ITPM as just another technique of project management, but it is not that. ITPM is above and beyond project management because it spans all the way from the vision of those in the executive suite, through project management, to the realization of benefits to the enterprise and its successful competitive positioning. Key to this new project portfolio life span is selection of the right projects in the first place.

The core mistake is to think that ITPM is fundamentally the management of multiple projects. This definitely is not so. ITPM is the management of the project portfolio so as to maximize the contribution of projects to the overall success of the organization. Project management is focused on completing individual projects successfully. In contrast, ITPM is aimed at simultaneously managing whole collections of projects. Project management ensures that projects are done right, while ITPM ensures that the right projects are done.

ITPM PROCESS

Most IT organizations are currently structured around projects. Investment decisions are evaluated individually. Projects are defined, initiated, and funded by individual functional departments and managed discretely. Success and failure are evaluated individually rather than as a whole. Trying to prioritize projects in a holistic sense has been impossible because of the lack of comparability and different data sources used. ITPM changes the way IT investment decisions are made for the better.

The processes of ITPM, in order, are discussed in the next sections.

Inventory of All IT Projects

An inventory of all significant IT investments, both current and planned, is created. Each potential IT investment is captured in a standardized business case, allowing for a more apples-to-apples evaluation of proposals and vastly streamlining the administrative effort involved in determining which projects should be undertaken. The right type of data and level of detail will vary according to the specific needs and processes of each organization, but some common information to require includes:

4 Project description

5 What strategic goal or high-level objective the project aligns with

6 Business unit/department involved

7 Business benefits

8 Expected resource requirements

9 Project costs, milestones, and timeline

10 Return on investment (ROI) analysis

The organization gets a comprehensive view of its entire portfolio of IT projects. This visibility allows the business and the IT organization to manage the portfolio as a single unit. They can finally see needless duplication of IT projects across business units. They can see systems in one business unit that would be useful to other business units, and they can see opportunities for collaboration on systems across the enterprise.

Ranking and Selection of Projects

Strategic project selection is crucial to ensuring that teams are focused on those initiatives that align with the business strategy and deliver the highest value. Priority should be based on both individual project benefits and overall impact to the project portfolio. Organizations need to develop a consistent and standardized set of criteria with threshold levels. Portfolio priority criteria should be limited in number, understandable, measurable, and consistently applied. The decision criteria should be linked to the organization's business strategy and objectives. The process for prioritizing and selecting projects should go beyond financial objectives, such as profitability, ROI, budgeted costs, and revenue growth. It should encompass other considerations, including risk tolerance, customer demand, entering into new markets or expanding existing ones, and operational or mandatory initiatives. Various criteria can have different weightings, based on their importance to meeting business strategy and objectives.

Establishing well-defined, consistent criteria against which proposals will be scored allows projects to be evaluated more objectively. The end result should be a single, easy-to-grasp scorecard, with the highest-scoring projects representing the most valuable IT investments. I recall at one company the vice president of marketing was amazed by the ranking and selection process in action and after the meeting praised me for how effective it was. No longer is IT deciding which projects to work on; it is a collaboration of the business focused on ensuring that the right projects are selected to add the most value to the organization as a whole. The CIO's role is to facilitate this process.

Once the business case, ranking, and categorization are deemed complete, IT investments are presented to the governing board, comprised of a cross-functional leadership team. The collaborative and shared commitment from the leadership team ensures accountability and authority to make enterprise-wide decisions. This group evaluates the numerical value assigned to each investment and assesses the ratio of investments within each category to make go, hold, and cancel decisions regarding IT investments. IT governance is the structured executive oversight of IT investments to ensure alignment with strategic priorities.

Managing the Project Portfolio

By frequently monitoring performance of active projects against both the project goals and the selection criteria, the portfolio can be adjusted to maximize return. Receiving accurate and timely feedback is required to manage the current work within the portfolio effectively. Normally, the mechanism for gathering this feedback is the status reporting process. One effective technique is to have one or two lines of information for each project within the portfolio. Each project is marked with a color that indicates whether it is okay (green), at risk (yellow), or in trouble (red). When projects are complete, information should also be collected on how successful they were. The results are then summarized at the portfolio level.

The ITPM discipline ensures consistent, timely, and disciplined reviews of the entire portfolio. It is a continuous gating mechanism to ensure that projects remain aligned with the organization. A successful portfolio depends on how you plan, prioritize, and manage work, but another key aspect is managing change, a constant of business. The changes could be the result of business priorities, new management, new ideas that become important, or regulatory requirements. Changes also could be forced on the portfolio because previously agreed-on commitments for delivering on time and within budget were not met. Portfolio changes must be managed similarly to the ranking and selection process. This means being willing to restructure, delay, or even terminate projects with performance deficiencies or because of changing business requirements.

ITPM BEST PRACTICES

Although the specifics of ITPM differ from organization to organization, the fundamentals of best practice are nearly universal. Successful ITPM initiatives take a top-down approach, starting at the top with senior management buy-in. It is an ongoing activity, not just an annual event. The discipline is based on creating a comprehensive view of the IT portfolio. Further, its primary goal is to align the IT portfolio with business requirements in order to create the greatest possible value for the organization—not the other way around.

Several other beneficial best practices to help increase success rates and the benefits of ITPM include:

11 Start small and add capabilities as you go: Do not overwhelm the organization with a big-bang approach. ITPM is not a quick fix; bringing it to full maturity within an organization takes time. Significant savings via incremental optimization can be achieved, such as identifying and eliminating redundant projects.

12 Involve stakeholders. An important means by which to ensure support of ITPM disciplines is to engage stakeholders throughout the organization in the process and have them provide input into the portfolio metrics, criteria, and prioritization.

13 Assess the portfolio regularly. The status and performance of each project should be evaluated regularly to ensure that projects are collectively meeting the portfolio strategy as well as reviewing any changes in the business. By monitoring performance of active projects against both the project goals and the selection criteria, the portfolio can be adjusted to maximize return. This means being willing to restructure, delay, or even terminate projects with performance deficiencies.

Communicate on a regular basis. Since ITPM can bring significant changes to the way an organization validates, manages, and maintains its portfolios, the need to communicate decisions effectively is critical.

ITPM BENEFITS

ITPM provides significant business benefits, including:

14 Reduced costs. ITPM provides a unified view of IT spending in its entirety. Redundant or overlapping projects become visible and can be eliminated. The rigorous review process also ensures that the right projects are selected and that decisions are based on well-defined business criteria, which helps to avoid the tendency to select projects by political means, power plays, and emotion, and eliminates projects that have become ineffective.

15 Better resource allocation. Maintaining a single repository for projects allows the organization to better allocate and schedule resources, avoiding the need to bring in external, and more expensive, resources to deliver on committed schedules and goals.

16 Greater agility. As ITPM provides a complete view of the portfolio, it helps bring agility, enhancing an organization's ability to respond to change with a better understanding of the effect on the entire portfolio.

17 Increased communication and collaboration into IT investments. ITPM helps organizations overcome the communication disconnect between the business and IT by putting a value on IT and better aligning it with the business. By helping to create standardized and highly visible decision processes, ITPM engages business stakeholders and makes them partners in the process. Giving stakeholders more collaborative input into decisions earlier in the process means greater buy-in and more effective decisions on an ongoing basis.

Elevation of IT's role within the organization. When IT can report that we spent x and delivered y for an overall return of z, the discussion changes. IT moves from being considered a cost center to a contributor to business goals.

CONCLUSION

ITPM provides the decision-making framework to proactively and visibly manage IT investments, optimizing the ROI by identifying which investments will produce significant value-enhancing capabilities and which investments are low-value-added and redundant. Investments made in low-value-added projects are eliminated or minimized, freeing up important resources to focus on core issues and opportunities.

ITPM is the nucleus that aligns IT with the business. It is a continuous process to ensure that IT projects remain aligned with the corporate strategy. It provides the framework to translate IT into a common taxonomy that both business and IT executives understand. It is conveyed in business terms, and business management is responsible for making IT investment decisions. The critical importance of alignment to corporate strategy and planning, and the sequencing of priorities to migrate from the current as-is state to the future to-be state, is driven primarily by business needs and supported by IT. ITPM is the change agent that is making this happen with the most efficiency and optimal results.